Question 1

In the short run,a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

Accepted Answer

A) True 
 B)False

Question 2

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 3

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The price of each good is $10.Calculate the firm's short-run profit or loss.

Accepted Answer

A) loss of $6,000 
B) profit of $6,000 
C) profit of $30,000 
D) There is insufficient information to answer the question. 
A) loss of $6,000 
B) profit of $6,000 
C) profit of $30,000 
D) There is insufficient information to answer the question.

Question 4

Figure 9-3  
-Refer to Figure 9-3.Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity.Identify the area that represents the loss.

Accepted Answer

A) P2 deP1 
B) P3cbP1 
C) P3caP0 
D) 0P1 bQ1 
A) P2 deP1 
B) P3cbP1 
C) P3caP0 
D) 0P1 bQ1

Question 5

Figure 9-2  
-Refer to Figure 9-2.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 6

Figure 9-6   Figure 9-6 shows cost and demand curves facing a profit-maximizing,perfectly competitive firm.
-Refer to Figure 9-6.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 7

Figure 9-4   Figure 9-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 9-4.If the market price is $30,the firm's profit-maximizing output level is

Accepted Answer

A) 0. 
B) 130. 
C) 180. 
D) 240. 
A) 0. 
B) 130. 
C) 180. 
D) 240.

Question 8

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 9

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The fixed cost of production is $20,000.The price of each good is $10.Should the firm continue to produce in the short run?

Accepted Answer

A) No,it should shut down because it is making a loss. 
B) Yes,it should continue to produce because its price exceeds its average fixed cost. 
C) Yes,it should continue to produce because it is minimizing its loss. 
D) There is insufficient information to answer the question. 
A) No,it should shut down because it is making a loss. 
B) Yes,it should continue to produce because its price exceeds its average fixed cost. 
C) Yes,it should continue to produce because it is minimizing its loss. 
D) There is insufficient information to answer the question.

Question 10

If total revenue exceeds fixed cost,a firm

Accepted Answer

A) should produce in the short run. 
B) has covered its variable cost. 
C) is making short-run profits. 
D) may or may not produce in the short run,depending on whether total revenue covers variable cost. 
A) should produce in the short run. 
B) has covered its variable cost. 
C) is making short-run profits. 
D) may or may not produce in the short run,depending on whether total revenue covers variable cost.

Question 11

What is meant by the term "long-run competitive equilibrium?

Accepted Answer

Long-run competitive equilibri

Question 12

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54,then to maximize profits the firm should

Accepted Answer

A) continue producing at the current output. 
B) produce a larger level of output. 
C) produce a smaller level of output. 
D) There is not enough information given to answer the question. 
A) continue producing at the current output. 
B) produce a larger level of output. 
C) produce a smaller level of output. 
D) There is not enough information given to answer the question.

Question 13

In perfect competition

Accepted Answer

A) the market demand curve and the individual's demand are identical. 
B) the market demand curve is perfectly inelastic while demand for an individual seller's product is perfectly elastic. 
C) the market demand curve is perfectly elastic while demand for an individual seller's product is perfectly inelastic. 
D) the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic. 
A) the market demand curve and the individual's demand are identical. 
B) the market demand curve is perfectly inelastic while demand for an individual seller's product is perfectly elastic. 
C) the market demand curve is perfectly elastic while demand for an individual seller's product is perfectly inelastic. 
D) the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.

Question 14

Figure 9-5   Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost,perfectly competitive industry.
-Refer to Figure 9-5.What is the minimum price the firm requires to produce output?

Accepted Answer

A) $20 
B) $14 
C) $5 
D) It cannot be determined 
A) $20 
B) $14 
C) $5 
D) It cannot be determined

Question 15

Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterizes the industry if,as demand for tuna increases,fishing boats have to go farther into the ocean to harvest tuna?

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 16

Assume that after a banner year in U.S.farm exports in 2011,farmers are expected to break even in 2012.This means that at the quantity being produced in 2012,

Accepted Answer

A) MC =AVC. 
B) MR =MC. 
C) MR =ATC. 
D) AVC =ATC. 
A) MC =AVC. 
B) MR =MC. 
C) MR =ATC. 
D) AVC =ATC.

Question 17

Maximizing average profit is equivalent to maximizing total profit.

