Question 1

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 earns economic profit.

Question 2

Use the following to answer questions:
Figure: A Perfectly Competitive Firm in the Short Run 
-(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly Competitive Firm in the Short Run. The firm will produce in the short run if the price is at least as high as point:

Accepted Answer

A)  F. 
B)  E. 
C)  N. 
D)  P.

Question 3

The demand curve for a perfectly competitive firm is:

Accepted Answer

A)  perfectly inelastic. 
B)  perfectly elastic. 
C)  downward-sloping. 
D)  relatively but not perfectly elastic.

Question 4

The marginal revenue received by a firm in a perfectly competitive market:

Accepted Answer

A)  is greater than the market price. 
B)  is less than the market price. 
C)  is equal to its average revenue. 
D)  increases with the quantity of output sold.

Question 5

Use the following to answer questions:
Figure: The Perfectly Competitive Firm 
-(Figure: Perfectly Competitive Firm) Look at the figure The Perfectly Competitive Firm. The figure shows a perfectly competitive firm that faces demand curve d and maximizes profit. If the market price is $3, the firm will produce _____ units of output per day.

Accepted Answer

A)  100 
B)  250 
C)  300 
D)  400

Question 6

A perfectly competitive firm will earn a profit in the short run when it produces the profit-maximizing quantity of output and the price is:

Accepted Answer

A)  greater than marginal cost. 
B)  less than marginal cost. 
C)  less than average variable cost. 
D)  greater than average total cost.

Question 7

Microsoft's Windows operating system is a standardized product, since everyone who buys a particular version of the product gets exactly the same thing. This means that Microsoft is a perfectly competitive firm.

Accepted Answer

A) True 
 B)False

Question 8

Use the following to answer questions: 
-(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of clearing anywhere from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her variable costs include fuel, her time, and hot coffee. Which of the following is a point on Alexa's short-run supply curve?

Accepted Answer

A)  P = $40; Q = 10 
B)  P = $10; Q = 200 
C)  P = $35; Q = 50 
D)  P = $0; Q = 0

Question 9

Use the following to answer questions: 
-(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of clearing anywhere from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her variable costs include fuel, her time, and hot coffee. If the price per cleared lot is $14, how many lots should Alexa clear?

Accepted Answer

A)  0 
B)  40 
C)  50 
D)  20

Question 10

Use the following to answer questions: 
-(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes Sergei's total costs for his perfectly competitive all-natural ice cream firm. If the market price of a tub of ice cream is $67.50, how much is Sergei's profit at the profit-maximizing output?

Accepted Answer

A)  $680.00 
B)  $270.00 
C)  $102.50 
D)  $100.00

Question 11

Total revenue is a firm's:

Accepted Answer

A)  change in revenue resulting from a unit change in output. 
B)  ratio of revenue to quantity. 
C)  difference between revenue and cost. 
D)  total output times the price of that output.

Question 12

Price takers are individuals in a market who:

Accepted Answer

A)  select a price from a wide range of alternatives. 
B)  select the lowest price available in a competitive market. 
C)  select the average of prices available in a competitive market. 
D)  have no ability to affect the price of a good in a market.

Question 13

Which of the following is a necessary condition for perfect competition?

Accepted Answer

A)  A small number of firms control a large share of the total market. 
B)  Movement into and out of the market is limited. 
C)  Firms produce a standardized product. 
D)  Extensive advertising is used to promote the firm's product.

Question 14

Use the following to answer questions: 
-(Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a Perfectly Competitive Firm. If the market price is $3.50, the profit-maximizing output is _____ units.

Accepted Answer

A)  5 
B)  7 
C)  8 
D)  9

Question 15

Use the following to answer questions:
Figure: Cost Curves for Corn Producers 
-(Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $4, in the short run the farmer will produce _____ bushels of corn and earn an economic _____ equal to _____.

Accepted Answer

A)  0; loss; average fixed costs 
B)  0; loss; total fixed costs 
C)  3; loss; $30 per bushel 
D)  3; profit; $20 per bushel

Question 16

A perfectly competitive firm will incur an economic loss but will continue producing output in the short run if the price is:

Accepted Answer

A)  less than marginal cost. 
B)  greater than average fixed cost and less than average variable cost. 
C)  greater than average total cost. 
D)  greater than average variable cost but less than average total cost.

Question 17

A perfectly competitive firm's marginal cost curve above the average variable cost curve is its _____ curve.

Accepted Answer

A)  input demand 
B)  short-run supply 
C)  marginal revenue 
D)  total revenue

Question 18

In the long run, all of the firms in a perfectly competitive industry will:

Accepted Answer

A)  produce at an output level at which average total cost equals marginal cost. 
B)  earn an economic profit greater than zero. 
C)  exit the industry if price is greater than average total cost. 
D)  produce an output level at which price is greater than average total cost.

Question 19

The lowest point on a perfectly competitive firm's short-run supply curve corresponds to the minimum point on the _____ curve.

Accepted Answer

A)  ATC 
B)  AVC 
C)  AFC 
D)  MC

Question 20

Use the following to answer questions: 
-(Table: Soybean Cost) Look at the table Soybean Cost. If the market price of a bushel of soybeans is $15, how many bushels will the farmer produce to maximize short-run profit?

Accepted Answer

A)  2 
B)  5 
C)  3 
D)  7

Exam 12: Perfect Competition and the Supply Curve