Question 1

Figure 12-9   Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Market supply is found by

Accepted Answer

A)  vertically summing the relevant part of each individual producer's marginal cost curve. 
B)  horizontally summing the relevant part of each individual producer's marginal cost curve. 
C)  vertically summing each individual producer's average total cost curve. 
D)  horizontally summing each individual producer's average total cost curve. 
A)  vertically summing the relevant part of each individual producer's marginal cost curve. 
B)  horizontally summing the relevant part of each individual producer's marginal cost curve. 
C)  vertically summing each individual producer's average total cost curve. 
D)  horizontally summing each individual producer's average total cost 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. At price P4, the firm would

Accepted Answer

A)  lose an amount equal to its fixed cost. 
B)  make a profit. 
C)  lose an amount less than fixed cost. 
D)  make a normal profit. 
A)  lose an amount equal to its fixed cost. 
B)  make a profit. 
C)  lose an amount less than fixed cost. 
D)  make a normal profit.

Question 3

A firm would decide to shut down if its production resulted in

Accepted Answer

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

Question 4

Figure 12-4   Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-A perfectly competitive firm earns a profit when price is

Accepted Answer

A)  equal to minimum average total cost. 
B)  above minimum average total cost. 
C)  equal to minimum average variable cost. 
D)  equal to minimum average fixed cost. 
A)  equal to minimum average total cost. 
B)  above minimum average total cost. 
C)  equal to minimum average variable cost. 
D)  equal to minimum average fixed cost.

Question 5

If a perfectly competitive firm raises the price it charges to consumers, which of the following is the most likely outcome?

Accepted Answer

A)  The firm's revenue will not change because some consumers will refuse to pay the higher price. 
B)  The firm will not sell any output. 
C)  The firm's total revenue will increase only if the demand for its product is inelastic. 
D)  The firm's total revenue will increase only if the demand for its product is elastic. 
A)  The firm's revenue will not change because some consumers will refuse to pay the higher price. 
B)  The firm will not sell any output. 
C)  The firm's total revenue will increase only if the demand for its product is inelastic. 
D)  The firm's total revenue will increase only if the demand for its product is elastic.

Question 6

Table 12-2
   Table 12-2 lists the various pounds (lbs.) of apples that Margie Stattler can sell. Assume that Margie operates in a perfectly competitive market.
-Refer to Table 12-2. What is Margie's total revenue if she sells 250 pounds of apples?

Accepted Answer

A)  $250 
B)  $500 
C)  $750 
D)  There is not enough information in the table to determine Margie's total revenue. 
A)  $250 
B)  $500 
C)  $750 
D)  There is not enough information in the table to determine Margie's total revenue.

Question 7

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

Accepted Answer

A)  productive efficiency 
B)  allocative efficiency 
C)  marginal efficiency 
D)  profit maximization 
A)  productive efficiency 
B)  allocative efficiency 
C)  marginal efficiency 
D)  profit maximization

Question 8

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 and the firm maximizes profit, what is the amount of the firm's profit or loss?

Accepted Answer

A)  $0 (it breaks even) 
B)  loss of $1,000 
C)  profit of $440 
D)  loss of $440 
A)  $0 (it breaks even) 
B)  loss of $1,000 
C)  profit of $440 
D)  loss of $440

Question 9

The demand curve for each seller's product in perfect competition is horizontal at the market price because

Accepted Answer

A)  each seller is too small to affect market price. 
B)  the price is set by the government. 
C)  all the sellers get together and set the price. 
D)  all the demanders get together and set the price. 
A)  each seller is too small to affect market price. 
B)  the price is set by the government. 
C)  all the sellers get together and set the price. 
D)  all the demanders get together and set the price.

Question 10

If in the long run a firm makes zero profit, it should exit the industry.

Accepted Answer

A) True 
 B)False

Question 11

Of the following industries, which are perfectly competitive? For those that are not perfectly competitive, explain why.
a. Restaurants
b. Corn
c. College education
d. Local radio and television

Accepted Answer

a. Restaurants are not perfectly competi

Question 12

A perfectly competitive firm's marginal revenue

Accepted Answer

A)  is greater than price. 
B)  is less than price because a firm must lower its price to sell more. 
C)  is equal to price. 
D)  may be either greater or less than price, depending on the quantity sold. 
A)  is greater than price. 
B)  is less than price because a firm must lower its price to sell more. 
C)  is equal to price. 
D)  may be either greater or less than price, depending on the quantity sold.

Question 13

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000. The prevailing market price is $15. What will happen to the market price of wheat in the long run?

Accepted Answer

A)  The price remains constant at $15. 
B)  The price falls to $12. 
C)  The price rises above $15. 
D)  There is insufficient information to answer the question. 
A)  The price remains constant at $15. 
B)  The price falls to $12. 
C)  The price rises above $15. 
D)  There is insufficient information to answer the question.