Accepted Answer

A) True 
 B)False

Question 18

If a typical firm in a perfectly competitive industry is incurring losses,then

Accepted Answer

A) all firms will continue to lose money. 
B) some firms will exit in the long run,causing market supply to decrease and market price to rise increasing profits for the remaining firms. 
C) some firms will exit in the long run,causing market supply to decrease and market price to fall increasing losses for the remaining firms. 
D) some firms will enter in the long run,causing market supply to increase and market price to rise increasing profit for all firms. 
A) all firms will continue to lose money. 
B) some firms will exit in the long run,causing market supply to decrease and market price to rise increasing profits for the remaining firms. 
C) some firms will exit in the long run,causing market supply to decrease and market price to fall increasing losses for the remaining firms. 
D) some firms will enter in the long run,causing market supply to increase and market price to rise increasing profit for all firms.

Question 19

Figure 9-5   Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost,perfectly competitive industry.
-Refer to Figure 9-5.If the market price is $20,what is the firm's profit-maximizing output?

Accepted Answer

A) 750 units 
B) 1,100 units 
C) 1,350 units 
D) 1,800 units 
A) 750 units 
B) 1,100 units 
C) 1,350 units 
D) 1,800 units

Question 20

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product,the firm will be able to earn economic profits in the long run.

Accepted Answer

A) True 
 B)False

In the short run,a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The price of each good is $10.Calculate the firm's short-run profit or loss.

Figure 9-3 -Refer to Figure 9-3.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity.Identify the area that represents the loss.

Figure 9-2 -Refer to Figure 9-2.What happens if the firm produces more than Q₄ units?

Figure 9-6 Figure 9-6 shows cost and demand curves facing a profit-maximizing,perfectly competitive firm. -Refer to Figure 9-6.At price P₁,the firm would

Figure 9-4 Figure 9-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 9-4.If the market price is $30,the firm's profit-maximizing output level is

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

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The fixed cost of production is $20,000.The price of each good is $10.Should the firm continue to produce in the short run?

If total revenue exceeds fixed cost,a firm

What is meant by the term "long-run competitive equilibrium?

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54,then to maximize profits the firm should

In perfect competition

Figure 9-5 Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost,perfectly competitive industry. -Refer to Figure 9-5.What is the minimum price the firm requires to produce output?

Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterizes the industry if,as demand for tuna increases,fishing boats have to go farther into the ocean to harvest tuna?

Assume that after a banner year in U.S.farm exports in 2011,farmers are expected to break even in 2012.This means that at the quantity being produced in 2012,

Maximizing average profit is equivalent to maximizing total profit.

If a typical firm in a perfectly competitive industry is incurring losses,then

Figure 9-5 Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost,perfectly competitive industry. -Refer to Figure 9-5.If the market price is $20,what is the firm's profit-maximizing output?

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product,the firm will be able to earn economic profits in the long run.

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,production,and Costs

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage,international Trade,and Exchange Rates

Filters

Exam 9: Firms in Perfectly Competitive Markets

In the short run,a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The price of each good is $10.Calculate the firm's short-run profit or loss.

Figure 9-3 -Refer to Figure 9-3.Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity.Identify the area that represents the loss.

Figure 9-2 -Refer to Figure 9-2.What happens if the firm produces more than Q4 units?

Figure 9-6 Figure 9-6 shows cost and demand curves facing a profit-maximizing,perfectly competitive firm. -Refer to Figure 9-6.At price P1,the firm would

Figure 9-4 Figure 9-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 9-4.If the market price is $30,the firm's profit-maximizing output level is

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

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The fixed cost of production is $20,000.The price of each good is $10.Should the firm continue to produce in the short run?

If total revenue exceeds fixed cost,a firm

What is meant by the term "long-run competitive equilibrium?

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54,then to maximize profits the firm should

In perfect competition

Figure 9-5 Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost,perfectly competitive industry. -Refer to Figure 9-5.What is the minimum price the firm requires to produce output?

Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterizes the industry if,as demand for tuna increases,fishing boats have to go farther into the ocean to harvest tuna?

Assume that after a banner year in U.S.farm exports in 2011,farmers are expected to break even in 2012.This means that at the quantity being produced in 2012,

Maximizing average profit is equivalent to maximizing total profit.

If a typical firm in a perfectly competitive industry is incurring losses,then

Figure 9-5 Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost,perfectly competitive industry. -Refer to Figure 9-5.If the market price is $20,what is the firm's profit-maximizing output?

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product,the firm will be able to earn economic profits in the long run.

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,production,and Costs

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage,international Trade,and Exchange Rates

Filters

Figure 9-3 -Refer to Figure 9-3.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity.Identify the area that represents the loss.

Figure 9-2 -Refer to Figure 9-2.What happens if the firm produces more than Q₄ units?

Figure 9-6 Figure 9-6 shows cost and demand curves facing a profit-maximizing,perfectly competitive firm. -Refer to Figure 9-6.At price P₁,the firm would