Question 1

Which of the following arguments could be made as evidence that the market for produce sold at a farmers' market is perfectly competitive?

Accepted Answer

A) The U.S.Department of Agriculture has established standards for the labeling of organic produce sold at farmers' markets. 
B) Sales of organically grown food have increased at a rate of 20 percent per year. 
C) As more farmers began selling their products at farmers' markets,the increase in supply has driven down prices to the point where they just cover the cost of production. 
D) The profits earned by farmers who sell their products at farmers' markets have continued to grow,despite the increasing number of farmers entering this market. 
A) The U.S.Department of Agriculture has established standards for the labeling of organic produce sold at farmers' markets. 
B) Sales of organically grown food have increased at a rate of 20 percent per year. 
C) As more farmers began selling their products at farmers' markets,the increase in supply has driven down prices to the point where they just cover the cost of production. 
D) The profits earned by farmers who sell their products at farmers' markets have continued to grow,despite the increasing number of farmers entering this market. C

Question 2

What characteristic of a competitive market has made the "long run pretty short" in the market for iPhone applications?

Accepted Answer

A) few firms in the market 
B) identical products 
C) ease of entry 
D) blocked entry 
A) few firms in the market 
B) identical products 
C) ease of entry 
D) blocked entry C

Question 3

If firms do not earn economic profits in a competitive equilibrium,why would the firms choose to stay in business?

Accepted Answer

When firms earn no economic profit but earn a normal profit,they earn precisely as much as they could have earned by investing their time and money elsewhere.In other words,each producer is able to earn sufficient accounting profits to cover the opportunity cost of invested factors (time and money)and to continue operating.The source of the confusion stems from the difference between accounting and economic profits.

Question 4

Figure 12-6  
-Refer to Figure 12-6.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

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 5

Figure 12-6  
-Refer to Figure 12-6.Which panel best represents the perfectly competitive organic produce market in which some firms are earning short-run economic profits,and the Surgeon General announces that switching from non-organic produce to organic produce will add 5 years to the average life span of consumers?

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

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 7

Molly Sharp is producing a documentary about the plight of the six-toed ferrets of Sri Lanka.Molly has spent $125,000 of her own money on this project and the documentary is now complete.Molly just found out that no studio is willing to release her documentary and she must now shop it to cable television networks,where she knows she will not be able to recoup her investment.Which of the following statements regarding Molly Sharp's documentary is true?

Accepted Answer

A) She should not try to have her documentary aired on television because she cannot recoup her $125,000 investment. 
B) Since the $125,000 is a sunk cost,she should still try to have her documentary aired on television even though she will not see a profit. 
C) The $125,000 is a variable cost,so will not be incurred if she chooses not to have her documentary aired. 
D) The $125,000 investment is an economic cost,and she will still make an accounting profit even if the television network willing to air her documentary pays her less than $125,000. 
A) She should not try to have her documentary aired on television because she cannot recoup her $125,000 investment. 
B) Since the $125,000 is a sunk cost,she should still try to have her documentary aired on television even though she will not see a profit. 
C) The $125,000 is a variable cost,so will not be incurred if she chooses not to have her documentary aired. 
D) The $125,000 investment is an economic cost,and she will still make an accounting profit even if the television network willing to air her documentary pays her less than $125,000.

Question 8

Table 12-2
   Arnie sells basketballs in a perfectly competitive market.Table 12-2 summarizes Arnie's output per day (Q),total cost (TC),average total cost (ATC)and marginal cost (MC).
-Refer to Table 12-2.What price (P)will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?

Accepted Answer

A) Price and profit cannot be determined from the information given. 
B) P = $12.50; profit = $52.50 
C) P = $12.50; profit = $22.50 
D) P = $20; profit = $75.00. 
A) Price and profit cannot be determined from the information given. 
B) P = $12.50; profit = $52.50 
C) P = $12.50; profit = $22.50 
D) P = $20; profit = $75.00.

