Question 1

An increase in a firm's fixed cost will not change the firm's profit-maximizing output in the short run.

Accepted Answer

A) True 
 B)False

Question 2

Figure 12-5   Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 12-5. The figure shows the cost structure of a firm in a perfectly competitive market. If the firm's fixed cost increases by $1,000 due to a new environmental regulation, what happens to its profit-maximizing output level?

Accepted Answer

A)  It increases. 
B)  It decreases. 
C)  It remains the same. 
D)  It could increase, decrease or remain constant, depending on whether the firm is able to cut costs somewhere else. 
A)  It increases. 
B)  It decreases. 
C)  It remains the same. 
D)  It could increase, decrease or remain constant, depending on whether the firm is able to cut costs somewhere else.

Question 3

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 cannot 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 cannot 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 4

Marginal revenue is

Accepted Answer

A)  total revenue divided by the total quantity of output. 
B)  the change in profit divided by the change in the quantity of output. 
C)  the change in total revenue divided by the change in total cost. 
D)  the change in total revenue divided by the change in the quantity of output. 
A)  total revenue divided by the total quantity of output. 
B)  the change in profit divided by the change in the quantity of output. 
C)  the change in total revenue divided by the change in total cost. 
D)  the change in total revenue divided by the change in the quantity of output.

Question 5

Figure 12-9   Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 12-9. At price P1, the firm would

Accepted Answer

A)  lose an amount equal to its fixed cost. 
B)  lose an amount more than fixed cost. 
C)  lose an amount less than fixed cost. 
D)  break even. 
A)  lose an amount equal to its fixed cost. 
B)  lose an amount more than fixed cost. 
C)  lose an amount less than fixed cost. 
D)  break even.

Question 6

Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Sylvia Sidney. The lease has five years remaining and requires a monthly payment of $4,000. The lease

Accepted Answer

A)  is a fixed cost of operating the tattoo parlor. 
B)  is a variable cost of operating the tattoo parlor. 
C)  is an implicit cost of operating the tattoo parlor. 
D)  is part of the marginal cost of operating the tattoo parlor. 
A)  is a fixed cost of operating the tattoo parlor. 
B)  is a variable cost of operating the tattoo parlor. 
C)  is an implicit cost of operating the tattoo parlor. 
D)  is part of the marginal cost of operating the tattoo parlor.

Question 7

A perfectly competitive industry achieves allocative efficiency in the long run. What does allocative efficiency mean?

Accepted Answer

A)  Each firm produces up to the point where the price of the good equals the marginal cost of producing the last unit. 
B)  Each firm produces up to the point where all scale economies are exhausted. 
C)  Production occurs at the lowest average total cost. 
D)  Firms use an input combination that minimizes cost and maximizes output. 
A)  Each firm produces up to the point where the price of the good equals the marginal cost of producing the last unit. 
B)  Each firm produces up to the point where all scale economies are exhausted. 
C)  Production occurs at the lowest average total cost. 
D)  Firms use an input combination that minimizes cost and maximizes output.

Question 8

For a firm in a perfectly competitive market, price is

Accepted Answer

A)  equal to both average revenue and marginal revenue. 
B)  equal to average revenue but greater than marginal revenue. 
C)  greater than marginal revenue but less than average revenue. 
D)  less than both average revenue and marginal revenue. 
A)  equal to both average revenue and marginal revenue. 
B)  equal to average revenue but greater than marginal revenue. 
C)  greater than marginal revenue but less than average revenue. 
D)  less than both average revenue and marginal revenue.

Question 9

Figure 12-5   Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 12-5. If the market price is $20, what is the firm's profit-maximizing output?

Accepted Answer

A)  750 units 
B)  1,100 units 
C)  1,350 units 
D)  1,800 units 
A)  750 units 
B)  1,100 units 
C)  1,350 units 
D)  1,800 units

Question 10

Table 12-4
   Table 12-4 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 12-4. 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 11

Figure 12-10  
-Refer to Figure 12-10. The total cost at the profit-maximizing output level equals

Accepted Answer

A)  $4,800. 
B)  $3,300. 
C)  $2,500. 
D)  $1,800. 
A)  $4,800. 
B)  $3,300. 
C)  $2,500. 
D)  $1,800.

