Question 1

Figure 12-7  
-Refer to Figure 12-7.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 2

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.What is the amount of its total fixed cost?

Accepted Answer

A)  $1,080 
B)  $1,440 
C)  $2,520 
D)  It cannot be determined. 
A)  $1,080 
B)  $1,440 
C)  $2,520 
D)  It cannot be determined.

Question 3

A very large number of small sellers who sell identical products imply

Accepted Answer

A)  a multitude of vastly different selling prices. 
B)  a downward sloping demand for each seller's product. 
C)  the inability of one seller to influence price. 
D)  chaos in the market. 
A)  a multitude of vastly different selling prices. 
B)  a downward sloping demand for each seller's product. 
C)  the inability of one seller to influence price. 
D)  chaos in the market.

Question 4

A perfectly competitive market is in long-run equilibrium.At present there are 100 identical firms each producing 5,000 units of output.The prevailing market price is $20.Assume that each firm faces increasing marginal cost.Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $24.Which of the following describes the effect of this increase in demand on a typical firm in the industry?

Accepted Answer

A)  In the short run, the typical firm increases its output and makes an above normal profit. 
B)  In the short run, the typical firm's output remains the same but because of the higher price, its profit increases. 
C)  In the short run, the typical firm increases its output but its total cost also rises, resulting in no change in profit. 
D)  In the short run, the typical firm increases its output but its total cost also rises. Hence, the effect on the firm's profit cannot be determined without more information. 
A)  In the short run, the typical firm increases its output and makes an above normal profit. 
B)  In the short run, the typical firm's output remains the same but because of the higher price, its profit increases. 
C)  In the short run, the typical firm increases its output but its total cost also rises, resulting in no change in profit. 
D)  In the short run, the typical firm increases its output but its total cost also rises. Hence, the effect on the firm's profit cannot be determined without more information.

Question 5

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

Accepted Answer

They are called price takers b

Question 6

If the market price is $25,the average revenue of selling five units is

Accepted Answer

A)  $5. 
B)  $12.50. 
C)  $25. 
D)  $125. 
A)  $5. 
B)  $12.50. 
C)  $25. 
D)  $125.

Question 7

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

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

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

Accepted Answer

A)  There are a very large number of firms that are small compared to the market. 
B)  All firms sell identical products. 
C)  There are no restrictions to entry by new firms. 
D)  There are restrictions on exit of firms. 
A)  There are a very large number of firms that are small compared to the market. 
B)  All firms sell identical products. 
C)  There are no restrictions to entry by new firms. 
D)  There are restrictions on exit of firms.

Question 9

Figure 12-1  
-Refer to Figure 12-1.If the firm is producing 700 units,

Accepted Answer

A)  it is making a profit. 
B)  it is making a loss. 
C)  it should cut back its output to maximize profit. 
D)  it should increase its output to maximize profit. 
A)  it is making a profit. 
B)  it is making a loss. 
C)  it should cut back its output to maximize profit. 
D)  it should increase its output to maximize profit.

Question 10

In the short run,if a firm shuts down its maximum loss equals the amount of its fixed cost.

Accepted Answer

A) True 
 B)False

Question 11

In a graph with output on the horizontal axis and total revenue on the vertical axis,what is the shape of the total revenue curve for a perfectly competitive seller?

Accepted Answer

A)  U-shaped 
B)  inverted U-shaped 
C)  a horizontal line 
D)  a ray from the origin 
A)  U-shaped 
B)  inverted U-shaped 
C)  a horizontal line 
D)  a ray from the origin

Question 12

In early 2007,Pioneer and JVC,two Japanese electronics firms,each announced that their profits were going to be lower than expected because they both had to cut prices for LCD and plasma television sets.Which of the following could explain why these firms did not simply raise their prices and increase their profits?

Accepted Answer

A)  The move to cut prices is probably just a temporary one to gain market share. In the long run the firms will raise prices and be able to increase their profits. 
B)  Most likely, intense competition between these two major producers probably pushed prices down. Thereafter, each feared that it would lose its customers to the other if it raised its prices. 
C)  In perfect competition, prices are determined by the market and firms will keep lowering prices until there are no profits to be earned. 
D)  The firms are still making profits, just not as high as expected so there is room to lower prices until one can force the other out of business. 
A)  The move to cut prices is probably just a temporary one to gain market share. In the long run the firms will raise prices and be able to increase their profits. 
B)  Most likely, intense competition between these two major producers probably pushed prices down. Thereafter, each feared that it would lose its customers to the other if it raised its prices. 
C)  In perfect competition, prices are determined by the market and firms will keep lowering prices until there are no profits to be earned. 
D)  The firms are still making profits, just not as high as expected so there is room to lower prices until one can force the other out of business.

Question 13

Jason,a high-school student,mows lawns for families in his neighborhood.The going rate is $12 for each lawn-mowing service.Jason would like to charge $20 because he believes he has more experience mowing lawns than the many other teenagers who also offer the same service.If the market for lawn mowing services is perfectly competitive,what would happen if Jason raised his price?

