Question 1

When firms exit a perfectly competitive industry, the market supply curve shifts to the left.

Accepted Answer

A) True 
 B)False

Question 2

The price a perfectly competitive firm receives for its output

Accepted Answer

A)  is determined by the interaction of the firm and all of the consumers who buy from the firm. 
B)  is determined by the interaction of all sellers and all buyers in the firm's market. 
C)  will not change in response to changes in market demand and supply because the firm is a price taker. 
D)  will be lowered by the firm in order to sell more output. 
A)  is determined by the interaction of the firm and all of the consumers who buy from the firm. 
B)  is determined by the interaction of all sellers and all buyers in the firm's market. 
C)  will not change in response to changes in market demand and supply because the firm is a price taker. 
D)  will be lowered by the firm in order to sell more output.

Question 3

Figure 12-12  
-If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then

Accepted Answer

A)  firms are breaking even. 
B)  new firms are attracted to the industry. 
C)  existing firms will exit the industry. 
D)  market supply will remain constant. 
A)  firms are breaking even. 
B)  new firms are attracted to the industry. 
C)  existing firms will exit the industry. 
D)  market supply will remain constant.

Question 4

Figure 12-4   Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 12-4. If the market price is $30 and the firm is producing output, what is the amount of the firm's profit or loss?

Accepted Answer

A)  loss of $1,080 
B)  profit of $1,440 
C)  loss of $2,520 
D)  profit of $1,300 
A)  loss of $1,080 
B)  profit of $1,440 
C)  loss of $2,520 
D)  profit of $1,300

Question 5

A firm could continue to operate for years without ever earning a profit as long as it is producing an output where

Accepted Answer

A) MR AVC. C) MR > AVC. D) AFC < AVC. A) MR AVC. C) MR > AVC. D) AFC < AVC.

Question 6

Figure 12-13  
-Refer to Figure 12-13. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. In the long-run equilibrium,

Accepted Answer

A)  there will be fewer firms in the industry and total industry output decreases. 
B)  there will be more firms in the industry and total industry output increases. 
C)  there will be fewer firms in the industry but total industry output increases. 
D)  there will be more firms in the industry and total industry output remains constant. 
A)  there will be fewer firms in the industry and total industry output decreases. 
B)  there will be more firms in the industry and total industry output increases. 
C)  there will be fewer firms in the industry but total industry output increases. 
D)  there will be more firms in the industry and total industry output remains constant.

Question 7

Assume that a perfectly competitive market is in long-run equilibrium. Suppose as a result of a health hazard associated with the industry's product, demand decreases drastically. What is the immediate result of this event?

Accepted Answer

A)  The market price falls, and the typical firm suffers an economic loss. 
B)  The market supply increases to offset the fall in demand. 
C)  The typical firm's average total cost curve shifts downward. 
D)  The typical firm's marginal cost curve shifts to the left. 
A)  The market price falls, and the typical firm suffers an economic loss. 
B)  The market supply increases to offset the fall in demand. 
C)  The typical firm's average total cost curve shifts downward. 
D)  The typical firm's marginal cost curve shifts to the left.

Question 8

A perfectly competitive firm faces a demand curve that is

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  perpendicular to the quantity axis. 
D)  perfectly inelastic. 
A)  horizontal. 
B)  vertical. 
C)  perpendicular to the quantity axis. 
D)  perfectly inelastic.

Question 9

Table 12-1
   Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.
-Refer to Table 12-1. If the market price of each camera case is $8, what is the profit-maximizing quantity?

Accepted Answer

A)  300 units 
B)  400 units 
C)  500 units 
D)  600 units 
A)  300 units 
B)  400 units 
C)  500 units 
D)  600 units

Question 10

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 average profit at the profit-maximizing quantity?

Accepted Answer

A)  $5 
B)  $6 
C)  $9 
D)  $20 
A)  $5 
B)  $6 
C)  $9 
D)  $20

Question 11

Both buyers and sellers are price takers in a perfectly competitive market because

Accepted Answer

A)  the price is determined by government intervention and dictated to buyers and sellers. 
B)  each buyer and seller knows it is illegal to conspire to affect price. 
C)  both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. 
D)  each buyer and seller is too small relative to others to independently affect the market price. 
A)  the price is determined by government intervention and dictated to buyers and sellers. 
B)  each buyer and seller knows it is illegal to conspire to affect price. 
C)  both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. 
D)  each buyer and seller is too small relative to others to independently affect the market price.

Question 12

Both individual buyers and sellers in perfect competition

Accepted Answer

A)  can influence the market price by their own individual actions. 
B)  can influence the market price by joining with a few of their competitors. 
C)  have to take the market price as a given. 
D)  have the market price dictated to them by government. 
A)  can influence the market price by their own individual actions. 
B)  can influence the market price by joining with a few of their competitors. 
C)  have to take the market price as a given. 
D)  have the market price dictated to them by government.

