Question 1

In the short run,if a firm shuts down it avoids its variable cost but not its fixed cost.

Accepted Answer

A) True 
 B)False

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 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 3

Figure 12-2  
-Refer to Figure 12-2.Suppose the firm is currently producing Q2 units.What happens if it expands output to Q3 units?

Accepted Answer

A)  Its profit increases by the size of the vertical distance df. 
B)  It makes less profit. 
C)  It incurs a loss. 
D)  It will be moving toward its profit maximizing output. 
A)  Its profit increases by the size of the vertical distance df. 
B)  It makes less profit. 
C)  It incurs a loss. 
D)  It will be moving toward its profit maximizing output.

Question 4

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 $10.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 2 teapot

Question 5

If a firm's total variable cost exceeds its total revenue,the firm should stop production by shutting down temporarily.

Accepted Answer

A) True 
 B)False

Question 6

If,as a perfectly competitive industry expands,it can supply larger quantities at the same long-run market price,it is

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 7

Max Shreck,an accountant,quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner,Sylvia Sidney.The lease has five years remaining and requires a monthly payment of $4,000.Max's explicit cost amounts to $3,000 per month more than his revenue.Should Max continue operating his business?

Accepted Answer

A)  Max's explicit cost exceeds his total revenue. He should shut down his tattoo parlor. 
B)  Max should continue to run the tattoo parlor until his lease runs out. 
C)  If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business. 
D)  This cannot be determined without information on his revenue. 
A)  Max's explicit cost exceeds his total revenue. He should shut down his tattoo parlor. 
B)  Max should continue to run the tattoo parlor until his lease runs out. 
C)  If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business. 
D)  This cannot be determined without information on his revenue.

Question 8

Firms in perfect competition are price takers because

Accepted Answer

A)  one firm determines the price that all other firms in the industry will charge. 
B)  consumers have enough market power to set prices. 
C)  firms accept the price determined by the government. 
D)  each firm is too small relative to the market to be able to influence price. 
A)  one firm determines the price that all other firms in the industry will charge. 
B)  consumers have enough market power to set prices. 
C)  firms accept the price determined by the government. 
D)  each firm is too small relative to the market to be able to influence price.

Question 9

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 10

Figure 12-1  
-Refer to Figure 12-3.If the firm is producing 500 units

Accepted Answer

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

Question 11

Producing where marginal revenue equals marginal cost is equivalent to producing where

Accepted Answer

A)  average total cost equals average revenue. 
B)  average fixed cost is minimized. 
C)  total revenue is equal to total cost. 
D)  total profit is maximized. 
A)  average total cost equals average revenue. 
B)  average fixed cost is minimized. 
C)  total revenue is equal to total cost. 
D)  total profit is maximized.

Question 12

The marginal revenue curve for a perfectly competitive firm

Accepted Answer

A)  is downward-sloping. 
B)  is the same as its demand curve. 
C)  is perfectly inelastic. 
D)  is the same as its marginal cost curve. 
A)  is downward-sloping. 
B)  is the same as its demand curve. 
C)  is perfectly inelastic. 
D)  is the same as its marginal cost curve.

Question 13

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 P1,the firm would

Accepted Answer

A)  lose an amount equal to its fixed cost. 
B)  lose an amount more than fixed cost. 
C)  lose an amount less than fixed cost. 
D)  break even. 
A)  lose an amount equal to its fixed cost. 
B)  lose an amount more than fixed cost. 
C)  lose an amount less than fixed cost. 
D)  break even.

Question 14

A perfectly competitive firm's supply curve is its

Accepted Answer

A)  marginal cost curve. 
B)  marginal cost curve above its minimum average total cost. 
C)  marginal cost curve above its minimum average variable cost. 
D)  marginal cost curve above its minimum average fixed cost. 
A)  marginal cost curve. 
B)  marginal cost curve above its minimum average total cost. 
C)  marginal cost curve above its minimum average variable cost. 
D)  marginal cost curve above its minimum average fixed cost.

