Question 1

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is the best example of a perfectly competitive firm?

Accepted Answer

A) a corn farmer in Illinois 
B) a Taco Bell restaurant 
C) the Ford Motor Company 
D) United Parcel Service (UPS) 
A) a corn farmer in Illinois 
B) a Taco Bell restaurant 
C) the Ford Motor Company 
D) United Parcel Service (UPS)

Question 5

What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?

Accepted Answer

Productive efficiency refers to the situ

Question 6

In August 2008,Ethan Nicholas developed the iShoot application for the Apple iPhone 3G,and within five months had earned $800,000 from this program.By May 2009,Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market

Accepted Answer

A) earning an economic profit in the long run is extremely easy. 
B) earning an economic profit in the long run is extremely difficult. 
C) it is impossible to earn an economic profit in either the short run or the long run. 
D) economic profits are only earned in the long run. 
A) earning an economic profit in the long run is extremely easy. 
B) earning an economic profit in the long run is extremely difficult. 
C) it is impossible to earn an economic profit in either the short run or the long run. 
D) economic profits are only earned in the long run.

Question 7

If a perfectly competitive firm raises the price it charges to consumers,which of the following is the most likely outcome?

Accepted Answer

A) The firm's revenue will not change because some consumers will refuse to pay the higher price. 
B) The firm will not sell any output. 
C) The firm's total revenue will increase only if the demand for its product is inelastic. 
D) The firm's total revenue will increase only if the demand for its product is elastic. 
A) The firm's revenue will not change because some consumers will refuse to pay the higher price. 
B) The firm will not sell any output. 
C) The firm's total revenue will increase only if the demand for its product is inelastic. 
D) The firm's total revenue will increase only if the demand for its product is elastic.

Question 8

The perfectly competitive market structure benefits consumers because

Accepted Answer

A) firms do not produce goods at the lowest possible price in the long run. 
B) firms are forced by competitive pressure to be as efficient as possible. 
C) firms add a much smaller markup over average cost than firms in any other type of market structure. 
D) firms produce high-quality goods at low prices. 
A) firms do not produce goods at the lowest possible price in the long run. 
B) firms are forced by competitive pressure to be as efficient as possible. 
C) firms add a much smaller markup over average cost than firms in any other type of market structure. 
D) firms produce high-quality goods at low prices.

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

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

$$\begin{array} { | c | c | c | } 
\hline \text { Quantity } & \begin{array} { c } 
\text { Total Cost } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Variable Cost } \
\text { (dollars) }
\end{array} \
\hline 0 & \$ 1,000 & \$ 0 \
\hline 100 & 1,360 & 360 \
\hline 200 & 1,560 & 560 \
\hline 300 & 1,960 & 960 \
\hline 400 & 2,760 & 1,760 \
\hline 500 & 4,000 & 3,000 \
\hline 600 & 5,800 & 4,800 \
\hline
\end{array}$$ 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,what is the profit-maximizing quantity?

Accepted Answer

A) 300 units 
B) 400 units 
C) 500 units 
D) 600 units 
A) 300 units 
B) 400 units 
C) 500 units 
D) 600 units

Question 13

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 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

Marty's Bird House suffers a short-run loss.Marty can reduce his loss below the amount of his total fixed costs by continuing to produce if his revenue

Accepted Answer

A) exceeds his implicit costs. 
B) exceeds his nonmonetary opportunity costs. 
C) exceeds his variable costs. 
D) exceeds his marginal costs. 
A) exceeds his implicit costs. 
B) exceeds his nonmonetary opportunity costs. 
C) exceeds his variable costs. 
D) exceeds his marginal costs.

Question 17

A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000.The price of each bushel is $50.Calculate the firm's short-run profit or loss.

Accepted Answer

A) loss of $14,000 
B) profit of $14,000 
C) profit of $50,000 
D) There is insufficient information to answer the question. 
A) loss of $14,000 
B) profit of $14,000 
C) profit of $50,000 
D) There is insufficient information to answer the question.

Question 18

Figure 12-2  
-Refer to Figure 12-2.What happens if the firm produces more than Q4 units?

Accepted Answer

A) Its profit increases. 
B) It makes a loss. 
C) Its total revenue is increasing faster than its total cost. 
D) It could make a profit or a loss depending on what happens to demand. 
A) Its profit increases. 
B) It makes a loss. 
C) Its total revenue is increasing faster than its total cost. 
D) It could make a profit or a loss depending on what happens to demand.

Question 19

If a perfectly competitive firm's total revenue is less than its total variable cost,the firm

Accepted Answer

A) should raise its price above its average variable cost. 
B) should continue to produce and increase its demand. 
C) should stop production by shutting down temporarily. 
D) should adopt new technology in order to lower its costs of production. 
A) should raise its price above its average variable cost. 
B) should continue to produce and increase its demand. 
C) should stop production by shutting down temporarily. 
D) should adopt new technology in order to lower its costs of production.

Question 20

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

Accepted Answer

A) the industry supply will not change. 
B) new firms are attracted to the industry. 
C) some existing firms will exit the industry. 
D) firms are breaking even. 
A) the industry supply will not change. 
B) new firms are attracted to the industry. 
C) some existing firms will exit the industry. 
D) firms are breaking even.

Exam 12: Firms in Perfectly Competitive Markets

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

A perfectly competitive firm's marginal revenue

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

Which of the following is the best example of a perfectly competitive firm?

What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?

In August 2008,Ethan Nicholas developed the iShoot application for the Apple iPhone 3G,and within five months had earned $800,000 from this program.By May 2009,Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market

If a perfectly competitive firm raises the price it charges to consumers,which of the following is the most likely outcome?

The perfectly competitive market structure benefits consumers because

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

Profit is the difference between

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

Firms in perfect competition are price takers because

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

Marty's Bird House suffers a short-run loss.Marty can reduce his loss below the amount of his total fixed costs by continuing to produce if his revenue

A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000.The price of each bushel is $50.Calculate the firm's short-run profit or loss.

Figure 12-2 -Refer to Figure 12-2.What happens if the firm produces more than Q4 units?

If a perfectly competitive firm's total revenue is less than its total variable cost,the firm

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

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