Question 1

For a perfectly competitive firm,at profit maximisation

Accepted Answer

A)  market price exceeds marginal cost. 
B)  total revenue is maximised. 
C)  marginal revenue equals marginal cost. 
D)  production must occur where average cost is minimised. 
A)  market price exceeds marginal cost. 
B)  total revenue is maximised. 
C)  marginal revenue equals marginal cost. 
D)  production must occur where average cost is minimised.

Question 2

In August 2008,Ethan Nicholas developed the iShoot application for the apple iPhone 3G,and within five months had earned $800 000 from this program.By May 2009,Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,

Accepted Answer

A)  earning an economic profit in the long run is extremely easy. 
B)  earning an economic profit in the long run is extremely difficult. 
C)  it is impossible to earn an economic profit in either the short run or the long run. 
D)  economic profits are only earned in the long run. 
A)  earning an economic profit in the long run is extremely easy. 
B)  earning an economic profit in the long run is extremely difficult. 
C)  it is impossible to earn an economic profit in either the short run or the long run. 
D)  economic profits are only earned in the long run.

Question 3

A perfectly competitive market is in long-run equilibrium.At present there are 100 identical firms each producing 5000 units of output.The prevailing market price is $20.Assume that each firm faces increasing marginal cost.Now suppose there is a sudden increase in demand for the industry's product,which causes the price of the good to rise to $24.Which of the following describes the effect of this increase in demand on a typical firm in the industry?

Accepted Answer

A)  In the short run, the typical firm increases its output and makes an above normal profit. 
B)  In the short run, the typical firm's output remains the same but because of the higher price, its profit increases. 
C)  In the short run, the typical firm increases its output but its total cost also rises, resulting in no change in profit. 
D)  In the short run, the typical firm increases its output but its total cost also rises. Hence, the effect on the firm's profit cannot be determined without more information. 
A)  In the short run, the typical firm increases its output and makes an above normal profit. 
B)  In the short run, the typical firm's output remains the same but because of the higher price, its profit increases. 
C)  In the short run, the typical firm increases its output but its total cost also rises, resulting in no change in profit. 
D)  In the short run, the typical firm increases its output but its total cost also rises. Hence, the effect on the firm's profit cannot be determined without more information.

Question 4

Figure 7.5   Figure 7.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 7.5.The minimum price the firm requires to produce output is -.

Accepted Answer

A)  $20 
B)  $14 
C)  $5 
D)  It cannot be determined. 
A)  $20 
B)  $14 
C)  $5 
D)  It cannot be determined.

Question 5

Figure 7.13  
-Refer to Figure 7.13.Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run.Which of the diagrams in the figure depicts what happens in the industry as it transitions to a long-run equilibrium?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D

Question 6

Figure 7.8  
-Refer to Figure 7.7.The firm's short-run supply curve is its

Accepted Answer

A)  marginal cost curve. 
B)  marginal cost curve from b and above. 
C)  marginal cost curve from c and above. 
D)  marginal cost curve from d and above. 
A)  marginal cost curve. 
B)  marginal cost curve from b and above. 
C)  marginal cost curve from c and above. 
D)  marginal cost curve from d and above.

Question 7

Figure 7.5   Figure 7.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 7.5.If the firm's fixed cost increases by $1000 due to a new environmental regulation,what happens in the diagram above?

Accepted Answer

A)  All the cost curves shift upward. 
B)  Only the average variable cost and average total cost curves shift upward; marginal cost is not affected. 
C)  Only the average total cost curve shifts upward; the marginal cost and average variable cost curves are not affected. 
D)  None of the curves shifts; only the fixed cost curve, which is not shown here, is affected. 
A)  All the cost curves shift upward. 
B)  Only the average variable cost and average total cost curves shift upward; marginal cost is not affected. 
C)  Only the average total cost curve shifts upward; the marginal cost and average variable cost curves are not affected. 
D)  None of the curves shifts; only the fixed cost curve, which is not shown here, is affected.

