Question 1

If,for the last bushel of apples produced and sold by an apple farm marginal revenue exceeds marginal cost,then in producing that bushel the farm

Accepted Answer

A) added more to total cost than it added to total revenue. 
B) added an equal amount to both total revenue and total cost. 
C) added more to total revenue than it added to total cost. 
D) maximized its profits or minimized its losses. 
A) added more to total cost than it added to total revenue. 
B) added an equal amount to both total revenue and total cost. 
C) added more to total revenue than it added to total cost. 
D) maximized its profits or minimized its losses.

Question 2

Figure 12-9 shows cost and demand curves facing a profit-maximizing,perfectly competitive firm.
-Refer to Figure 12-9.At price P2,the firm would produce

Accepted Answer

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

Question 3

Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12.Which of the following will happen?

Accepted Answer

A) The firm will sell more output than its competitors. 
B) The firm's revenue will increase. 
C) The firm will not sell any output. 
D) The firm's profits will increase. 
A) The firm will sell more output than its competitors. 
B) The firm's revenue will increase. 
C) The firm will not sell any output. 
D) The firm's profits will increase.

Question 4

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 5

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 firm will produce 30 thousand pounds of apples in the short run and earn an economic profit.New firms will enter the market and shift the market supply curve to the left. 
B) The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit,but it would earn a greater profit if it produced at the lowest point on the ATC curve. 
C) The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit.New firms will enter the industry;as a result,the firm will be forced to exit the industry in the long run. 
D) The firm will produce 30 thousands pounds of apples in the short run and earn an economic profit.In the long run the firm will break even. 
A) The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit.New firms will enter the market and shift the market supply curve to the left. 
B) The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit,but it would earn a greater profit if it produced at the lowest point on the ATC curve. 
C) The firm will produce 30 thousand pounds of apples in the short run and earn an economic profit.New firms will enter the industry;as a result,the firm will be forced to exit the industry in the long run. 
D) The firm will produce 30 thousands pounds of apples in the short run and earn an economic profit.In the long run the firm will break even.

Question 6

In long-run competitive equilibrium,the perfectly competitive firm produces where price equals minimum average total cost.
a.What is this efficiency criterion called?
b.How does it benefit consumers?

Accepted Answer

a.Productive efficiency
b.Productive eff

Question 7

A perfectly competitive industry achieves allocative efficiency because

Accepted Answer

A) goods and services are produced at the lowest possible cost. 
B) goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. 
C) it produces where market price equals marginal production cost. 
D) firms carry production surpluses. 
A) goods and services are produced at the lowest possible cost. 
B) goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. 
C) it produces where market price equals marginal production cost. 
D) firms carry production surpluses.

Question 8

Figure 12-18  
-Refer to Figure 12-18.Use the figure above to answer the following questions.
a.How can you determine that the figure represents a graph of a perfectly competitive firm? Be specific;indicate which curve gives you the information and how you use this information to arrive at your conclusion.
b.What is the market price?
c.What is the profit-maximizing output?
d.What is total revenue at the profit-maximizing output?
e.What is the total cost at the profit-maximizing output?
f.What is the profit or loss at the profit-maximizing output?
g.What is the firm's total fixed cost?
h.What is the total variable cost?
i.Identify the firm's short-run supply curve.
j.Is the industry in a long-run equilibrium?
k.If it is not in long-run equilibrium,what will happen in this industry to restore long-run equilibrium?
l.In long-run equilibrium,what is the firm's profit maximizing quantity?

Accepted Answer

a.The perfectly competitive firm is a pr

Question 9

Figure 12-2  
-Refer to Figure 12-2.What is the amount of profit if the firm produces Q2 units?

Accepted Answer

A) It is equal to the vertical distance c to g. 
B) It is equal to the vertical distance c to Q2. 
C) It is equal to the vertical distance g to Q2. 
D) It is equal to the vertical distance c to g multiplied by Q2 units. 
A) It is equal to the vertical distance c to g. 
B) It is equal to the vertical distance c to Q2. 
C) It is equal to the vertical distance g to Q2. 
D) It is equal to the vertical distance c to g multiplied by Q2 units.

Question 10

Figure 12-9 shows cost and demand curves facing a profit-maximizing,perfectly competitive firm.
-Refer to Figure 12-9.Identify the firm's short-run supply curve.

Accepted Answer

A) the marginal cost curve 
B) the marginal cost curve from a and above 
C) the marginal cost curve from b and above 
D) the marginal cost curve from d and above 
A) the marginal cost curve 
B) the marginal cost curve from a and above 
C) the marginal cost curve from b and above 
D) the marginal cost curve from d and above

Question 11

$$\begin{array} { | c | c | c | } 
\hline \text { Quantity } & \begin{array} { c } 
\text { Total Cost } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Variable Cost } \
\text { (dollars) }
\end{array} \
\hline 0 & \$ 1,000 & \$ 0 \
\hline 100 & 1,360 & 360 \
\hline 200 & 1,560 & 560 \
\hline 300 & 1,960 & 960 \
\hline 400 & 2,760 & 1,760 \
\hline 500 & 4,000 & 3,000 \
\hline 600 & 5,800 & 4,800 \
\hline
\end{array}$$ 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.What is the fixed cost of production?

