Question 1

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21.Which of the following will happen?

Accepted Answer

A)  The firm's profits will increase. 
B)  The firm's revenue will increase. 
C)  The firm will not sell any output. 
D)  The firm will sell more output than its competitors. 
A)  The firm's profits will increase. 
B)  The firm's revenue will increase. 
C)  The firm will not sell any output. 
D)  The firm will sell more output than its competitors.

Question 2

The long-run supply curve for a perfectly competitive,constant-cost industry

Accepted Answer

A)  is upward sloping. 
B)  is horizontal. 
C)  is downward sloping. 
D)  is found by adding up the marginal cost curves for all firms in the industry. 
A)  is upward sloping. 
B)  is horizontal. 
C)  is downward sloping. 
D)  is found by adding up the marginal cost curves for all firms in the industry.

Question 3

Figure 7-4   Figure 7-4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market.
-Refer to Figure 7-4.If the market price is $30 and if the firm is producing output,what is the amount of its total variable cost?

Accepted Answer

A)  $7200 
B)  $6480 
C)  $5400 
D)  $3960 
A)  $7200 
B)  $6480 
C)  $5400 
D)  $3960

Question 4

Mark Frost grows apples in a perfectly competitive market.If we drew a line in a graph that illustrates Mark's total revenue from selling apples,it would be

Accepted Answer

A)  a straight, upward-sloping line. 
B)  a horizontal line. 
C)  a straight, downward-sloping line. 
D)  a curve that is negatively sloped at low levels of output and positively sloped at higher levels of output. 
A)  a straight, upward-sloping line. 
B)  a horizontal line. 
C)  a straight, downward-sloping line. 
D)  a curve that is negatively sloped at low levels of output and positively sloped at higher levels of output.

Question 5

The demand curve for an individual seller's product in perfect competition is

Accepted Answer

A)  the same as market demand. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal. 
A)  the same as market demand. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal.

Question 6

Figure 7-9  
-Refer to Figure 7-9.If this is a constant-cost industry,what is the market price in the long-run equilibrium?

Accepted Answer

A)  $5 
B)  $14 
C)  $15 
D)  $20 
A)  $5 
B)  $14 
C)  $15 
D)  $20

Question 7

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 8

Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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 11

Figure 7-15  
-Use Figure 7-15 to answer the following questions.
a.How can you determine that the figure represents a graph of a perfectly competitive firm? Be specific; indicate which curve gives you the information and how you use this information to arrive at your conclusion.
b.What is the market price?
c.What is the profit-maximising output?
d.What is total revenue at the profit-maximising output?
e.What is the total cost at the profit-maximising output?
f.What is the profit or loss at the profit-maximising output?
g.What is the firm's total fixed cost?
h.What is the total variable cost?
i.Identify the firm's short-run supply curve.
j.Is the industry in a long-run equilibrium?
k.If it is not in long-run equilibrium,what will happen in this industry to restore long-run equilibrium?
l.In long-run equilibrium,what is the firm's profit maximising quantity?

Accepted Answer

a.The perfectly competitive firm is a pr

Question 12

Figure 7-10  
-Refer to Figure 7-10.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 13

Figure 7-7   Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm.
-Refer to Figure 7-7.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 14

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

Accepted Answer

A)  Allocative efficiency is achieved only in the long run. Productive efficiency is achieved only in the short run. 
B)  Allocative efficiency is achieved only in the long run. Productive efficiency is achieved in the short run and the long run. 
C)  Allocative efficiency is achieved only in the short run. Productive efficiency is achieved only in the long run. 
D)  Allocative efficiency is achieved in the short run and the long run. Productive efficiency is achieved only in the long run. 
A)  Allocative efficiency is achieved only in the long run. Productive efficiency is achieved only in the short run. 
B)  Allocative efficiency is achieved only in the long run. Productive efficiency is achieved in the short run and the long run. 
C)  Allocative efficiency is achieved only in the short run. Productive efficiency is achieved only in the long run. 
D)  Allocative efficiency is achieved in the short run and the long run. Productive efficiency is achieved only in the long run.

Question 15

In the short run,a profit-maximising firm will shut down if its total revenue is greater than its variable costs.