Question 8

Figure 7.7   Figure 7.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm.
-Refer to Figure 7.7.At price P4,the firm would

Accepted Answer

A)  lose an amount equal to its fixed cost. 
B)  make a profit. 
C)  lose an amount less than fixed cost. 
D)  make a normal profit. 
A)  lose an amount equal to its fixed cost. 
B)  make a profit. 
C)  lose an amount less than fixed cost. 
D)  make a normal profit.

Question 9

To maximise profit,a firm will produce the level of output where MR = MC.If a firm actually makes a profit depends on the relationship of price to average total cost.What are the three possible relationships between price and average total cost that determine if a firm will make a profit,experience a loss,or break even?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

If P > ATC,the firm makes a pr

Question 10

What is the relationship among the following variables for a perfectly competitive firm: the market price,average revenue and marginal revenue?

Accepted Answer

A)  Average revenue is equal to the market price; average revenue is greater than marginal revenue. 
B)  The market price is equal to both average revenue and marginal revenue. 
C)  Average revenue is equal to marginal revenue; average revenue is greater than the market price. 
D)  As a firm lowers the market price to sell more output, marginal revenue and average revenue will be less than the market price. 
A)  Average revenue is equal to the market price; average revenue is greater than marginal revenue. 
B)  The market price is equal to both average revenue and marginal revenue. 
C)  Average revenue is equal to marginal revenue; average revenue is greater than the market price. 
D)  As a firm lowers the market price to sell more output, marginal revenue and average revenue will be less than the market price.

Question 11

Figure 7.13  
-Refer to Figure 7.13.Assume that the medical screening industry is perfectly competitive and that some firms are incurring short-run losses.Suppose the medical screening industry runs an effective advertising campaign which convinces a large number of people that yearly CT scans are critical for good health.Which of the diagrams in the figure best describes what happens in the industry?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D

Question 12

If,as a perfectly competitive industry expands,it can supply larger quantities only at a higher long-run equilibrium price,it is

Accepted Answer

A)  a constant-cost industry. 
B)  an increasing-cost industry. 
C)  a decreasing-cost industry. 
D)  a fixed-cost industry. 
A)  a constant-cost industry. 
B)  an increasing-cost industry. 
C)  a decreasing-cost industry. 
D)  a fixed-cost industry.

Question 13

If a firm shuts down in the short run,it will

Accepted Answer

A)  break even. 
B)  declare bankruptcy. 
C)  suffer a loss equal to its variable costs. 
D)  suffer a loss equal to its fixed costs. 
A)  break even. 
B)  declare bankruptcy. 
C)  suffer a loss equal to its variable costs. 
D)  suffer a loss equal to its fixed costs.

Question 14

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run because

Accepted Answer

A)  owners of perfectly competitive firms realise that their short-run profits are temporary. Therefore, they either sell their businesses or develop other products that will earn short-run profits. 
B)  firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms. But eventually consumers realise that all of the firms sell virtually identical products. 
C)  firms from other countries are able to produce similar products at lower costs. 
D)  firms in these industries sell identical products. 
A)  owners of perfectly competitive firms realise that their short-run profits are temporary. Therefore, they either sell their businesses or develop other products that will earn short-run profits. 
B)  firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms. But eventually consumers realise that all of the firms sell virtually identical products. 
C)  firms from other countries are able to produce similar products at lower costs. 
D)  firms in these industries sell identical products.

Question 15

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Accepted Answer

A) True 
 B)False

Question 16

Assume that firms in a perfectly competitive market are earning economic profits.The statement which describes the change in market price and output as a result of the entry of new firms into this market is:

Accepted Answer

A)  The market demand curve shifts to the right, causing price to rise and market output to increase. 
B)  The market demand curve shifts to the left, causing price to fall and market output to decrease. 
C)  The short-run market supply curve shifts to the right, causing price to fall and total market output to increase. 
D)  The short-run market supply curve shifts to the left, causing price to rise and total market output to decrease. 
A)  The market demand curve shifts to the right, causing price to rise and market output to increase. 
B)  The market demand curve shifts to the left, causing price to fall and market output to decrease. 
C)  The short-run market supply curve shifts to the right, causing price to fall and total market output to increase. 
D)  The short-run market supply curve shifts to the left, causing price to rise and total market output to decrease.