Question 9

Table 12-3
   Table 12-3 shows the short-run cost data of a perfectly competitive firm.Assume that output can only be increased in batches of 20 units.
-Refer to Table 12-3.If the market price is $45 the firm will produce

Accepted Answer

A) 60 units. 
B) 80 units. 
C) 100 units 
D) 120 units 
A) 60 units. 
B) 80 units. 
C) 100 units 
D) 120 units

Question 10

Which of the following does not hold true for a perfectly competitive firm in long-run equilibrium?

Accepted Answer

A) Its economic profit will be zero. 
B) It will minimize average total cost. 
C) It will charge a price equal to marginal cost. 
D) Marginal cost will be minimized. 
A) Its economic profit will be zero. 
B) It will minimize average total cost. 
C) It will charge a price equal to marginal cost. 
D) Marginal cost will be minimized.

Question 11

Figure 12-3   Figure 12-3 illustrates the cost curves of a perfectly competitive firm.
-Refer to Figure 12-3.If the market price is P1

Accepted Answer

A) The firm will experience a loss and raise its price to P2.The firm will then break even. 
B) The firm will break even by producing a quantity of Q2. 
C) The firm will experience a loss since price is less than ATC. 
D) The firm may make a profit if it can increase the demand for its product. 
A) The firm will experience a loss and raise its price to P2.The firm will then break even. 
B) The firm will break even by producing a quantity of Q2. 
C) The firm will experience a loss since price is less than ATC. 
D) The firm may make a profit if it can increase the demand for its product.

Question 12

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

Accepted Answer

A) Allocative efficiency is achieved only in the long run.Productive efficiency is achieved only in the short run. 
B) Allocative efficiency is achieved only in the long run.Productive efficiency is achieved in the short run and the long run. 
C) Allocative efficiency is achieved only in the short run.Productive efficiency is achieved only in the long run. 
D) Allocative efficiency is achieved in the short run and the long run.Productive efficiency is achieved only in the long run. 
A) Allocative efficiency is achieved only in the long run.Productive efficiency is achieved only in the short run. 
B) Allocative efficiency is achieved only in the long run.Productive efficiency is achieved in the short run and the long run. 
C) Allocative efficiency is achieved only in the short run.Productive efficiency is achieved only in the long run. 
D) Allocative efficiency is achieved in the short run and the long run.Productive efficiency is achieved only in the long run.

Question 13

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

Accepted Answer

A) The market demand curve is a horizontal line; the firm's demand curve is downward-sloping. 
B) The market demand curve is downward-sloping; the firm's demand curve is a vertical line. 
C) The market demand curve can not have a constant slope; the firm's demand curve has a slope equal to zero. 
D) The market demand curve is downward-sloping; the firm's demand curve is a horizontal line. 
A) The market demand curve is a horizontal line; the firm's demand curve is downward-sloping. 
B) The market demand curve is downward-sloping; the firm's demand curve is a vertical line. 
C) The market demand curve can not have a constant slope; the firm's demand curve has a slope equal to zero. 
D) The market demand curve is downward-sloping; the firm's demand curve is a horizontal line.

Question 14

If productive efficiency characterizes a market,

Accepted Answer

A) the marginal cost of production is minimized. 
B) firms produce the goods that consumers desire most. 
C) the output is being produced at the lowest possible cost. 
D) firms use the best technology available to produce the good. 
A) the marginal cost of production is minimized. 
B) firms produce the goods that consumers desire most. 
C) the output is being produced at the lowest possible cost. 
D) firms use the best technology available to produce the good.

Question 15

Figure 12-1  
-Refer to Figure 12-1.If the firm is producing 500 units,what is the amount of its profit or loss?

Accepted Answer

A) profit of $280 
B) loss equivalent to the area A 
C) profit equivalent to the area A 
D) There is insufficient information to answer the question. 
A) profit of $280 
B) loss equivalent to the area A 
C) profit equivalent to the area A 
D) There is insufficient information to answer the question.

Question 16

Which of the following is a characteristic of a firm in a perfectly competitive market?