Accepted Answer

A) True 
 B)False

Question 16

If a firm shuts down in the short run it will

Accepted Answer

A)  break even. 
B)  declare bankruptcy. 
C)  suffer a loss equal to its variable costs. 
D)  suffer a loss equal to its fixed costs. 
A)  break even. 
B)  declare bankruptcy. 
C)  suffer a loss equal to its variable costs. 
D)  suffer a loss equal to its fixed costs.

Question 17

In analysing 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)  non-monetary opportunity costs. 
D)  sunk costs. 
A)  implicit costs. 
B)  capital costs. 
C)  non-monetary opportunity costs. 
D)  sunk costs.

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 7-4   Figure 7-4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market.
-Refer to Figure 7-4.Assuming the firm is profit maximising,what is the amount of its total fixed cost?

Accepted Answer

A)  $1080 
B)  $1440 
C)  $2520 
D)  It cannot be determined. 
A)  $1080 
B)  $1440 
C)  $2520 
D)  It cannot be determined.

Question 20

When plasma television sets were first introduced,prices were high and few firms were in the market.Later,economic profits attracted new firms,and the price of plasma televisions fell.This example illustrates

Accepted Answer

A)  a decreasing-cost industry. 
B)  that consumers receive this new technology 'free of charge' in the sense that they only have to pay a price for plasma televisions equal to the lowest production cost. 
C)  an industry with a low minimum efficient scale. 
D)  how fickle consumer demands are. 
A)  a decreasing-cost industry. 
B)  that consumers receive this new technology 'free of charge' in the sense that they only have to pay a price for plasma televisions equal to the lowest production cost. 
C)  an industry with a low minimum efficient scale. 
D)  how fickle consumer demands are.

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21.Which of the following will happen?

The long-run supply curve for a perfectly competitive,constant-cost industry

Figure 7-4 Figure 7-4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market. -Refer to Figure 7-4.If the market price is $30 and if the firm is producing output,what is the amount of its total variable cost?

Mark Frost grows apples in a perfectly competitive market.If we drew a line in a graph that illustrates Mark's total revenue from selling apples,it would be

The demand curve for an individual seller's product in perfect competition is

Figure 7-9 -Refer to Figure 7-9.If this is a constant-cost industry,what is the market price in the long-run equilibrium?

Profit is the difference between

Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.

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

If a typical firm in a perfectly competitive industry is incurring losses,then

Figure 7-10 -Refer to Figure 7-10.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?

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₄,the firm would

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

In the short run,a profit-maximising firm will shut down if its total revenue is greater than its variable costs.

If a firm shuts down in the short run it will

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

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

Figure 7-4 Figure 7-4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market. -Refer to Figure 7-4.Assuming the firm is profit maximising,what is the amount of its total fixed cost?

When plasma television sets were first introduced,prices were high and few firms were in the market.Later,economic profits attracted new firms,and the price of plasma televisions fell.This example illustrates

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Exam 7: Consumer Choice and Elasticity

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21.Which of the following will happen?

The long-run supply curve for a perfectly competitive,constant-cost industry

Figure 7-4 Figure 7-4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market. -Refer to Figure 7-4.If the market price is $30 and if the firm is producing output,what is the amount of its total variable cost?

Mark Frost grows apples in a perfectly competitive market.If we drew a line in a graph that illustrates Mark's total revenue from selling apples,it would be

The demand curve for an individual seller's product in perfect competition is

Figure 7-9 -Refer to Figure 7-9.If this is a constant-cost industry,what is the market price in the long-run equilibrium?

Profit is the difference between

Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.

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

If a typical firm in a perfectly competitive industry is incurring losses,then

Figure 7-10 -Refer to Figure 7-10.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?

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P4,the firm would

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

In the short run,a profit-maximising firm will shut down if its total revenue is greater than its variable costs.

If a firm shuts down in the short run it will

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

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

Figure 7-4 Figure 7-4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market. -Refer to Figure 7-4.Assuming the firm is profit maximising,what is the amount of its total fixed cost?

When plasma television sets were first introduced,prices were high and few firms were in the market.Later,economic profits attracted new firms,and the price of plasma televisions fell.This example illustrates

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₄,the firm would