Question 17

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

Accepted Answer

A) True 
 B)False

Question 18

A perfectly competitive firm's marginal revenue

Accepted Answer

A)  is greater than price. 
B)  is less than price because a firm must lower its price to sell more. 
C)  is equal to price. 
D)  may be either greater or less than price, depending on the quantity sold. 
A)  is greater than price. 
B)  is less than price because a firm must lower its price to sell more. 
C)  is equal to price. 
D)  may be either greater or less than price, depending on the quantity sold.

Question 19

Being a price-taker,a perfectly competitive firm cannot receive a producer surplus in the short run.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is a characteristic of an oligopolistic market structure?

Accepted Answer

A)  There are few dominant sellers. 
B)  Each firm sells a unique product. 
C)  It is easy for new firms to enter the industry. 
D)  Each firm need not react to the actions of rivals. 
A)  There are few dominant sellers. 
B)  Each firm sells a unique product. 
C)  It is easy for new firms to enter the industry. 
D)  Each firm need not react to the actions of rivals.

For a perfectly competitive firm,at profit maximisation

In August 2008,Ethan Nicholas developed the iShoot application for the apple iPhone 3G,and within five months had earned $800 000 from this program.By May 2009,Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,

Figure 7.5 Figure 7.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 7.5.The minimum price the firm requires to produce output is -.

Figure 7.13 -Refer to Figure 7.13.Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run.Which of the diagrams in the figure depicts what happens in the industry as it transitions to a long-run equilibrium?

Figure 7.8 -Refer to Figure 7.7.The firm's short-run supply curve is its

Figure 7.5 Figure 7.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 7.5.If the firm's fixed cost increases by $1000 due to a new environmental regulation,what happens in the diagram above?

Figure 7.7 Figure 7.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7.7.At price P₄,the firm would

What is the relationship among the following variables for a perfectly competitive firm: the market price,average revenue and marginal revenue?

If,as a perfectly competitive industry expands,it can supply larger quantities only at a higher long-run equilibrium price,it is

If a firm shuts down in the short run,it will

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run because

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Assume that firms in a perfectly competitive market are earning economic profits.The statement which describes the change in market price and output as a result of the entry of new firms into this market is:

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

A perfectly competitive firm's marginal revenue

Being a price-taker,a perfectly competitive firm cannot receive a producer surplus in the short run.

Which of the following is a characteristic of an oligopolistic market structure?

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

Filters

Exam 7: Firms in Perfectly Competitive Markets

For a perfectly competitive firm,at profit maximisation

In August 2008,Ethan Nicholas developed the iShoot application for the apple iPhone 3G,and within five months had earned $800 000 from this program.By May 2009,Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,

Figure 7.5 Figure 7.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 7.5.The minimum price the firm requires to produce output is -.

Figure 7.13 -Refer to Figure 7.13.Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run.Which of the diagrams in the figure depicts what happens in the industry as it transitions to a long-run equilibrium?

Figure 7.8 -Refer to Figure 7.7.The firm's short-run supply curve is its

Figure 7.5 Figure 7.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 7.5.If the firm's fixed cost increases by $1000 due to a new environmental regulation,what happens in the diagram above?

Figure 7.7 Figure 7.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7.7.At price P4,the firm would

What is the relationship among the following variables for a perfectly competitive firm: the market price,average revenue and marginal revenue?

If,as a perfectly competitive industry expands,it can supply larger quantities only at a higher long-run equilibrium price,it is

If a firm shuts down in the short run,it will

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run because

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Assume that firms in a perfectly competitive market are earning economic profits.The statement which describes the change in market price and output as a result of the entry of new firms into this market is:

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

A perfectly competitive firm's marginal revenue

Being a price-taker,a perfectly competitive firm cannot receive a producer surplus in the short run.

Which of the following is a characteristic of an oligopolistic market structure?

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

Filters

Figure 7.7 Figure 7.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7.7.At price P₄,the firm would