Question 15

To maximize profit,a firm will produce the level of output where MR = MC.If a firm actually makes a profit depends on the relationship of price to average total cost.What are the three possible relationships between price and average total cost that determine if a firm will make a profit,experience a loss,or break even?

Accepted Answer

If P > ATC,the firm makes a pr

Question 16

If a firm in a perfectly competitive industry experiences persistent losses,in the long run it should

Accepted Answer

A)  shut down temporarily and wait for market conditions to change. 
B)  exit the industry. 
C)  raise its price to cover average total cost. 
D)  continue to operate if it can raise the demand for its product through advertising and quality improvements. 
A)  shut down temporarily and wait for market conditions to change. 
B)  exit the industry. 
C)  raise its price to cover average total cost. 
D)  continue to operate if it can raise the demand for its product through advertising and quality improvements.

Question 17

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 18

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable 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 19

If total variable cost exceeds total revenue at all output levels,a perfectly competitive firm

Accepted Answer

A)  should produce in the short run. 
B)  is making short-run profits. 
C)  should shut down in the short run. 
D)  has covered its fixed cost. 
A)  should produce in the short run. 
B)  is making short-run profits. 
C)  should shut down in the short run. 
D)  has covered its fixed cost.

Question 20

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 P1,the firm would produce

Accepted Answer

A)  Q1 units 
B)  Q3 units. 
C)  Q5 units. 
D)  zero units. 
A)  Q1 units 
B)  Q3 units. 
C)  Q5 units. 
D)  zero units.

In the short run,if a firm shuts down it avoids its variable cost but not its fixed cost.

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 P₃,the firm would produce

Figure 12-2 -Refer to Figure 12-2.Suppose the firm is currently producing Q₂units.What happens if it expands output to Q₃units?

If a firm's total variable cost exceeds its total revenue,the firm should stop production by shutting down temporarily.

If,as a perfectly competitive industry expands,it can supply larger quantities at the same long-run market price,it is

Firms in perfect competition are price takers because

Figure 12-1 -Refer to Figure 12-3.If the firm is producing 500 units

Producing where marginal revenue equals marginal cost is equivalent to producing where

The marginal revenue curve for a perfectly competitive firm

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 P₁,the firm would

A perfectly competitive firm's supply curve is its

If a firm in a perfectly competitive industry experiences persistent losses,in the long run it should

A perfectly competitive firm's marginal revenue

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost,the firm

If total variable cost exceeds total revenue at all output levels,a perfectly competitive firm

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 P₁,the firm would produce

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

In the short run,if a firm shuts down it avoids its variable cost but not its fixed cost.

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 P3,the firm would produce

Figure 12-2 -Refer to Figure 12-2.Suppose the firm is currently producing Q2 units.What happens if it expands output to Q3 units?

If a firm's total variable cost exceeds its total revenue,the firm should stop production by shutting down temporarily.

If,as a perfectly competitive industry expands,it can supply larger quantities at the same long-run market price,it is

Firms in perfect competition are price takers because

Figure 12-1 -Refer to Figure 12-3.If the firm is producing 500 units

Producing where marginal revenue equals marginal cost is equivalent to producing where

The marginal revenue curve for a perfectly competitive firm

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 P1,the firm would

A perfectly competitive firm's supply curve is its

If a firm in a perfectly competitive industry experiences persistent losses,in the long run it should

A perfectly competitive firm's marginal revenue

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost,the firm

If total variable cost exceeds total revenue at all output levels,a perfectly competitive firm

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 P1,the firm would produce

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 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9.At price P₃,the firm would produce

Figure 12-2 -Refer to Figure 12-2.Suppose the firm is currently producing Q₂units.What happens if it expands output to Q₃units?

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 P₁,the firm would

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 P₁,the firm would produce