Question 1

Figure 12-2  
-Refer to Figure 12-2. What is the amount of profit if the firm produces Q2 units?

Accepted Answer

A)  It is equal to the vertical distance c to g. 
B)  It is equal to the vertical distance c to Q2. 
C)  It is equal to the vertical distance g to Q2. 
D)  It is equal to the vertical distance c to g multiplied by Q2 units. 
A)  It is equal to the vertical distance c to g. 
B)  It is equal to the vertical distance c to Q2. 
C)  It is equal to the vertical distance g to Q2. 
D)  It is equal to the vertical distance c to g multiplied by Q2 units.

Question 2

A perfectly competitive industry achieves allocative efficiency because

Accepted Answer

A)  goods and services are produced at the lowest possible cost. 
B)  goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. 
C)  it produces where market price equals marginal production cost. 
D)  firms carry production surpluses. 
A)  goods and services are produced at the lowest possible cost. 
B)  goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. 
C)  it produces where market price equals marginal production cost. 
D)  firms carry production surpluses.

Question 3

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 4

Maximizing average profit is equivalent to maximizing total profit.

Accepted Answer

A) True 
 B)False

Question 5

If a firm in a perfectly competitive industry experiences persistent losses, in the long run it should

Accepted Answer

A)  shut down temporarily and wait for market conditions to change. 
B)  exit the industry. 
C)  raise its price to cover average total cost. 
D)  continue to operate if it can raise the demand for its product through advertising and quality improvements. 
A)  shut down temporarily and wait for market conditions to change. 
B)  exit the industry. 
C)  raise its price to cover average total cost. 
D)  continue to operate if it can raise the demand for its product through advertising and quality improvements.

Question 6

Article Summary
According to the Department of Agriculture, net farm income will grow to a record high of $120.6 billion in 2013, up from the previous high mark in 2011 and after adjusting for inflation, its second highest level since 1973. Net cash income, however, is expected to fall by 10 percent due to unsold inventories. Exports of chickens and milk are expected to rise by 3 percent and 17 percent, respectively.
Source: Ros Krasny, "Farm income poised for record 2013: USDA," Reuters, August 27, 2013.
-Assume that after the record year for U.S. farm income in 2013, farmers are expected to break even in 2014. This means that at the quantity being produced in 2014,

Accepted Answer

A)  MC = AVC. 
B)  MR = MC. 
C)  MR = ATC. 
D)  AVC = ATC. 
A)  MC = AVC. 
B)  MR = MC. 
C)  MR = ATC. 
D)  AVC = ATC.

Question 7

Which of the following statements is true?

Accepted Answer

A)  A long-run competitive equilibrium can only be achieved in constant-cost industries. 
B)  When an industry achieves a long-run competitive equilibrium, industry output will not change in the future. 
C)  A long-run competitive equilibrium outcome is not economically efficient. 
D)  When an industry reaches a long-run competitive equilibrium, the typical firm in the industry breaks even. 
A)  A long-run competitive equilibrium can only be achieved in constant-cost industries. 
B)  When an industry achieves a long-run competitive equilibrium, industry output will not change in the future. 
C)  A long-run competitive equilibrium outcome is not economically efficient. 
D)  When an industry reaches a long-run competitive equilibrium, the typical firm in the industry breaks even.

Question 8

A perfectly competitive firm in a constant-cost industry produces 1,000 units of a good at a total cost of $50,000. If the prevailing market price is $48, the number of firms and the industry's output will decrease in the long run.

Accepted Answer

A) True 
 B)False

Question 9

Figure 12-10  
-Refer to Figure 12-10. 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 10

If, for the last bushel of apples produced and sold by an apple farm marginal revenue exceeds marginal cost, then in producing that bushel the farm

Accepted Answer

A)  added more to total cost than it added to total revenue. 
B)  added an equal amount to both total revenue and total cost. 
C)  added more to total revenue than it added to total cost. 
D)  maximized its profits or minimized its losses. 
A)  added more to total cost than it added to total revenue. 
B)  added an equal amount to both total revenue and total cost. 
C)  added more to total revenue than it added to total cost. 
D)  maximized its profits or minimized its losses.

Question 11

Apple introduced its iPhone 3G in July 2008 and within a month sales had topped 3 million units. By April 2009, more than 25,000 apps for the iPhone 3G were available in the iTunes store, an indication that in a competitive market,

Accepted Answer

A)  the ease at which a new firm can enter a competitive market is low. 
B)  the ease at which a new firm can enter a competitive market is high. 
C)  entry into the market is blocked. 
D)  entry into the market is restricted in the short run, but becomes easier in the long run. 
A)  the ease at which a new firm can enter a competitive market is low. 
B)  the ease at which a new firm can enter a competitive market is high. 
C)  entry into the market is blocked. 
D)  entry into the market is restricted in the short run, but becomes easier in the long run.

