Question 1

A perfectly competitive firm has to charge the same price as every other firm in the market. Therefore, the firm

Accepted Answer

A)  faces a perfectly inelastic demand curve. 
B)  is not able to make a profit in the short run. 
C)  is a price taker. 
D)  faces a perfectly elastic supply curve. 
A)  faces a perfectly inelastic demand curve. 
B)  is not able to make a profit in the short run. 
C)  is a price taker. 
D)  faces a perfectly elastic supply curve.

Question 2

Figure 12-9   Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 12-9. Identify the short-run shut down point for the firm.

Accepted Answer

A)  a 
B)  b 
C)  c 
D)  d 
A)  a 
B)  b 
C)  c 
D)  d

Question 3

Competition has driven the economic profits in the video rental business to zero. Surya Bacha, who owns a video rental business, would be better off leaving the industry for another alternative.

Accepted Answer

A) True 
 B)False

Question 4

Figure 12-17   The graphs in Figure 12-17 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry.
-Refer to Figure 12-17. The graphs depict a short-run equilibrium. How will this differ from the long-run equilibrium? (Assume this is a constant-cost industry.)

Accepted Answer

A)  Fewer firms will be in the market in the long run than in the short run. 
B)  The price will be higher in the long run than in the short run. 
C)  The market supply curve will be further to the left in the long run than in the short run. 
D)  The firm's profit will be lower in the long run than in the short run. 
A)  Fewer firms will be in the market in the long run than in the short run. 
B)  The price will be higher in the long run than in the short run. 
C)  The market supply curve will be further to the left in the long run than in the short run. 
D)  The firm's profit will be lower in the long run than in the short run.

Question 5

The perfectly competitive market structure benefits consumers because

Accepted Answer

A)  firms do not produce goods at the lowest possible price in the long run. 
B)  firms are forced by competitive pressure to be as efficient as possible. 
C)  firms add a much smaller markup over average cost than firms in any other type of market structure. 
D)  firms produce high quality goods at low prices. 
A)  firms do not produce goods at the lowest possible price in the long run. 
B)  firms are forced by competitive pressure to be as efficient as possible. 
C)  firms add a much smaller markup over average cost than firms in any other type of market structure. 
D)  firms produce high quality goods at low prices.

Question 6

In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are

Accepted Answer

A)  implicit costs. 
B)  capital costs. 
C)  nonmonetary opportunity costs. 
D)  sunk costs. 
A)  implicit costs. 
B)  capital costs. 
C)  nonmonetary opportunity costs. 
D)  sunk costs.

Question 7

Figure 12-17   The graphs in Figure 12-17 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry.
-Refer to Figure 12-17. Which of the following statements is true?

Accepted Answer

A)  The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit. New firms will enter the market and shift the market supply curve to the left. 
B)  The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit, but it would earn a greater profit if it produced at the lowest point on the ATC curve. 
C)  The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit. New firms will enter the industry; as a result, the firm will be forced to exit the industry in the long run. 
D)  The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit. In the long run, the firm will break even. 
A)  The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit. New firms will enter the market and shift the market supply curve to the left. 
B)  The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit, but it would earn a greater profit if it produced at the lowest point on the ATC curve. 
C)  The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit. New firms will enter the industry; as a result, the firm will be forced to exit the industry in the long run. 
D)  The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit. In the long run, the firm will break even.

Question 8

Figure 12-11  
-Refer to Figure 12-11. Suppose the prevailing price is $20 and the firm is currently producing 1,350 units. In the long-run equilibrium, the firm represented in the diagram

Accepted Answer

A)  will continue to produce the same quantity. 
B)  will reduce its output to 1,100 units. 
C)  will reduce its output to 750 units. 
D)  will cease to exist. 
A)  will continue to produce the same quantity. 
B)  will reduce its output to 1,100 units. 
C)  will reduce its output to 750 units. 
D)  will cease to exist.

Question 9

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

Accepted Answer

A) True 
 B)False

Question 10

Explain two different ways to determine the profit-maximizing level of output for a firm in a perfectly competitive market.