Accepted Answer

A) $0 
B) $500 
C) $1,000 
D) It cannot be determined. 
A) $0 
B) $500 
C) $1,000 
D) It cannot be determined.

Question 12

A firm could continue to operate for years without ever earning a profit as long as it is producing an output where

Accepted Answer

A) MR AVC. C) MR > AVC. D) AFC < AVC. A) MR AVC. C) MR > AVC. D) AFC < AVC.

Question 13

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

Accepted Answer

A) True 
 B)False

Question 14

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.

Question 15

What is productive efficiency?

Accepted Answer

A) a situation in which resources are allocated to their highest profit use 
B) a situation in which resources are allocated such that goods can be produced at their lowest possible average cost 
C) a situation in which resources are allocated such the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it 
D) a situation in which firms produce as much as possible 
A) a situation in which resources are allocated to their highest profit use 
B) a situation in which resources are allocated such that goods can be produced at their lowest possible average cost 
C) a situation in which resources are allocated such the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it 
D) a situation in which firms produce as much as possible

Question 16

Which of the following arguments could be made as evidence that the market for cage-free eggs is perfectly competitive?

Accepted Answer

A) The U.S.Department of Agriculture has established standards for the labeling of cage-free eggs. 
B) Sales of cage-free eggs have increased at a rate of 20 percent per year. 
C) As more farmers began selling cage-free eggs,the increase in supply has driven down prices to the point where they just cover the cost of production. 
D) The profits earned by farmers who sell cage-free eggs have continued to grow,despite the increasing number of farmers entering this market. 
A) The U.S.Department of Agriculture has established standards for the labeling of cage-free eggs. 
B) Sales of cage-free eggs have increased at a rate of 20 percent per year. 
C) As more farmers began selling cage-free eggs,the increase in supply has driven down prices to the point where they just cover the cost of production. 
D) The profits earned by farmers who sell cage-free eggs have continued to grow,despite the increasing number of farmers entering this market.

Question 17

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 18

Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost,perfectly competitive industry.
-Refer to Figure 12-5.The firm's manager suggests that the firm's goal should be to maximize average profit.If the firm does this,what is the amount of profit that it will earn?

Accepted Answer

A) $6,600 
B) $6,750 
C) $12,150 
D) $36,000 
A) $6,600 
B) $6,750 
C) $12,150 
D) $36,000

Question 19

An individual seller in perfect competition will not sell at a price lower than the market price because

Accepted Answer

A) demand for the product will exceed supply. 
B) the seller would start a price war. 
C) the seller can sell any quantity she wants at the prevailing market price. 
D) demand is perfectly inelastic. 
A) demand for the product will exceed supply. 
B) the seller would start a price war. 
C) the seller can sell any quantity she wants at the prevailing market price. 
D) demand is perfectly inelastic.

Question 20

Figure 12-16  
-Refer to Figure 12-16.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

Accepted Answer

A) Panel A 
B) Panel B 
C) Panel C 
D) Panel D 
A) Panel A 
B) Panel B 
C) Panel C 
D) Panel D

Exam 12: Firms in Perfectly Competitive Markets

If,for the last bushel of apples produced and sold by an apple farm marginal revenue exceeds marginal cost,then in producing that bushel the farm

Figure 12-9 shows cost and demand curves facing a profit-maximizing,perfectly competitive firm. -Refer to Figure 12-9.At price P2,the firm would produce

Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12.Which of the following will happen?

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?

In long-run competitive equilibrium,the perfectly competitive firm produces where price equals minimum average total cost. a.What is this efficiency criterion called? b.How does it benefit consumers?

A perfectly competitive industry achieves allocative efficiency because

Figure 12-2 -Refer to Figure 12-2.What is the amount of profit if the firm produces Q2 units?

Figure 12-9 shows cost and demand curves facing a profit-maximizing,perfectly competitive firm. -Refer to Figure 12-9.Identify the firm's short-run supply curve.

A firm could continue to operate for years without ever earning a profit as long as it is producing an output where

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

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

What is productive efficiency?

Which of the following arguments could be made as evidence that the market for cage-free eggs is perfectly competitive?

A perfectly competitive firm's supply curve is its

Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost,perfectly competitive industry. -Refer to Figure 12-5.The firm's manager suggests that the firm's goal should be to maximize average profit.If the firm does this,what is the amount of profit that it will earn?

An individual seller in perfect competition will not sell at a price lower than the market price because

Figure 12-16 -Refer to Figure 12-16.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

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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