Accepted Answer

A)  He would lose some but not all his customers. 
B)  Initially, his customers might complain but over time they will come to accept the new rate. 
C)  If Jason raises his price he would lose all his customers. 
D)  If Jason raises his price, then all others supplying the same service will also raise their prices. 
A)  He would lose some but not all his customers. 
B)  Initially, his customers might complain but over time they will come to accept the new rate. 
C)  If Jason raises his price he would lose all his customers. 
D)  If Jason raises his price, then all others supplying the same service will also raise their prices.

Question 14

A decrease in demand for organic products will ________ a firm's economic profit,and the increase in costs to produce organic produce will ________ a firm's economic profit.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease

Question 15

Perfect competition is characterized by all of the following except

Accepted Answer

A)  heavy advertising by individual sellers. 
B)  homogeneous products. 
C)  sellers are price takers. 
D)  a horizontal demand curve for individual sellers. 
A)  heavy advertising by individual sellers. 
B)  homogeneous products. 
C)  sellers are price takers. 
D)  a horizontal demand curve for individual sellers.

Question 16

What is allocative efficiency?

Accepted Answer

A)  It refers to a situation in which resources are allocated to their highest profit use. 
B)  It refers to a situation in which resources are allocated such that goods can be produced at their lowest possible average cost. 
C)  It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it. 
D)  It refers to a situation in which resources are allocated fairly to all consumers in a society. 
A)  It refers to a situation in which resources are allocated to their highest profit use. 
B)  It refers to a situation in which resources are allocated such that goods can be produced at their lowest possible average cost. 
C)  It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it. 
D)  It refers to a situation in which resources are allocated fairly to all consumers in a society.

Question 17

If the long-run average cost curve is U-shaped,the optimal scale of production from society's viewpoint is

Accepted Answer

A)  the minimum efficient scale. 
B)  where maximum economic profit is earned by producers. 
C)  where firm profit is large enough to finance research and development. 
D)  one which guarantees economic profit. 
A)  the minimum efficient scale. 
B)  where maximum economic profit is earned by producers. 
C)  where firm profit is large enough to finance research and development. 
D)  one which guarantees economic profit.

Question 18

In the short run,a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

Accepted Answer

A) True 
 B)False

Question 19

Figure 12-1  
-Refer to Figure 12-1.If the firm is producing 700 units,what is the amount of its profit or loss?

Accepted Answer

A)  loss of $280 
B)  loss equivalent to the area A 
C)  profit equivalent to the area A 
D)  There is insufficient information to answer the question. 
A)  loss of $280 
B)  loss equivalent to the area A 
C)  profit equivalent to the area A 
D)  There is insufficient information to answer the question.

Question 20

Assume the market for organically-grown produce is perfectly competitive.All else equal,as farmers find it less profitable to produce and sell organic produce in this market,

Accepted Answer

A)  the demand curve will shift to the left and the equilibrium price will decrease. 
B)  the supply curve will shift to the left and the equilibrium price will increase. 
C)  the supply curve will shift to the right, the demand curve will shift to the left, and the equilibrium price will decrease. 
D)  the supply curve will shift to the left, the demand curve will shift to the left, and the equilibrium price will increase. 
A)  the demand curve will shift to the left and the equilibrium price will decrease. 
B)  the supply curve will shift to the left and the equilibrium price will increase. 
C)  the supply curve will shift to the right, the demand curve will shift to the left, and the equilibrium price will decrease. 
D)  the supply curve will shift to the left, the demand curve will shift to the left, and the equilibrium price will increase.

Exam 12: Firms in Perfectly Competitive Markets

Figure 12-7 -Refer to Figure 12-7.If this is a constant-cost industry,what is the market price in the long-run equilibrium?

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.What is the amount of its total fixed cost?

A very large number of small sellers who sell identical products imply

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

If the market price is $25,the average revenue of selling five units is

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

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

Figure 12-1 -Refer to Figure 12-1.If the firm is producing 700 units,

In the short run,if a firm shuts down its maximum loss equals the amount of its fixed cost.

In a graph with output on the horizontal axis and total revenue on the vertical axis,what is the shape of the total revenue curve for a perfectly competitive seller?

A decrease in demand for organic products will ________ a firm's economic profit,and the increase in costs to produce organic produce will ________ a firm's economic profit.

Perfect competition is characterized by all of the following except

What is allocative efficiency?

If the long-run average cost curve is U-shaped,the optimal scale of production from society's viewpoint is

In the short run,a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

Figure 12-1 -Refer to Figure 12-1.If the firm is producing 700 units,what is the amount of its profit or loss?

Assume the market for organically-grown produce is perfectly competitive.All else equal,as farmers find it less profitable to produce and sell organic produce in this market,

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

A decrease in demand for organic products will a firm's economic profit,and the increase in costs to produce organic produce will a firm's economic profit.