Accepted Answer

One way is using total revenue and total

Question 11

If a perfectly competitive firm's price is above its average total cost, the firm

Accepted Answer

A)  is earning a profit. 
B)  should shut down. 
C)  is incurring a loss. 
D)  is breaking even. 
A)  is earning a profit. 
B)  should shut down. 
C)  is incurring a loss. 
D)  is breaking even.

Question 12

Figure 12-15  
-Refer to Figure 12-15. Assume that the medical screening industry is perfectly competitive and that some firms are making 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 13

Which of the following is the best example of a perfectly competitive industry?

Accepted Answer

A)  wheat production 
B)  steel production 
C)  electricity production 
D)  airplane production 
A)  wheat production 
B)  steel production 
C)  electricity production 
D)  airplane production

Question 14

If, as a perfectly competitive industry expands, it can supply larger quantities at the same long-run market 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 15

An industry's long-run supply curve shows

Accepted Answer

A)  the relationship in the long run between market price and quantity supplied. 
B)  how the government determines the price of the product. 
C)  how average productivity is changing. 
D)  greater than normal profit. 
A)  the relationship in the long run between market price and quantity supplied. 
B)  how the government determines the price of the product. 
C)  how average productivity is changing. 
D)  greater than normal profit.

Question 16

Perfectly competitive industries tend to produce low-priced, low-technology products.

Accepted Answer

A) True 
 B)False

Question 17

Figure 12-13  
-A perfectly competitive market is in long-run equilibrium. At present there are 100 identical firms each producing 5,000 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 18

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. What is the amount of the firm's fixed cost of production?

Accepted Answer

A)  $5,400 
B)  $6,750 
C)  $8,100 
D)  It cannot be determined. 
A)  $5,400 
B)  $6,750 
C)  $8,100 
D)  It cannot be determined.

Question 19

If the long-run average cost curve is U-shaped, the optimal scale of production from society's viewpoint is

Accepted Answer

A)  the minimum efficient scale. 
B)  where maximum economic profit is earned by producers. 
C)  where firm profit is large enough to finance research and development. 
D)  one which guarantees economic profit. 
A)  the minimum efficient scale. 
B)  where maximum economic profit is earned by producers. 
C)  where firm profit is large enough to finance research and development. 
D)  one which guarantees economic profit.

Question 20

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that, for both,

Accepted Answer

A)  fixed costs are lower than variable costs. 
B)  there are many other suppliers of similar goods or services. 
C)  the implicit costs of production exceed the explicit costs of production. 
D)  average costs of production do not change when their industry expands. 
A)  fixed costs are lower than variable costs. 
B)  there are many other suppliers of similar goods or services. 
C)  the implicit costs of production exceed the explicit costs of production. 
D)  average costs of production do not change when their industry expands.

Exam 12: Firms in Perfectly Competitive Markets

A perfectly competitive firm has to charge the same price as every other firm in the market. Therefore, the firm

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9. Identify the short-run shut down point for the firm.

Competition has driven the economic profits in the video rental business to zero. Surya Bacha, who owns a video rental business, would be better off leaving the industry for another alternative.

The perfectly competitive market structure benefits consumers because

In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are

Figure 12-17 The graphs in Figure 12-17 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry. -Refer to Figure 12-17. Which of the following statements is true?

Figure 12-11 -Refer to Figure 12-11. Suppose the prevailing price is $20 and the firm is currently producing 1,350 units. In the long-run equilibrium, the firm represented in the diagram

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

Explain two different ways to determine the profit-maximizing level of output for a firm in a perfectly competitive market.

If a perfectly competitive firm's price is above its average total cost, the firm

Which of the following is the best example of a perfectly competitive industry?

If, as a perfectly competitive industry expands, it can supply larger quantities at the same long-run market price, it is

An industry's long-run supply curve shows

Perfectly competitive industries tend to produce low-priced, low-technology products.

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. What is the amount of the firm's fixed cost of production?

If the long-run average cost curve is U-shaped, the optimal scale of production from society's viewpoint is

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that, for both,

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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