Question 1

Figure 7-H  
-Why do short-run profits in a perfectly competitive industry tend to disappear over time?

Accepted Answer

Economic profits tend to exist only in t

Question 2

In a perfectly competitive market, in response to a permanent decrease in demand:

Accepted Answer

A) the short run equilibrium price will be higher than the eventual long run equilibrium price. 
B) the short run equilibrium price will be lower than the eventual long run equilibrium price. 
C) the short run equilibrium price will be the same as the eventual long run equilibrium price. 
D) we cannot know whether the short run equilibrium price will be below the eventual long run equilibrium price. 
A) the short run equilibrium price will be higher than the eventual long run equilibrium price. 
B) the short run equilibrium price will be lower than the eventual long run equilibrium price. 
C) the short run equilibrium price will be the same as the eventual long run equilibrium price. 
D) we cannot know whether the short run equilibrium price will be below the eventual long run equilibrium price.

Question 3

Table 7-B
The long-run total cost schedule of a perfectly competitive firm that produces walnuts is as follows:
 $\begin{array}{llcc}
  \text {  Pounds of} & 1,000&2,000&3,000&4,000&5,000&6,000 \
 \text {  Walnuts } &\
 \text {   Total Cost} &\$3,000&\$5,500&\$7,500&\$8,000&\$11,000&\$15,000\
\end{array}$

-Refer to Table 7-B.A firm expanding from producing 5,000 to 6,000 pounds of walnuts in the long run is experiencing:

Accepted Answer

A) diseconomies of scale. 
B) economies of scale. 
C) an increasing marginal product. 
D) constant returns to scale. 
A) diseconomies of scale. 
B) economies of scale. 
C) an increasing marginal product. 
D) constant returns to scale.

Question 4

In an increasing cost industry, an unexpected decrease in demand would lead to ____ costs and a ____ price in the long run?

Accepted Answer

A) higher; higher. 
B) higher; lower. 
C) lower; lower. 
D) lower; higher. 
E) no change; no change. 
A) higher; higher. 
B) higher; lower. 
C) lower; lower. 
D) lower; higher. 
E) no change; no change.

Question 5

Marginal revenue for a perfectly competitive firm equals:

Accepted Answer

A) the addition to total cost from producing one more unit of output. 
B) average revenue at all levels of output. 
C) marginal cost at all levels of output. 
D) average total cost at all levels of output. 
A) the addition to total cost from producing one more unit of output. 
B) average revenue at all levels of output. 
C) marginal cost at all levels of output. 
D) average total cost at all levels of output.

Question 6

Marginal revenue is:

Accepted Answer

A) the additional cost incurred from producing one more unit of output. 
B) the addition to total profit from selling one more unit of output. 
C) the addition to total revenue from selling one more unit of output. 
D) the addition to total output from hiring one more unit of labor. 
A) the additional cost incurred from producing one more unit of output. 
B) the addition to total profit from selling one more unit of output. 
C) the addition to total revenue from selling one more unit of output. 
D) the addition to total output from hiring one more unit of labor.

Question 7

What is the maximum amount of profit the perfectly competitive firm depicted below could earn in the short run?

Accepted Answer

A) $40 
B) $55 
C) $200 
D) $220 
E) $320 
A) $40 
B) $55 
C) $200 
D) $220 
E) $320

Question 8

Which of the following is the most likely candidate for a decreasing-cost industry?

Accepted Answer

A) airlines 
B) oil 
C) construction 
D) computers 
A) airlines 
B) oil 
C) construction 
D) computers

Question 9

If input prices for perfectly competitive firms increase as the output of its industry expands:

Accepted Answer

A) their short run average cost curves will shift up as the industry expands. 
B) after a permanent increase in demand, the long run equilibrium price will be higher than the original price. 
C) after a permanent increase in demand, the short run equilibrium price will be higher than the eventual long run equilibrium price. 
D) all of the above will be true. 
A) their short run average cost curves will shift up as the industry expands. 
B) after a permanent increase in demand, the long run equilibrium price will be higher than the original price. 
C) after a permanent increase in demand, the short run equilibrium price will be higher than the eventual long run equilibrium price. 
D) all of the above will be true.

Question 10

Table 7-A
Revenue and Cost Data for a Perfectly Competitive Firm
 $$\begin{array} { c c c c c c c } 
\text { Daily } & \text { Price } & \text { Total } & \text { TFC } & \text { TVC } & \text { TC } & \text { Profit } \
\text { Output } && \text { Revenue } & & & & \
0 & \$ 20 & \$0 & V&\$0& \$ 50 & - \$ 50 \
1 & \$ 20 & \$ 20 & \$ 50 & \$ 12 & \$ W & - \$ 42 \
2 & \mathbf { X } & \$ 40 & \$ 50 & Y & \$ 78 & - \$ 38 \
3 & \$ 20 & \$ 60 & \$ 50 & \$ 45 & \$ 95 & Z
\end{array}$$
-Refer to Table 7-A.The AFC of producing two units of output equals:

Accepted Answer

A) $0. 
B) $25. 
C) $50. 
D) $100. 
E) none of the above. 
A) $0. 
B) $25. 
C) $50. 
D) $100. 
E) none of the above.