Question 12

Figure 12-9   Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-If total revenue exceeds fixed cost, a firm

Accepted Answer

A)  should produce in the short run. 
B)  has covered its variable cost. 
C)  is making short-run profits. 
D)  may or may not produce in the short run, depending on whether total revenue covers variable cost. 
A)  should produce in the short run. 
B)  has covered its variable cost. 
C)  is making short-run profits. 
D)  may or may not produce in the short run, depending on whether total revenue covers variable cost.

Question 13

If the market price is $40 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

Accepted Answer

A)  $8. 
B)  $20. 
C)  $40. 
D)  $200. 
A)  $8. 
B)  $20. 
C)  $40. 
D)  $200.

Question 14

Profit is the difference between

Accepted Answer

A)  marginal revenue and marginal cost. 
B)  total revenue and variable cost. 
C)  total revenue and total explicit cost. 
D)  total revenue and total cost. 
A)  marginal revenue and marginal cost. 
B)  total revenue and variable cost. 
C)  total revenue and total explicit cost. 
D)  total revenue and total cost.

Question 15

A perfectly competitive firm's marginal revenue curve is downward sloping.

Accepted Answer

A) True 
 B)False

Question 16

Figure 12-12  
-Refer to Figure 12-12. Consider a typical firm in a perfectly competitive industry that makes short-run profits. Which of the diagrams in the figure shows the effect on 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 17

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 18

Ted's Pancake Kitchen suffers a short-run loss. When should Ted decide to shut down rather than continue to produce?

Accepted Answer

A)  if his Kitchen's revenue is less than its variable costs 
B)  if his Kitchen's revenue is less than its fixed costs 
C)  if his Kitchen's revenue is less than its explicit costs 
D)  if his Kitchen's revenue is less than its total costs 
A)  if his Kitchen's revenue is less than its variable costs 
B)  if his Kitchen's revenue is less than its fixed costs 
C)  if his Kitchen's revenue is less than its explicit costs 
D)  if his Kitchen's revenue is less than its total costs

Question 19

Figure 12-7   Figure 12-7 illustrates the cost curves of a perfectly competitive firm.
-Refer to Figure 12-7. If the market price is P3, the firm

Accepted Answer

A)  will break even. 
B)  will make a profit. 
C)  will earn enough revenue to cover its variable costs but not its fixed costs. 
D)  will produce a quantity of Q1. 
A)  will break even. 
B)  will make a profit. 
C)  will earn enough revenue to cover its variable costs but not its fixed costs. 
D)  will produce a quantity of Q1.

Question 20

Which of the following is not true for a firm in perfect competition?

Accepted Answer

A)  Profit equals total revenue minus total cost. 
B)  Price equals average revenue. 
C)  Average revenue is greater than marginal revenue. 
D)  Marginal revenue equals the change in total revenue from selling one more unit. 
A)  Profit equals total revenue minus total cost. 
B)  Price equals average revenue. 
C)  Average revenue is greater than marginal revenue. 
D)  Marginal revenue equals the change in total revenue from selling one more unit.

Exam 12: Firms in Perfectly Competitive Markets

An increase in a firm's fixed cost will not change the firm's profit-maximizing output in the short run.

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?

Marginal revenue is

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9. At price P1, the firm would

Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Sylvia Sidney. The lease has five years remaining and requires a monthly payment of $4,000. The lease

A perfectly competitive industry achieves allocative efficiency in the long run. What does allocative efficiency mean?

For a firm in a perfectly competitive market, price is

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5. If the market price is $20, what is the firm's profit-maximizing output?

Table 12-4 Table 12-4 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 12-4. If the market price is $45, the firm will produce

Figure 12-10 -Refer to Figure 12-10. The total cost at the profit-maximizing output level equals

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -If total revenue exceeds fixed cost, a firm

If the market price is $40 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

Profit is the difference between

A perfectly competitive firm's marginal revenue curve is downward sloping.

Figure 12-12 -Refer to Figure 12-12. Consider a typical firm in a perfectly competitive industry that makes short-run profits. Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

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

Ted's Pancake Kitchen suffers a short-run loss. When should Ted decide to shut down rather than continue to produce?

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7. If the market price is P3, the firm

Which of the following is not true for a firm in perfect competition?

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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