Question 1

-Archibald's Tattoos is a perfectly competitive firm. The firm's costs are shown in the table above. If the market price of a tattoo is $12, the firm

Accepted Answer

A)  incurs an economic loss, but will not shut down. 
B)  will not shut down in the short run, but will leave the industry in the long run. 
C)  will shut down. 
D)  is breaking even.

Question 2

In the long run, which of the following is present in a perfectly competitive market?

Accepted Answer

A)  barriers to entry 
B)  many firms in the market 
C)  firms incurring an economic loss in the long run 
D)  firms making an economic profit in the long run

Question 3

-The figure above shows a perfectly competitive firm. When the firm maximizes its profit, its total revenue is

Accepted Answer

A)  $1,200. 
B)  $900. 
C)  $600. 
D)  unable to be determined without more information.

Question 4

Charlie's Chimps is a perfectly competitive firm that produces cuddly chimps for children. The market price of a chimp is $10, and Charlie's Chimps produces 100 chimps. The marginal cost of the 100th chimp is $9. Charlie's Chimps

Accepted Answer

A)  is maximizing its profit. 
B)  will maximize its profit if it produces more than 100 chimps. 
C)  will maximize its profit if it lowers the price to $9 a chimp. 
D)  will maximize its profit if it produces fewer than 100 chimps.

Question 5

Explain the process that drives the economic profit to zero in the long run for a perfectly competitive firm.

Accepted Answer

The answer of Explain the process that drives the economic...

Question 6

-In the above figure, at a price of $8, a perfectly competitive firm produces ________ and it ________.

Accepted Answer

A)  0; incurs an economic loss 
B)  0; makes zero economic profit 
C)  some output; makes zero economic profit 
D)  some output; makes an economic profit

Question 7

-In the above table, the firm

Accepted Answer

A)  must be in a perfectly competitive market because its marginal revenue is constant. 
B)  must be in a perfectly competitive market because its marginal cost curve eventually rises. 
C)  cannot be in a perfectly competitive market because its short-run economic profits are greater than zero. 
D)  cannot be in a perfectly competitive market because its long-run economic profits are greater than zero.

Question 8

-The first table shows the market demand schedule for CDs, and the second table shows the cost structure of each firm. The CD market is perfectly competitive and there are 100 identical firms. The market price of a CD is ________, and ________ CDs are produced and sold.

Accepted Answer

A)  $9.00; 20,000 
B)  $9.50; 15,000 
C)  $10.00; 10,000 
D)  $8.50; 24,000

Question 9

-In the above figure, at a price of $6, a perfectly competitive firm produces ________ and it ________.

Accepted Answer

A)  some output; incurs an economic loss 
B)  0; incurs an economic loss 
C)  0; does not incur an economic loss or make an economic profit 
D)  0; makes an economic profit

Question 10

When Sidney's Sweaters, Inc. makes exactly zero economic profit, Sidney, the owner

Accepted Answer

A)  is taking a loss. 
B)  will shut down in the short run. 
C)  makes an income equal to his best alternative forgone income. 
D)  will boost output.

Question 11

In the short run, a perfectly competitive firm

Accepted Answer

A)  might incur an economic loss 
B)  will always make an economic profit. 
C)  chooses its optimal plant size. 
D)  is in equilibrium only when its economic profit is zero.

Question 12

In perfect competition

Accepted Answer

A)  there are restrictions on entry into the market. 
B)  firms in the market have advantages over firms that plan to enter the market. 
C)  only firms know their competitors' prices. 
D)  there are many firms that sell identical products.

Question 13

Suppose firms in a perfectly competitive industry are making economic profits. As a result I. new firms enter the industry.
II) the market price falls.
III) the economic profits of the existing firms decrease.

Accepted Answer

A)  I, II and III 
B)  I and II 
C)  II and III 
D)  I and III

Question 14

An example of a perfectly competitive industry is

Accepted Answer

A)  a big city police department. 
B)  the market for corn in the United States. 
C)  the market for French impressionists' paintings. 
D)  the National Football League.

Question 15

A competitive firm's total revenue minus its total opportunity cost equals its

Accepted Answer

A)  marginal revenue. 
B)  economic profit. 
C)  opportunity cost. 
D)  normal profit.

Question 16

Which of the following four firms would most likely be part of a perfectly competitive market?

Accepted Answer

A)  Village Pizza sells NY style pizza and hard-to-find microbrews in a college town. 
B)  The WaveHouse is the only place in San Diego where you can ride an indoor 10 foot wave. 
C)  Mark sells the tomatoes he grew in his backyard at the local farmers market. 
D)  Amara Massage specializes in pre- and post-natal massage.

Question 17

-The above figure illustrates a perfectly competitive wheat farmer.
a) What will be the firm's profit-maximizing price and output?
b) When the farmer produces 25,000 bushels of wheat, the difference between the firm's average total cost and the price is at its maximum. Explain why this amount of wheat either is or is not the profit-maximizing quantity.

Accepted Answer

The answer of 
-The above figure illustrates a perfectly competitive...

Question 18

Entry by competitive firms decreases the market price, while exit by competitive firms increases the market price. Explain why firms enter or exit an industry and why these price changes occur.

Accepted Answer

The answer of Entry by competitive firms decreases the market...

Question 19

-In the above table, the price of the product is

Accepted Answer

A)  $30. 
B)  $147. 
C)  $150. 
D)  $180.

Question 20

In perfect competition, at all levels of output the market price is the same as the firm's ________.

Accepted Answer

A)  marginal revenue 
B)  normal profit 
C)  average variable cost 
D)  fixed cost

Exam 12: Perfect Competition