Question 1

Figure 12-1  
-Refer to Figure 12-1.If the firm is charging a price of $12 per unit

Accepted Answer

A) it breaks even. 
B) it is making a profit. 
C) it is selling 700 units. 
D) it is not selling any output. 
A) it breaks even. 
B) it is making a profit. 
C) it is selling 700 units. 
D) it is not selling any output.

Question 2

An industry's long-run supply curve shows

Accepted Answer

A) the relationship in the long run between market price and quantity supplied. 
B) how the government determines the price of the product. 
C) how average productivity is changing. 
D) greater than normal profit. 
A) the relationship in the long run between market price and quantity supplied. 
B) how the government determines the price of the product. 
C) how average productivity is changing. 
D) greater than normal profit.

Question 3

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 4

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows:
 $$\begin{array} { | c | c | } 
\hline \text { Output per Day } & \text { Total Cost } \
\hline 0 & \$ 20 \
\hline 1 & 32 \
\hline 2 & 37 \
\hline 3 & 48 \
\hline 4 & 61 \
\hline 5 & 75 \
\hline 6 & 92 \
\hline 7 & 113 \
\hline 8 & 136 \
\hline
\end{array}$$ 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 5

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 6

If,for a given output level,a perfectly competitive firm's price is less than its average variable cost,the firm

Accepted Answer

A) is earning a profit. 
B) should shut down. 
C) should increase output. 
D) should increase price. 
A) is earning a profit. 
B) should shut down. 
C) should increase output. 
D) should increase price.

Question 7

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows:
 $$\begin{array} { | c | c | } 
\hline \text { Output per Day } & \text { Total Cost } \
\hline 0 & \$ 20 \
\hline 1 & 32 \
\hline 2 & 37 \
\hline 3 & 48 \
\hline 4 & 61 \
\hline 5 & 75 \
\hline 6 & 92 \
\hline 7 & 113 \
\hline 8 & 136 \
\hline
\end{array}$$ 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 8

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 9

Figure 12-10  
-Refer to Figure 12-10.Total revenue at the profit-maximizing level of output is

Accepted Answer

A) $1,200. 
B) $2,500. 
C) $4,800. 
D) $6,000. 
A) $1,200. 
B) $2,500. 
C) $4,800. 
D) $6,000.

Question 10

The graphs in Figure 12-17 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry.
-Refer to Figure 12-17.Which of the following statements is true?

Accepted Answer

A) The current market price is $3 but the firm will be able to increase the price in the future. 
B) The current market price is $3 but the price will fall in the long run as a result of a decrease in demand. 
C) The current market price is $3 but the price will fall in the long run as new firms enter the market. 
D) The current market price is $3 but the price will increase in the future as the market demand increases. 
A) The current market price is $3 but the firm will be able to increase the price in the future. 
B) The current market price is $3 but the price will fall in the long run as a result of a decrease in demand. 
C) The current market price is $3 but the price will fall in the long run as new firms enter the market. 
D) The current market price is $3 but the price will increase in the future as the market demand increases.

Question 11

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 12

Marginal revenue is

Accepted Answer

A) total revenue divided by the total quantity of output. 
B) the change in profit divided by the change in the quantity of output. 
C) the change in total revenue divided by the change in total cost. 
D) the change in total revenue divided by the change in the quantity of output. 
A) total revenue divided by the total quantity of output. 
B) the change in profit divided by the change in the quantity of output. 
C) the change in total revenue divided by the change in total cost. 
D) the change in total revenue divided by the change in the quantity of output.

Question 13

Figure 12-2  
-Refer to Figure 12-2.The firm breaks even at an output level of

Accepted Answer

A) Q1 units. 
B) Q2 units. 
C) Q3 units. 
D) Q4 units. 
A) Q1 units. 
B) Q2 units. 
C) Q3 units. 
D) Q4 units.

Question 14

If,in a perfectly competitive industry,the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost,then

Accepted Answer

A) firms are breaking even. 
B) new firms are attracted to the industry. 
C) existing firms will exit the industry. 
D) market supply will remain constant. 
A) firms are breaking even. 
B) new firms are attracted to the industry. 
C) existing firms will exit the industry. 
D) market supply will remain constant.

Question 15

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

Accepted Answer

A) shutting down 
B) reducing production 
C) reducing the use of variable factors 
D) raising price 
A) shutting down 
B) reducing production 
C) reducing the use of variable factors 
D) raising price

Question 16

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 amount of the firm's fixed cost of production?

Accepted Answer

A) $5,400 
B) $6,750 
C) $8,100 
D) It cannot be determined. 
A) $5,400 
B) $6,750 
C) $8,100 
D) It cannot be determined.

Question 17

At the profit-maximizing level of output for a perfectly competitive firm

Accepted Answer

A) price equals marginal cost. 
B) average revenue equals average variable cost and price equals marginal cost. 
C) marginal revenue equals marginal cost and average total cost equals average fixed cost. 
D) price equals average revenue and marginal cost equals average variable cost. 
A) price equals marginal cost. 
B) average revenue equals average variable cost and price equals marginal cost. 
C) marginal revenue equals marginal cost and average total cost equals average fixed cost. 
D) price equals average revenue and marginal cost equals average variable cost.

Question 18

$$\begin{array} { | c | c | c | } 
\hline \text { Quantity } & \begin{array} { c } 
\text { Total Cost } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Variable Cost } \
\text { (dollars) }
\end{array} \
\hline 0 & \$ 1,000 & \$ 0 \
\hline 100 & 1,360 & 360 \
\hline 200 & 1,560 & 560 \
\hline 300 & 1,960 & 960 \
\hline 400 & 2,760 & 1,760 \
\hline 500 & 4,000 & 3,000 \
\hline 600 & 5,800 & 4,800 \
\hline
\end{array}$$ Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases.Assume that output can only be increased in batches of 100 units.
-Refer to Table 12-1.If the market price of each camera case is $8 and the firm maximizes profit,what is the amount of the firm's profit or loss?

Accepted Answer

A) $0 (it breaks even) 
B) loss of $1,000 
C) profit of $440 
D) loss of $440 
A) $0 (it breaks even) 
B) loss of $1,000 
C) profit of $440 
D) loss of $440

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

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.

Exam 12: Firms in Perfectly Competitive Markets

Figure 12-1 -Refer to Figure 12-1.If the firm is charging a price of $12 per unit

An industry's long-run supply curve shows

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

If,for a given output level,a perfectly competitive firm's price is less than its average variable cost,the firm

Perfect competition is characterized by all of the following except

Figure 12-10 -Refer to Figure 12-10.Total revenue at the profit-maximizing level of output is

The graphs in Figure 12-17 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry. -Refer to Figure 12-17.Which of the following statements is true?

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

Marginal revenue is

Figure 12-2 -Refer to Figure 12-2.The firm breaks even at an output level of

If,in a perfectly competitive industry,the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost,then

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

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 amount of the firm's fixed cost of production?

At the profit-maximizing level of output for a perfectly competitive firm

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

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

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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