Question 1

Figure 12-7  
-Refer to Figure 12-7.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. B

Question 2

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. D

Question 3

In August 2008,Ethan Nicholas developed the iShoot application for the apple iPhone 3G,and within five months had earned $800,000 from this program.By May 2009,Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,

Accepted Answer

A)  earning an economic profit in the long run is extremely easy. 
B)  earning an economic profit in the long run is extremely difficult. 
C)  it is impossible to earn an economic profit in either the short run or the long run. 
D)  economic profits are only earned in the long run. 
A)  earning an economic profit in the long run is extremely easy. 
B)  earning an economic profit in the long run is extremely difficult. 
C)  it is impossible to earn an economic profit in either the short run or the long run. 
D)  economic profits are only earned in the long run. B

Question 4

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 5

The price of a seller's product in perfect competition is determined by

Accepted Answer

A)  the individual seller. 
B)  a few of the sellers. 
C)  market demand and market supply. 
D)  the individual demander. 
A)  the individual seller. 
B)  a few of the sellers. 
C)  market demand and market supply. 
D)  the individual demander.

Question 6

When a perfectly competitive firm finds that its market price is below its minimum average variable cost,it will sell

Accepted Answer

A)  the output where marginal revenue equals marginal cost. 
B)  any positive output the entrepreneur decides upon because all of it can be sold. 
C)  nothing at all; the firm shuts down. 
D)  the output where average total cost equals price. 
A)  the output where marginal revenue equals marginal cost. 
B)  any positive output the entrepreneur decides upon because all of it can be sold. 
C)  nothing at all; the firm shuts down. 
D)  the output where average total cost equals price.

Question 7

A perfectly competitive industry achieves allocative efficiency because

Accepted Answer

A)  goods and services are produced at the lowest possible cost. 
B)  goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. 
C)  it produces where market price equals marginal production cost. 
D)  firms carry production surpluses. 
A)  goods and services are produced at the lowest possible cost. 
B)  goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. 
C)  it produces where market price equals marginal production cost. 
D)  firms carry production surpluses.

Question 8

Assume that the medical screening industry is perfectly competitive.Consider a typical firm that is 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.How will this affect a typical firm that remains in the industry?

Accepted Answer

A)  The firm's supply curve shifts right and its marginal revenue curve shifts upwards as the market price rises and ultimately the firm starts making profits. 
B)  The firm's marginal revenue curve and average cost curve shift upwards in response to the increase in market price and advertising expenditure. The firm increases output until it starts breaking even. 
C)  The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production and eventually starts making profits. 
D)  The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production until it breaks even. 
A)  The firm's supply curve shifts right and its marginal revenue curve shifts upwards as the market price rises and ultimately the firm starts making profits. 
B)  The firm's marginal revenue curve and average cost curve shift upwards in response to the increase in market price and advertising expenditure. The firm increases output until it starts breaking even. 
C)  The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production and eventually starts making profits. 
D)  The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production until it breaks even.

Question 9

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 minimum price the firm requires to produce output?

Accepted Answer

A)  $20 
B)  $14 
C)  $5 
D)  It cannot be determined 
A)  $20 
B)  $14 
C)  $5 
D)  It cannot be determined

Question 10

Figure 12-8  
-Refer to Figure 12-8.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 11

Figure 12-6  
 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 12-6.At price P3,the firm would produce

Accepted Answer

A)  Q2 units 
B)  Q3 units. 
C)  Q4 units. 
D)  Q5 units. 
A)  Q2 units 
B)  Q3 units. 
C)  Q4 units. 
D)  Q5 units.

Question 12

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The price of each good is $10.Calculate the firm's short-run profit or loss.

Accepted Answer

A)  loss of $6,000 
B)  profit of $6,000 
C)  profit of $30,000 
D)  There is insufficient information to answer the question. 
A)  loss of $6,000 
B)  profit of $6,000 
C)  profit of $30,000 
D)  There is insufficient information to answer the question.

Question 13

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

Accepted Answer

A) True 
 B)False

Question 14

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 firm's fixed cost increases by $1,000 due to a new environmental regulation,what happens in the diagram above?

Accepted Answer

A)  All the cost curves shift upward. 
B)  Only the average variable cost and average total cost curves shift upward; marginal cost is not affected. 
C)  Only the average total cost curve shifts upward; the marginal cost and average variable cost curves are not affected. 
D)  None of the curves shifts; only the fixed cost curve, which is not shown here, is affected. 
A)  All the cost curves shift upward. 
B)  Only the average variable cost and average total cost curves shift upward; marginal cost is not affected. 
C)  Only the average total cost curve shifts upward; the marginal cost and average variable cost curves are not affected. 
D)  None of the curves shifts; only the fixed cost curve, which is not shown here, is affected.

Question 15

If,for the last unit of a good produced by a perfectly competitive firm,MR > MC,then in producing it,the firm

Accepted Answer

A)  added more to total costs than it added to total revenue. 
B)  added more to total revenue than it added to total cost. 
C)  is maximizing marginal profit. 
D)  has minimized its losses. 
A)  added more to total costs than it added to total revenue. 
B)  added more to total revenue than it added to total cost. 
C)  is maximizing marginal profit. 
D)  has minimized its losses.

Question 16

What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?

Accepted Answer

Productive efficiency refers to a the si

Question 17

Under what conditions should a competitive firm shut down in the short run?

Accepted Answer

When market price is below ave

Question 18

Figure 12-6  
 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 12-6.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 19

Figure 12-6  
 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 12-6.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 20

What is meant by the term "long-run competitive equilibrium?

Accepted Answer

Long-run competitive equilibri

Exam 12: Firms in Perfectly Competitive Markets

Figure 12-7 -Refer to Figure 12-7.Suppose the prevailing price is $20 and the firm is currently producing 1,350 units.In the long-run equilibrium,

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

In August 2008,Ethan Nicholas developed the iShoot application for the apple iPhone 3G,and within five months had earned $800,000 from this program.By May 2009,Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,

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

The price of a seller's product in perfect competition is determined by

When a perfectly competitive firm finds that its market price is below its minimum average variable cost,it will sell

A perfectly competitive industry achieves allocative efficiency because

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 minimum price the firm requires to produce output?

Figure 12-8 -Refer to Figure 12-8.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 12-6 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-6.At price P3,the firm would produce

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The price of each good is $10.Calculate the firm's short-run profit or loss.

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

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 firm's fixed cost increases by $1,000 due to a new environmental regulation,what happens in the diagram above?

If,for the last unit of a good produced by a perfectly competitive firm,MR > MC,then in producing it,the firm

What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?

Under what conditions should a competitive firm shut down in the short run?

Figure 12-6 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-6.At price P4,the firm would produce

Figure 12-6 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-6.At price P4,the firm would

What is meant by the term "long-run competitive 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

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Figure 12-6 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-6.At price P₃,the firm would produce

Figure 12-6 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-6.At price P₄,the firm would produce

Figure 12-6 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-6.At price P₄,the firm would