Question 1

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 2

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

Accepted Answer

A) True 
 B)False

Question 3

For a perfectly competitive firm,at the profit-maximizing output average revenue equals marginal cost.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterizes the industry if,as demand for tuna increases,fishing boats have to go farther into the ocean to harvest tuna?

Accepted Answer

A)  a constant-cost industry 
B)  an increasing-cost industry 
C)  a decreasing-cost industry 
D)  a fixed-cost industry 
A)  a constant-cost industry 
B)  an increasing-cost industry 
C)  a decreasing-cost industry 
D)  a fixed-cost industry

Question 6

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 7

For a perfectly competitive firm,average revenue is equal to

Accepted Answer

A)  marginal cost. 
B)  the market price. 
C)  total revenue. 
D)  average fixed cost. 
A)  marginal cost. 
B)  the market price. 
C)  total revenue. 
D)  average fixed cost.

Question 8

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.Jason is currently producing 20 thousand pounds of apples.To maximize his profit Jason should

Accepted Answer

A)  keep production at 20 thousand pounds. 
B)  increase production to the output rate indicated by point d. 
C)  increase production to the output rate indicated by point e. 
D)  decrease production to the output rate indicated by point a. 
A)  keep production at 20 thousand pounds. 
B)  increase production to the output rate indicated by point d. 
C)  increase production to the output rate indicated by point e. 
D)  decrease production to the output rate indicated by point a.

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.If the market price is $20,what is the average profit at the profit-maximizing quantity?

Accepted Answer

A)  $5 
B)  $6 
C)  $9 
D)  $20 
A)  $5 
B)  $6 
C)  $9 
D)  $20

Question 10

Figure 12-8  
-Refer to Figure 12-8.Suppose the market price is $120.Which of the following is true?

Accepted Answer

A)  The firm earns a profit equal to the area A. 
B)  The firm earns a profit equal to the area A + B. 
C)  The firm suffers a loss equal to the area A. 
D)  The firm will break even. 
A)  The firm earns a profit equal to the area A. 
B)  The firm earns a profit equal to the area A + B. 
C)  The firm suffers a loss equal to the area A. 
D)  The firm will break even.

Question 11

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 12

Which of the following is not true for a firm in perfect competition?

Accepted Answer

A)  Profit equals total revenue minus total cost. 
B)  Price equals average revenue. 
C)  Average revenue is greater than marginal revenue. 
D)  Marginal revenue equals the change in total revenue from selling one more unit. 
A)  Profit equals total revenue minus total cost. 
B)  Price equals average revenue. 
C)  Average revenue is greater than marginal revenue. 
D)  Marginal revenue equals the change in total revenue from selling one more unit.

Question 13

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 14

Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?

Accepted Answer

A)  Restaurants do not sell identical products. 
B)  Restaurants compete in small market areas - neighborhoods and cities - rather than in regional or national markets. Therefore, restaurants are not small relative to their market size. 
C)  Restaurants usually have entry barriers in the form of zoning restrictions and health regulations. 
D)  Restaurants have significant liability costs that perfectly competitive firms do not have; for example, customers may sue if they suffer from food poisoning. 
A)  Restaurants do not sell identical products. 
B)  Restaurants compete in small market areas - neighborhoods and cities - rather than in regional or national markets. Therefore, restaurants are not small relative to their market size. 
C)  Restaurants usually have entry barriers in the form of zoning restrictions and health regulations. 
D)  Restaurants have significant liability costs that perfectly competitive firms do not have; for example, customers may sue if they suffer from food poisoning.

Question 15

Figure 12-8  
-Refer to Figure 12-8.Suppose the firm produces 4,000 units.What does the shaded area labeled B represent?

Accepted Answer

A)  the firm's economic loss 
B)  total variable cost 
C)  average variable cost 
D)  total fixed cost 
A)  the firm's economic loss 
B)  total variable cost 
C)  average variable cost 
D)  total fixed cost

Question 16

A firm's total profit can be calculated as all of the following except

Accepted Answer

A)  total revenue minus total cost. 
B)  average profit per unit times quantity sold. 
C)  (price minus average total cost) times quantity sold. 
D)  marginal profit times quantity sold. 
A)  total revenue minus total cost. 
B)  average profit per unit times quantity sold. 
C)  (price minus average total cost) times quantity sold. 
D)  marginal profit times quantity sold.

Question 17

Figure 12-19  
-Refer to Figure 12-19.The figure above shows the cost curves of a perfectly competitive firm in the coffee market.Use the graph in Figure 12-19 to answer the following questions.Assume the market price is $3 per pound.
a.What is the lowest price at which the coffee grower will supply output in the short run?
b.In the diagram draw the firm's demand curve (label this "MR" for marginal revenue).
c.What is the firm's profit-maximizing output?
d.Is the firm earning a profit or a loss? Identify the area in the graph that represents the firm's profit or loss.
e.Explain how entry or exit will occur in the market to ensure that firms will break even in the long run.

Accepted Answer

a.$1.50 per pound.This represents the lo

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

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 20

Figure 12-7   Figure 12-7 illustrates the cost curves of a perfectly competitive firm.
-Refer to Figure 12-7.If the market price is P1

Accepted Answer

A)  The firm will experience a loss and raise its price to P2. The firm will then break even. 
B)  The firm will break even by producing a quantity of Q2. 
C)  The firm will experience a loss since price is less than ATC. 
D)  The firm may make a profit if it can increase the demand for its product. 
A)  The firm will experience a loss and raise its price to P2. The firm will then break even. 
B)  The firm will break even by producing a quantity of Q2. 
C)  The firm will experience a loss since price is less than ATC. 
D)  The firm may make a profit if it can increase the demand for its product.

Profit is the difference between

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

For a perfectly competitive firm,at the profit-maximizing output average revenue equals marginal cost.

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?

Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterizes the industry if,as demand for tuna increases,fishing boats have to go farther into the ocean to harvest tuna?

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

For a perfectly competitive firm,average revenue is equal to

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.Jason is currently producing 20 thousand pounds of apples.To maximize his profit Jason should

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 market price is $20,what is the average profit at the profit-maximizing quantity?

Figure 12-8 -Refer to Figure 12-8.Suppose the market price is $120.Which of the following is true?

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

Which of the following is not true for a firm in perfect competition?

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

Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?

Figure 12-8 -Refer to Figure 12-8.Suppose the firm produces 4,000 units.What does the shaded area labeled B represent?

A firm's total profit can be calculated as all of the following except

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

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7.If the market price is P₁

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

Filters

Exam 12: Firms in Perfectly Competitive Markets

Profit is the difference between

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

For a perfectly competitive firm,at the profit-maximizing output average revenue equals marginal cost.

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?

Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterizes the industry if,as demand for tuna increases,fishing boats have to go farther into the ocean to harvest tuna?

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

For a perfectly competitive firm,average revenue is equal to

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.Jason is currently producing 20 thousand pounds of apples.To maximize his profit Jason should

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 market price is $20,what is the average profit at the profit-maximizing quantity?

Figure 12-8 -Refer to Figure 12-8.Suppose the market price is $120.Which of the following is true?

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

Which of the following is not true for a firm in perfect competition?

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

Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?

Figure 12-8 -Refer to Figure 12-8.Suppose the firm produces 4,000 units.What does the shaded area labeled B represent?

A firm's total profit can be calculated as all of the following except

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

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7.If the market price is P1

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

Filters

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7.If the market price is P₁