Question 11

Figure 7-F
The figure shows the price, marginal cost, and average cost curves of a perfectly competitive firm.  
-Refer to Figure 7-F.The firm depicted above should:

Accepted Answer

A) shut down in order to minimize losses. 
B) keep operating in the short run in order to minimize losses, since price exceeds average variable cost. 
C) keep operating in the short run in order to minimize losses, since price exceeds average total cost. 
D) decrease output to 30 units, since marginal revenue exceeds marginal cost by the greatest dollar amount at that level of output. 
A) shut down in order to minimize losses. 
B) keep operating in the short run in order to minimize losses, since price exceeds average variable cost. 
C) keep operating in the short run in order to minimize losses, since price exceeds average total cost. 
D) decrease output to 30 units, since marginal revenue exceeds marginal cost by the greatest dollar amount at that level of output.

Question 12

Figure 7-D  
-Refer to Figure 7-D.A profit-maximizing firm in a perfectly competitive industry will produce ____ units of output if the market price equals $10.

Accepted Answer

A) 800 
B) 650 
C) 450 
D) 200 
E) 0 
A) 800 
B) 650 
C) 450 
D) 200 
E) 0

Question 13

In long-run equilibrium, a perfectly competitive firms produces at the output level at which:

Accepted Answer

A) total revenue is maximized. 
B) long-run marginal cost is minimized. 
C) average total cost is minimized. 
D) short-run variable cost is minimized. 
A) total revenue is maximized. 
B) long-run marginal cost is minimized. 
C) average total cost is minimized. 
D) short-run variable cost is minimized.

Question 14

Figure 7-G  
-Refer to Figure 7-G.As a result of the change illustrated by Graph C, in Graph D the individual firm is now experiencing:

Accepted Answer

A) an economic loss. 
B) economic profits. 
C) no change in revenues. 
D) a loss in sales. 
A) an economic loss. 
B) economic profits. 
C) no change in revenues. 
D) a loss in sales.

Question 15

Why can't a firm in a perfectly competitive industry charge a price above the market-clearing price?

Accepted Answer

A) Government-imposed price ceilings prevent prices from being raised. 
B) Firms in a perfectly competitive industry face significant barriers to entry. 
C) Perfectly competitive firms are price searchers. 
D) Numerous competitors produce the same product and charge the market price. 
A) Government-imposed price ceilings prevent prices from being raised. 
B) Firms in a perfectly competitive industry face significant barriers to entry. 
C) Perfectly competitive firms are price searchers. 
D) Numerous competitors produce the same product and charge the market price.

Question 16

If a perfectly competitive industry uses only a small share of the available inputs in a resource market, then the long-run market supply curve for the industry will most likely be:

Accepted Answer

A) vertical. 
B) horizontal. 
C) upward sloping. 
D) downward sloping. 
E) none of the above. 
A) vertical. 
B) horizontal. 
C) upward sloping. 
D) downward sloping. 
E) none of the above.

Question 17

If the gadget industry is a constant cost industry, one would expect that the long run result of an increase in demand for gadget to include ____ firms and a(n) ____ in price.

Accepted Answer

A) more; increase. 
B) more; no change. 
C) more; decrease. 
D) fewer; increase. 
E) fewer; decrease. 
A) more; increase. 
B) more; no change. 
C) more; decrease. 
D) fewer; increase. 
E) fewer; decrease.

Question 18

Which of the following is true?

Accepted Answer

A) The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its total revenues and total cost. 
B) The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its average revenue and average total cost. 
C) The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its average revenue and average variable cost. 
D) The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its marginal revenue and marginal cost. 
E) None of the above is true. 
A) The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its total revenues and total cost. 
B) The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its average revenue and average total cost. 
C) The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its average revenue and average variable cost. 
D) The objective of the firm is to maximize profits, by producing the amount that maximizes the difference between its marginal revenue and marginal cost. 
E) None of the above is true.

Question 19

A firm sells grapefruit in a perfectly competitive market at a price of $1.50 per pound.The firm's marginal revenue:

Accepted Answer

A) equals $1.50. 
B) is less than $1.50. 
C) is greater than $1.50. 
D) cannot be determined from the information provided. 
A) equals $1.50. 
B) is less than $1.50. 
C) is greater than $1.50. 
D) cannot be determined from the information provided.

Question 20

As exit from a perfectly competitive industry that is currently unprofitable pushes up the market price, producers will move from a situation where price ____ average total cost to one where price ____ average total cost.

Accepted Answer

A) exceeds; equals. 
B) is less than; equals. 
C) equals; is less than. 
D) equals; exceeds. 
E) exceeds; is less than. 
A) exceeds; equals. 
B) is less than; equals. 
C) equals; is less than. 
D) equals; exceeds. 
E) exceeds; is less than.