Accepted Answer

A) The firm cannot make a profit in the short run because it is too small a part of the total market. 
B) The firm can make a profit in the long run but not in the short run. 
C) The firm can sell as much as it wants without having to lower its price. 
D) The firm must lower its price in order to increase quantity demanded. 
A) The firm cannot make a profit in the short run because it is too small a part of the total market. 
B) The firm can make a profit in the long run but not in the short run. 
C) The firm can sell as much as it wants without having to lower its price. 
D) The firm must lower its price in order to increase quantity demanded.

Question 17

Figure 12-1  
-Refer to Figure 12-1.If the firm is producing 500 units,

Accepted Answer

A) it is making a profit. 
B) it is making a loss. 
C) it should maintain its output to maximize profit. 
D) it should increase its output to maximize profit. 
A) it is making a profit. 
B) it is making a loss. 
C) it should maintain its output to maximize profit. 
D) it should increase its output to maximize profit.

Question 18

Assume that the personal computer industry is perfectly competitive.The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

Accepted Answer

A) True 
 B)False

Question 19

In the short run,a firm that is operating at a loss has two options.These options are

Accepted Answer

A) to reduce output or reduce its variable costs. 
B) to go out of business or declare bankruptcy. 
C) to shut down temporarily or continue to produce. 
D) to adopt new technology or change the size of its physical plant. 
A) to reduce output or reduce its variable costs. 
B) to go out of business or declare bankruptcy. 
C) to shut down temporarily or continue to produce. 
D) to adopt new technology or change the size of its physical plant.

Question 20

In a decreasing-cost industry,the entry of new firms lowers average cost at each level of output.

Accepted Answer

A) True 
 B)False

Which of the following arguments could be made as evidence that the market for produce sold at a farmers' market is perfectly competitive?

What characteristic of a competitive market has made the "long run pretty short" in the market for iPhone applications?

If firms do not earn economic profits in a competitive equilibrium,why would the firms choose to stay in business?

Figure 12-6 -Refer to Figure 12-6.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

If a firm shuts down in the short run it will

Table 12-3 Table 12-3 shows the short-run cost data of a perfectly competitive firm.Assume that output can only be increased in batches of 20 units. -Refer to Table 12-3.If the market price is $45 the firm will produce

Which of the following does not hold true for a perfectly competitive firm in long-run equilibrium?

Figure 12-3 Figure 12-3 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-3.If the market price is P₁

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

If productive efficiency characterizes a market,

Figure 12-1 -Refer to Figure 12-1.If the firm is producing 500 units,what is the amount of its profit or loss?

Which of the following is a characteristic of a firm in a perfectly competitive market?

Figure 12-1 -Refer to Figure 12-1.If the firm is producing 500 units,

Assume that the personal computer industry is perfectly competitive.The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

In the short run,a firm that is operating at a loss has two options.These options are

In a decreasing-cost industry,the entry of new firms lowers average cost at each level of output.

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, production, and Costs

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Filters

Exam 12: Firms in Perfectly Competitive Markets

Which of the following arguments could be made as evidence that the market for produce sold at a farmers' market is perfectly competitive?

What characteristic of a competitive market has made the "long run pretty short" in the market for iPhone applications?

If firms do not earn economic profits in a competitive equilibrium,why would the firms choose to stay in business?

Figure 12-6 -Refer to Figure 12-6.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

If a firm shuts down in the short run it will

Table 12-3 Table 12-3 shows the short-run cost data of a perfectly competitive firm.Assume that output can only be increased in batches of 20 units. -Refer to Table 12-3.If the market price is $45 the firm will produce

Which of the following does not hold true for a perfectly competitive firm in long-run equilibrium?

Figure 12-3 Figure 12-3 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-3.If the market price is P1

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

If productive efficiency characterizes a market,

Figure 12-1 -Refer to Figure 12-1.If the firm is producing 500 units,what is the amount of its profit or loss?

Which of the following is a characteristic of a firm in a perfectly competitive market?

Figure 12-1 -Refer to Figure 12-1.If the firm is producing 500 units,

Assume that the personal computer industry is perfectly competitive.The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

In the short run,a firm that is operating at a loss has two options.These options are

In a decreasing-cost industry,the entry of new firms lowers average cost at each level of output.

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, production, and Costs

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Filters

Figure 12-3 Figure 12-3 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-3.If the market price is P₁