Question 1

Use the following to answer questions:
Figure: Short-Run Costs 
-(Figure: Short-Run Costs) Look at the figure Short-Run Costs. At the given price, the most profitable level of output occurs at quantity:

Accepted Answer

A)  N. 
B)  P. 
C)  S. 
D)  T.

Question 2

When a firm cannot affect the market price of the good that it sells, it is said to be a:

Accepted Answer

A)  price taker. 
B)  natural monopoly. 
C)  dominant firm. 
D)  cartel.

Question 3

In a perfectly competitive market, tastes and preferences lead to an increase in the demand for the good. Holding everything else constant, this will lead to an increase in price that will result in _____, which will _____, which will _____.

Accepted Answer

A)  positive economic profits; attract new firms; reduce the price 
B)  economic losses; attract new firms; reduce the price 
C)  positive economic profits; lead some firms to leave the industry; further increase the price 
D)  economic losses; lead some firms to leave the industry; further increase the price

Question 4

Perfect competition is a model of the market that assumes all of the following EXCEPT:

Accepted Answer

A)  a large number of firms. 
B)  firms facing downward-sloping demand curves. 
C)  firms producing identical goods. 
D)  many buyers.

Question 5

In the long run, when there are economic profits, firms enter the industry, which will increase the market supply and price until economic profits are zero.

Accepted Answer

A) True 
 B)False

Question 6

The difference between total revenue and total cost is:

Accepted Answer

A)  economic profit or loss. 
B)  nominal revenue. 
C)  average revenue. 
D)  marginal revenue.

Question 7

Use the following to answer questions:
Figure: Prices, Cost Curves, and Profits 
-(Figure: Prices, Cost Curves, and Profits) Look at the figure Prices, Cost Curves, and Profits. If the price is P2 and the firm is profit-maximizing, then the firm's profit is:

Accepted Answer

A)  (fg) × Q3. 
B)  (de) × Q2. 
C)  (fg) × Q2. 
D)  (de) × P2.

Question 8

If a perfectly competitive firm is producing a quantity where MC < MR, then profit:

Accepted Answer

A)  is maximized. 
B)  can be increased by increasing production. 
C)  can be increased by decreasing production. 
D)  can be increased by decreasing the price.

Question 9

In a perfectly competitive market _____ are price takers.

Accepted Answer

A)  only consumers 
B)  only producers 
C)  both producers and consumers 
D)  neither producers nor consumers

Question 10

A perfectly competitive firm will maximize profits when the:

Accepted Answer

A)  marginal revenue equals marginal cost. 
B)  marginal revenue is lower than average variable cost. 
C)  price is lower than marginal cost. 
D)  price is higher than marginal cost.

Question 11

For the Colorado beef industry to be classified as perfectly competitive, ranchers in Colorado must have _____ on prices and beef must be a _____ product.

Accepted Answer

A)  no noticeable effect; standardized 
B)  a huge effect; standardized 
C)  a huge effect; differentiated 
D)  no noticeable effect; differentiated

Question 12

If a California avocado stand operates in a perfectly competitive market, that stand owner will be a price:

Accepted Answer

A)  maker. 
B)  taker. 
C)  discriminator. 
D)  maximizer.

Question 13

Suppose economic profits exist in perfect competition in the short run. Firms will enter in the long run because of easy entry, the short-run market _____ curve will shift to the right, and _____ will _____.

Accepted Answer

A)  supply; output; increase 
B)  demand; supply; fall 
C)  supply; demand; also shift to the right 
D)  demand; price; increase

Question 14

Use the following to answer questions: 
-(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for the mower. His variable costs include fuel, his time, and mower parts. If the price for mowing a lawn is $70, how much is Alex's total cost at the profit-maximizing output?

Accepted Answer

A)  $3,500 
B)  $2,800 
C)  $2,100 
D)  $1,500

Question 15

Use the following to answer questions: 
-(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for the mower. His variable costs include fuel, his time, and mower parts. Which of the following is a point on the industry short-run supply curve?

Accepted Answer

A)  P = $5; Q = 100. 
B)  P = $10; Q = 1,000. 
C)  P = $40; Q = 1,100. 
D)  P = $70; Q = 5,000.

Question 16

Use the following to answer questions:
Figure: The Perfectly Competitive Firm II 
-(Figure: The Perfectly Competitive Firm II) Look at the figure The Perfectly Competitive Firm II. If this firm's MR curve is MR1, the firm will maximize profit by producing _____ units of output, and its economic profit will be _____.

Accepted Answer

A)  Q1; positive 
B)  Q2; negative 
C)  Q3; positive 
D)  Q4; negative

Question 17

Use the following to answer questions:
Figure: Game-Day Shirts 
-(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at football games in a perfectly competitive market. His costs are identical to the costs of the other 9 vendors. When the industry is in long-run equilibrium, the price of each shirt will be _____, and the total quantity supplied will be _____.