Question 13

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 P3, 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 14

Figure 12-4   Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-All of the following can be used to compute average profit except

Accepted Answer

A)  marginal profit minus marginal cost. 
B)  total profit divided by quantity. 
C)  average revenue minus average total cost. 
D)  price minus average total cost. 
A)  marginal profit minus marginal cost. 
B)  total profit divided by quantity. 
C)  average revenue minus average total cost. 
D)  price minus average total cost.

Question 15

Assume that price is greater than average variable cost. If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize profits the firm should

Accepted Answer

A)  continue producing at the current output. 
B)  produce a larger level of output. 
C)  produce a smaller level of output. 
D)  There is not enough information given to answer the question. 
A)  continue producing at the current output. 
B)  produce a larger level of output. 
C)  produce a smaller level of output. 
D)  There is not enough information given to answer the question.

Question 16

Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?

Accepted Answer

A)  Restaurants do not sell identical products. 
B)  Restaurants compete in small market areas-neighborhoods and cities-rather than in regional or national markets. Therefore, restaurants are not small relative to their market size. 
C)  Restaurants usually have entry barriers in the form of zoning restrictions and health regulations. 
D)  Restaurants have significant liability costs that perfectly competitive firms do not have; for example, customers may sue if they suffer from food poisoning. 
A)  Restaurants do not sell identical products. 
B)  Restaurants compete in small market areas-neighborhoods and cities-rather than in regional or national markets. Therefore, restaurants are not small relative to their market size. 
C)  Restaurants usually have entry barriers in the form of zoning restrictions and health regulations. 
D)  Restaurants have significant liability costs that perfectly competitive firms do not have; for example, customers may sue if they suffer from food poisoning.

Question 17

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 e

Question 18

Figure 12-13  
-If a typical firm in a perfectly competitive industry is incurring losses, then

Accepted Answer

A)  all firms will continue to lose money. 
B)  some firms will exit in the long run, causing market supply to decrease and market price to rise increasing profits for the remaining firms. 
C)  some firms will exit in the long run, causing market supply to decrease and market price to fall increasing losses for the remaining firms. 
D)  some firms will enter in the long run, causing market supply to increase and market price to rise increasing profit for all firms. 
A)  all firms will continue to lose money. 
B)  some firms will exit in the long run, causing market supply to decrease and market price to rise increasing profits for the remaining firms. 
C)  some firms will exit in the long run, causing market supply to decrease and market price to fall increasing losses for the remaining firms. 
D)  some firms will enter in the long run, causing market supply to increase and market price to rise increasing profit for all firms.

Question 19

A perfectly competitive firm's short-run supply curve is

Accepted Answer

A)  upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve. 
B)  upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve. 
C)  perfectly elastic at the market price. 
D)  horizontal at the minimum average total cost. 
A)  upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve. 
B)  upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve. 
C)  perfectly elastic at the market price. 
D)  horizontal at the minimum average total cost.

Question 20

Figure 12-16  
-Refer to Figure 12-16. Which panel best represents the perfectly competitive organic produce market in which firms are breaking even, economically, organic produce is considered a normal good, and the average income level of consumers is rising?

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

Exam 12: Firms in Perfectly Competitive Markets

When firms exit a perfectly competitive industry, the market supply curve shifts to the left.

The price a perfectly competitive firm receives for its output

Figure 12-12 -If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then

Figure 12-4 Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 12-4. If the market price is $30 and the firm is producing output, what is the amount of the firm's profit or loss?

A firm could continue to operate for years without ever earning a profit as long as it is producing an output where

Figure 12-13 -Refer to Figure 12-13. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. In the long-run equilibrium,

Assume that a perfectly competitive market is in long-run equilibrium. Suppose as a result of a health hazard associated with the industry's product, demand decreases drastically. What is the immediate result of this event?

A perfectly competitive firm faces a demand curve that is

Table 12-1 Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units. -Refer to Table 12-1. If the market price of each camera case is $8, what is the profit-maximizing quantity?

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 average profit at the profit-maximizing quantity?

Both buyers and sellers are price takers in a perfectly competitive market because

Both individual buyers and sellers in perfect competition

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 P3, the firm would

Figure 12-4 Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -All of the following can be used to compute average profit except

Assume that price is greater than average variable cost. If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize profits the firm should

Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?

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

Figure 12-13 -If a typical firm in a perfectly competitive industry is incurring losses, then

A perfectly competitive firm's short-run supply curve is

Figure 12-16 -Refer to Figure 12-16. Which panel best represents the perfectly competitive organic produce market in which firms are breaking even, economically, organic produce is considered a normal good, and the average income level of consumers is rising?

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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