Question 12

If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should

Accepted Answer

A)  increase its output. 
B)  reduce its output. 
C)  keep output constant and enjoy the above normal profit. 
D)  lower the price. 
A)  increase its output. 
B)  reduce its output. 
C)  keep output constant and enjoy the above normal profit. 
D)  lower the price.

Question 13

Figure 12-1  
-Refer to Figure 12-1. If the firm is charging a price of $12 per unit,

Accepted Answer

A)  it breaks even. 
B)  it is making a profit. 
C)  it is selling 700 units. 
D)  it is not selling any output. 
A)  it breaks even. 
B)  it is making a profit. 
C)  it is selling 700 units. 
D)  it is not selling any output.

Question 14

If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit, then

Accepted Answer

A)  marginal revenue is less than price. 
B)  average total cost is at a minimum. 
C)  total revenue equals total cost. 
D)  price exceeds average total cost. 
A)  marginal revenue is less than price. 
B)  average total cost is at a minimum. 
C)  total revenue equals total cost. 
D)  price exceeds average total cost.

Question 15

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?

Accepted Answer

A)  The firm's profits will increase. 
B)  The firm's revenue will increase. 
C)  The firm will not sell any output. 
D)  The firm will sell more output than its competitors. 
A)  The firm's profits will increase. 
B)  The firm's revenue will increase. 
C)  The firm will not sell any output. 
D)  The firm will sell more output than its competitors.

Question 16

What assumptions are necessary for a market to be perfectly competitive? Explain why each of these assumptions is important.

Accepted Answer

The assumptions necessary for a market t

Question 17

What is allocative efficiency?

Accepted Answer

A)  It refers to a situation in which resources are allocated to their highest profit use. 
B)  It refers to a situation in which resources are allocated such that goods can be produced at their lowest possible average cost. 
C)  It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it. 
D)  It refers to a situation in which resources are allocated fairly to all consumers in a society. 
A)  It refers to a situation in which resources are allocated to their highest profit use. 
B)  It refers to a situation in which resources are allocated such that goods can be produced at their lowest possible average cost. 
C)  It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it. 
D)  It refers to a situation in which resources are allocated fairly to all consumers in a society.

Question 18

Perfect competition is characterized by all of the following except

Accepted Answer

A)  heavy advertising by individual sellers. 
B)  homogeneous products. 
C)  sellers are price takers. 
D)  a horizontal demand curve for individual sellers. 
A)  heavy advertising by individual sellers. 
B)  homogeneous products. 
C)  sellers are price takers. 
D)  a horizontal demand curve for individual sellers.

Question 19

If price is equal to average variable cost, a perfectly competitive firm breaks even.

Accepted Answer

A) True 
 B)False

Question 20

Figure 12-1  
-Refer to Figure 12-1. If the firm is producing 700 units,

Accepted Answer

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

Exam 12: Firms in Perfectly Competitive Markets

Figure 12-2 -Refer to Figure 12-2. What is the amount of profit if the firm produces Q2 units?

A perfectly competitive industry achieves allocative efficiency because

If productive efficiency characterizes a market,

Maximizing average profit is equivalent to maximizing total profit.

If a firm in a perfectly competitive industry experiences persistent losses, in the long run it should

Which of the following statements is true?

A perfectly competitive firm in a constant-cost industry produces 1,000 units of a good at a total cost of $50,000. If the prevailing market price is $48, the number of firms and the industry's output will decrease in the long run.

Figure 12-10 -Refer to Figure 12-10. The firm's short-run supply curve is its

If, for the last bushel of apples produced and sold by an apple farm marginal revenue exceeds marginal cost, then in producing that bushel the farm

Apple introduced its iPhone 3G in July 2008 and within a month sales had topped 3 million units. By April 2009, more than 25,000 apps for the iPhone 3G were available in the iTunes store, an indication that in a competitive market,

If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should

Figure 12-1 -Refer to Figure 12-1. If the firm is charging a price of $12 per unit,

If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit, then

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?

What assumptions are necessary for a market to be perfectly competitive? Explain why each of these assumptions is important.

What is allocative efficiency?

Perfect competition is characterized by all of the following except

If price is equal to average variable cost, a perfectly competitive firm breaks even.

Figure 12-1 -Refer to Figure 12-1. If the firm is producing 700 units,

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

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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