Accepted Answer

A)  $6; 0 
B)  $9; 200 
C)  $11; 220 
D)  $14; 240

Question 18

In the short run, if P = ATC, a perfectly competitive firm:

Accepted Answer

A)  produces output and earns zero economic profit. 
B)  produces output and earns an economic profit. 
C)  produces output and incurs an economic loss. 
D)  does not produce output and incurs an economic loss.

Question 19

Sam is one of many growers who sell potatoes to a large food-processing plant. The price of a bushel of potatoes is $4, and Sam sells 100 bushels at that price. He has $250 of fixed cost. Sam figures if he produces one more bushel of potatoes, his total variable costs will increase from $175 to $180. Should Sam produce any more potatoes at $4? Explain. Will he earn a positive economic profit? Show how you came to your answer.

Accepted Answer

The answer of Sam is one of many growers who...

Question 20

Use the following to answer questions: 
-(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for the mower. His variable costs include fuel, his time, and mower parts. If the price for mowing a lawn is $60, how much is Alex's total revenue at the profit-maximizing output?

Accepted Answer

A)  $60 
B)  $1,100 
C)  $2,400 
D)  $2,100

Exam 12: Perfect Competition and the Supply Curve

Use the following to answer questions: Figure: Short-Run Costs -(Figure: Short-Run Costs) Look at the figure Short-Run Costs. At the given price, the most profitable level of output occurs at quantity:

When a firm cannot affect the market price of the good that it sells, it is said to be a:

In a perfectly competitive market, tastes and preferences lead to an increase in the demand for the good. Holding everything else constant, this will lead to an increase in price that will result in ___, which will _, which will ___.

Perfect competition is a model of the market that assumes all of the following EXCEPT:

In the long run, when there are economic profits, firms enter the industry, which will increase the market supply and price until economic profits are zero.

The difference between total revenue and total cost is:

Use the following to answer questions: Figure: Prices, Cost Curves, and Profits -(Figure: Prices, Cost Curves, and Profits) Look at the figure Prices, Cost Curves, and Profits. If the price is P₂and the firm is profit-maximizing, then the firm's profit is:

If a perfectly competitive firm is producing a quantity where MC < MR, then profit:

In a perfectly competitive market _____ are price takers.

A perfectly competitive firm will maximize profits when the:

For the Colorado beef industry to be classified as perfectly competitive, ranchers in Colorado must have _ on prices and beef must be a _ product.

If a California avocado stand operates in a perfectly competitive market, that stand owner will be a price:

Suppose economic profits exist in perfect competition in the short run. Firms will enter in the long run because of easy entry, the short-run market ___ curve will shift to the right, and _ will ___.

In the short run, if P = ATC, a perfectly competitive firm:

Exam 12: Perfect Competition and the Supply Curve

Use the following to answer questions: Figure: Short-Run Costs -(Figure: Short-Run Costs) Look at the figure Short-Run Costs. At the given price, the most profitable level of output occurs at quantity:

When a firm cannot affect the market price of the good that it sells, it is said to be a:

In a perfectly competitive market, tastes and preferences lead to an increase in the demand for the good. Holding everything else constant, this will lead to an increase in price that will result in _____, which will _____, which will _____.

Perfect competition is a model of the market that assumes all of the following EXCEPT:

In the long run, when there are economic profits, firms enter the industry, which will increase the market supply and price until economic profits are zero.

The difference between total revenue and total cost is:

Use the following to answer questions: Figure: Prices, Cost Curves, and Profits -(Figure: Prices, Cost Curves, and Profits) Look at the figure Prices, Cost Curves, and Profits. If the price is P2 and the firm is profit-maximizing, then the firm's profit is:

If a perfectly competitive firm is producing a quantity where MC < MR, then profit:

In a perfectly competitive market _____ are price takers.

A perfectly competitive firm will maximize profits when the:

For the Colorado beef industry to be classified as perfectly competitive, ranchers in Colorado must have _____ on prices and beef must be a _____ product.

If a California avocado stand operates in a perfectly competitive market, that stand owner will be a price:

Suppose economic profits exist in perfect competition in the short run. Firms will enter in the long run because of easy entry, the short-run market _____ curve will shift to the right, and _____ will _____.

In the short run, if P = ATC, a perfectly competitive firm:

In a perfectly competitive market, tastes and preferences lead to an increase in the demand for the good. Holding everything else constant, this will lead to an increase in price that will result in ___, which will _, which will ___.

Use the following to answer questions: Figure: Prices, Cost Curves, and Profits -(Figure: Prices, Cost Curves, and Profits) Look at the figure Prices, Cost Curves, and Profits. If the price is P₂and the firm is profit-maximizing, then the firm's profit is:

For the Colorado beef industry to be classified as perfectly competitive, ranchers in Colorado must have _ on prices and beef must be a _ product.

Suppose economic profits exist in perfect competition in the short run. Firms will enter in the long run because of easy entry, the short-run market ___ curve will shift to the right, and _ will ___.