Question 1

At the profit-maximizing level of output for a perfectly competitive firm,

Accepted Answer

A)  price equals marginal cost. 
B)  average revenue equals average variable cost and price equals marginal cost. 
C)  marginal revenue equals marginal cost and average total cost equals average fixed cost. 
D)  price equals average revenue and marginal cost equals average variable cost. 
A)  price equals marginal cost. 
B)  average revenue equals average variable cost and price equals marginal cost. 
C)  marginal revenue equals marginal cost and average total cost equals average fixed cost. 
D)  price equals average revenue and marginal cost equals average variable cost.

Question 2

If a firm's fixed cost exceeds its total revenue, the firm should stop production by shutting down temporarily.

Accepted Answer

A) True 
 B)False

Question 3

If a perfectly competitive firm achieves productive efficiency then

Accepted Answer

A)  it will raise its price in order to earn an economic profit. 
B)  the price of the good it sells is equal to the benefit consumers receive from consuming the last unit of the good sold. 
C)  it is producing at minimum efficient scale. 
D)  it is producing the good it sells at the lowest possible cost. 
A)  it will raise its price in order to earn an economic profit. 
B)  the price of the good it sells is equal to the benefit consumers receive from consuming the last unit of the good sold. 
C)  it is producing at minimum efficient scale. 
D)  it is producing the good it sells at the lowest possible cost.

Question 4

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. The firm will not produce in the short run if the output price falls below

Accepted Answer

A)  $8. 
B)  $4. 
C)  $3.20. 
D)  $2.80. 
A)  $8. 
B)  $4. 
C)  $3.20. 
D)  $2.80.

Question 5

What is the difference between "shutting down temporarily" and "exiting the industry"?

Accepted Answer

The difference between the two has to do

Question 6

Figure 12-16  
-Refer to Figure 12-16. 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 7

For a perfectly competitive firm, at profit maximization,

Accepted Answer

A)  market price exceeds marginal cost. 
B)  total revenue is maximized. 
C)  marginal revenue equals marginal cost. 
D)  production must occur where average cost is minimized. 
A)  market price exceeds marginal cost. 
B)  total revenue is maximized. 
C)  marginal revenue equals marginal cost. 
D)  production must occur where average cost is minimized.

Question 8

What is always true at the quantity where a firm's average total cost equals average revenue?

Accepted Answer

A)  The firm's revenue is maximized. 
B)  The firm's profit is maximized. 
C)  The firm breaks even. 
D)  Marginal cost equals marginal revenue. 
A)  The firm's revenue is maximized. 
B)  The firm's profit is maximized. 
C)  The firm breaks even. 
D)  Marginal cost equals marginal revenue.

Question 9

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,

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 10

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 firm's short-run supply curve.

Accepted Answer

A)  the marginal cost curve 
B)  the marginal cost curve from a and above 
C)  the marginal cost curve from b and above 
D)  the marginal cost curve from d and above 
A)  the marginal cost curve 
B)  the marginal cost curve from a and above 
C)  the marginal cost curve from b and above 
D)  the marginal cost curve from d and above

Question 11

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product, the firm will be able to earn economic profits in the long run.

Accepted Answer

A) True 
 B)False

Question 12

Why are individual buyers and sellers in perfect competition called price takers?

Accepted Answer

They are called price takers b

Question 13

For a given quantity, the total profit of a perfectly competitive firm is equal to the vertical distance between the firm's total revenue curve and its total cost curve.

Accepted Answer

A) True 
 B)False

Question 14

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 firm's total revenue?

Accepted Answer

A)  $2,400 
B)  $3,200 
C)  $4000 
D)  $4,800 
A)  $2,400 
B)  $3,200 
C)  $4000 
D)  $4,800

Question 15

Which of the following is not a characteristic of a monopolistically competitive market structure?

Accepted Answer

A)  There is a large number of independently acting small sellers. 
B)  All sellers sell products that are differentiated. 
C)  There are low barriers to entry of new firms. 
D)  Each firm must react to actions of other firms. 
A)  There is a large number of independently acting small sellers. 
B)  All sellers sell products that are differentiated. 
C)  There are low barriers to entry of new firms. 
D)  Each firm must react to actions of other firms.

Question 16

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run. Which of the following is one reason for this?

Accepted Answer

A)  Owners of perfectly competitive firms realize that their short-run profits are temporary. Therefore, they either sell their businesses or develop other products that will earn short-run profits. 
B)  Firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms. But eventually consumers realize that all of the firms sell virtually identical products. 
C)  Firms from other countries are able to produce similar products at lower costs. 
D)  Firms in these industries sell identical products. 
A)  Owners of perfectly competitive firms realize that their short-run profits are temporary. Therefore, they either sell their businesses or develop other products that will earn short-run profits. 
B)  Firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms. But eventually consumers realize that all of the firms sell virtually identical products. 
C)  Firms from other countries are able to produce similar products at lower costs. 
D)  Firms in these industries sell identical products.

Question 17

How are market price, average revenue, and marginal revenue related for a perfectly competitive firm and why?

Accepted Answer

They are all equal to each other. The ma

Question 18

A firm will break even when

Accepted Answer

A) P = ATC. B) P > ATC. C) P < AVC. D) P = AVC. A) P = ATC. B) P > ATC. C) P < AVC. D) P = AVC.

Question 19

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, the firm's profit-maximizing output level is

Accepted Answer

A)  0. 
B)  130. 
C)  180. 
D)  240. 
A)  0. 
B)  130. 
C)  180. 
D)  240.

Question 20

Figure 12-15  
-Refer to Figure 12-15. Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run. Which of the diagrams in the figure depicts what happens in 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

Exam 12: Firms in Perfectly Competitive Markets

At the profit-maximizing level of output for a perfectly competitive firm,

If a firm's fixed cost exceeds its total revenue, the firm should stop production by shutting down temporarily.

If a perfectly competitive firm achieves productive efficiency then

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. The firm will not produce in the short run if the output price falls below

What is the difference between "shutting down temporarily" and "exiting the industry"?

Figure 12-16 -Refer to Figure 12-16. 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?

For a perfectly competitive firm, at profit maximization,

What is always true at the quantity where a firm's average total cost equals average revenue?

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,

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 firm's short-run supply curve.

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product, the firm will be able to earn economic profits in the long run.

Why are individual buyers and sellers in perfect competition called price takers?

For a given quantity, the total profit of a perfectly competitive firm is equal to the vertical distance between the firm's total revenue curve and its total cost curve.

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 firm's total revenue?

Which of the following is not a characteristic of a monopolistically competitive market structure?

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run. Which of the following is one reason for this?

How are market price, average revenue, and marginal revenue related for a perfectly competitive firm and why?

A firm will break even when

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, the firm's profit-maximizing output level is

Figure 12-15 -Refer to Figure 12-15. Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run. Which of the diagrams in the figure depicts what happens in the industry as it transitions to a long-run equilibrium?

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

Filters