Question 14

Assume that the LCD and plasma television sets industry is perfectly competitive. Suppose a producer develops a successful innovation that enables it to lower its cost of production. What happens in the short run and in the long run?

Accepted Answer

A)  Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short-run profits because other firms would also innovate. 
B)  The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits. 
C)  This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation. 
D)  The firm will be able to increase its profits temporarily, but in the long run its profits will be eliminated as other firms copy the innovation. 
A)  Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short-run profits because other firms would also innovate. 
B)  The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits. 
C)  This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation. 
D)  The firm will be able to increase its profits temporarily, but in the long run its profits will be eliminated as other firms copy the innovation.

Question 15

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 P4, the firm would produce

Accepted Answer

A)  Q3 units. 
B)  Q4 units. 
C)  Q5 units. 
D)  Q6 units. 
A)  Q3 units. 
B)  Q4 units. 
C)  Q5 units. 
D)  Q6 units.

Question 16

What is the relationship among the following variables in for a perfectly competitive firm: the market price, average revenue and marginal revenue?

Accepted Answer

A)  Average revenue is equal to the market price; average revenue is greater than marginal revenue. 
B)  The market price is equal to both average revenue and marginal revenue. 
C)  Average revenue is equal to marginal revenue; average revenue is greater than the market price. 
D)  As a firm lowers the market price to sell more output, marginal revenue and average revenue will be less than the market price. 
A)  Average revenue is equal to the market price; average revenue is greater than marginal revenue. 
B)  The market price is equal to both average revenue and marginal revenue. 
C)  Average revenue is equal to marginal revenue; average revenue is greater than the market price. 
D)  As a firm lowers the market price to sell more output, marginal revenue and average revenue will be less than the market price.

Question 17

Figure 12-6   Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples.
-Refer to Figure 12-6. To maximize his profit, Jason should produce the rate of output indicated by point

Accepted Answer

A)  a. 
B)  b. 
C)  e. 
D)  d. 
A)  a. 
B)  b. 
C)  e. 
D)  d.

Question 18

Suppose Veronica sells teapots in the perfectly competitive teapot market. Her output per day and her costs are as follows:
   Suppose the current equilibrium price in the teapot market is $20. To maximize profit, how many teapots will Veronica produce, what price will she charge, and how much profit (or loss) will she make? Draw a graph to illustrate your answer. Your graph should include Veronica's demand, ATC, AVC, MC, and MR curves, the price she is charging, the quantity she is producing, and the area representing her profit (or loss).

Accepted Answer

Veronica will produce 6 teapot

Question 19

In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output.

Accepted Answer

A) True 
 B)False

Question 20

A constant cost, perfectly competitive market is in long-run equilibrium. At present, there are 1,000 firms each producing 400 units of output. The price of the good is $60. Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $64. In the new long-run equilibrium, how will the average total cost of producing the good compare to what it was before the price of the good rose?

Accepted Answer

A)  The average total cost will be higher than it was before the price increase since the increase in demand will drive up input prices. 
B)  The average total cost will be lower than it was before the price increase because of economies of scale. 
C)  The average total cost will be higher than it was before the price increase because of diseconomies of scale arising from the increased demand. 
D)  The average total cost will be the same as it was before the price increase. 
A)  The average total cost will be higher than it was before the price increase since the increase in demand will drive up input prices. 
B)  The average total cost will be lower than it was before the price increase because of economies of scale. 
C)  The average total cost will be higher than it was before the price increase because of diseconomies of scale arising from the increased demand. 
D)  The average total cost will be the same as it was before the price increase.

Exam 12: Firms in Perfectly Competitive Markets

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Market supply is found by

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 P4, the firm would

A firm would decide to shut down if its production resulted in

Figure 12-4 Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -A perfectly competitive firm earns a profit when price is

If a perfectly competitive firm raises the price it charges to consumers, which of the following is the most likely outcome?

Table 12-2 Table 12-2 lists the various pounds (lbs.) of apples that Margie Stattler can sell. Assume that Margie operates in a perfectly competitive market. -Refer to Table 12-2. What is Margie's total revenue if she sells 250 pounds of apples?

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

The demand curve for each seller's product in perfect competition is horizontal at the market price because

If in the long run a firm makes zero profit, it should exit the industry.

Of the following industries, which are perfectly competitive? For those that are not perfectly competitive, explain why. a. Restaurants b. Corn c. College education d. Local radio and television

A perfectly competitive firm's marginal revenue

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000. The prevailing market price is $15. What will happen to the market price of wheat in the long run?

Assume that the LCD and plasma television sets industry is perfectly competitive. Suppose a producer develops a successful innovation that enables it to lower its cost of production. What happens in the short run and in the long run?

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 P4, the firm would produce

What is the relationship among the following variables in for a perfectly competitive firm: the market price, average revenue and marginal revenue?

Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6. To maximize his profit, Jason should produce the rate of output indicated by point

In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output.

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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