Figure 7-H -Why do short-run profits in a perfectly competitive industry tend to disappear over time?

In a perfectly competitive market, in response to a permanent decrease in demand:

In an increasing cost industry, an unexpected decrease in demand would lead to costs and a price in the long run?

Marginal revenue for a perfectly competitive firm equals:

Marginal revenue is:

What is the maximum amount of profit the perfectly competitive firm depicted below could earn in the short run?

Which of the following is the most likely candidate for a decreasing-cost industry?

If input prices for perfectly competitive firms increase as the output of its industry expands:

Table 7-A Revenue and Cost Data for a Perfectly Competitive Firm Daily Price Total TFC TVC TC Profit Output Revenue 0 \ 20 \0 V \0 \ 50 -\ 50 1 \ 20 \ 20 \ 50 \ 12 \ W -\ 42 2 \ 40 \ 50 Y \ 78 -\ 38 3 \ 20 \ 60 \ 50 \ 45 \ 95 Z -Refer to Table 7-A.The AFC of producing two units of output equals:

Figure 7-F The figure shows the price, marginal cost, and average cost curves of a perfectly competitive firm. -Refer to Figure 7-F.The firm depicted above should:

Figure 7-D -Refer to Figure 7-D.A profit-maximizing firm in a perfectly competitive industry will produce ____ units of output if the market price equals $10.

In long-run equilibrium, a perfectly competitive firms produces at the output level at which:

Figure 7-G -Refer to Figure 7-G.As a result of the change illustrated by Graph C, in Graph D the individual firm is now experiencing:

Why can't a firm in a perfectly competitive industry charge a price above the market-clearing price?

If a perfectly competitive industry uses only a small share of the available inputs in a resource market, then the long-run market supply curve for the industry will most likely be:

If the gadget industry is a constant cost industry, one would expect that the long run result of an increase in demand for gadget to include firms and a(n) in price.

Which of the following is true?

A firm sells grapefruit in a perfectly competitive market at a price of $1.50 per pound.The firm's marginal revenue:

As exit from a perfectly competitive industry that is currently unprofitable pushes up the market price, producers will move from a situation where price average total cost to one where price average total cost.

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Market Failure and Public Choice

Production and Costs

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Economics

Filters

Exam 7: Firms in Competitive Markets

Figure 7-H -Why do short-run profits in a perfectly competitive industry tend to disappear over time?

In a perfectly competitive market, in response to a permanent decrease in demand:

In an increasing cost industry, an unexpected decrease in demand would lead to ____ costs and a ____ price in the long run?

Marginal revenue for a perfectly competitive firm equals:

Marginal revenue is:

What is the maximum amount of profit the perfectly competitive firm depicted below could earn in the short run?

Which of the following is the most likely candidate for a decreasing-cost industry?

If input prices for perfectly competitive firms increase as the output of its industry expands:

Table 7-A Revenue and Cost Data for a Perfectly Competitive Firm Daily Price Total TFC TVC TC Profit Output Revenue 0 \ 20 \0 V \0 \ 50 -\ 50 1 \ 20 \ 20 \ 50 \ 12 \ W -\ 42 2 \ 40 \ 50 Y \ 78 -\ 38 3 \ 20 \ 60 \ 50 \ 45 \ 95 Z -Refer to Table 7-A.The AFC of producing two units of output equals:

Figure 7-F The figure shows the price, marginal cost, and average cost curves of a perfectly competitive firm. -Refer to Figure 7-F.The firm depicted above should:

Figure 7-D -Refer to Figure 7-D.A profit-maximizing firm in a perfectly competitive industry will produce ____ units of output if the market price equals $10.

In long-run equilibrium, a perfectly competitive firms produces at the output level at which:

Figure 7-G -Refer to Figure 7-G.As a result of the change illustrated by Graph C, in Graph D the individual firm is now experiencing:

Why can't a firm in a perfectly competitive industry charge a price above the market-clearing price?

If a perfectly competitive industry uses only a small share of the available inputs in a resource market, then the long-run market supply curve for the industry will most likely be:

If the gadget industry is a constant cost industry, one would expect that the long run result of an increase in demand for gadget to include ____ firms and a(n) ____ in price.

Which of the following is true?

A firm sells grapefruit in a perfectly competitive market at a price of $1.50 per pound.The firm's marginal revenue:

As exit from a perfectly competitive industry that is currently unprofitable pushes up the market price, producers will move from a situation where price ____ average total cost to one where price ____ average total cost.

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Market Failure and Public Choice

Production and Costs

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Economics

Filters

In an increasing cost industry, an unexpected decrease in demand would lead to costs and a price in the long run?

If the gadget industry is a constant cost industry, one would expect that the long run result of an increase in demand for gadget to include firms and a(n) in price.

As exit from a perfectly competitive industry that is currently unprofitable pushes up the market price, producers will move from a situation where price average total cost to one where price average total cost.