Question 1

All of the following can be used to compute average profit except

Accepted Answer

A) marginal profit minus marginal cost. 
B) total profit divided by quantity. 
C) average revenue minus average total cost 
D) price minus average total cost.

Question 2

To maximize profit, a firm will produce the level of output where MR = MC.If a firm actually makes a profit depends on the relationship of price to average total cost.What are the three possible relationships between price and average total cost that determine if a firm will make a profit, experience a loss, or break even?

Accepted Answer

The answer of To maximize profit, a firm will produce...

Question 3

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

The answer of Figure 12-18
 
-Refer to Figure 12-18.Use the...

Question 4

The minimum point on the average variable cost curve is called

Accepted Answer

A) the shutdown point. 
B) the break-even point. 
C) the loss-minimizing point. 
D) the point of diminishing returns.

Question 5

Figure 12-5
  
Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 12-5.If the market price is $20, what is the average profit at the profit-maximizing quantity?

Accepted Answer

A) $5 
B) $6 
C) $9 
D) $20

Question 6

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

Accepted Answer

A) Allocative efficiency is achieved only in the long run. Productive efficiency is achieved only in the short run. 
B) Allocative efficiency is achieved only in the long run. Productive efficiency is achieved in the short run and the long run. 
C) Allocative efficiency is achieved only in the short run. Productive efficiency is achieved only in the long run. 
D) Allocative efficiency is achieved in the short run and the long run. Productive efficiency is achieved only in the long run.

Question 7

Figure 12-4
  
Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 12-4.If the market price is $30, should the firm represented in the diagram continue to stay open?

Accepted Answer

A) No, it should shut down because it is making a loss. 
B) No, it should shut down because it cannot cover its variable cost. 
C) Yes, because it is covering part of its fixed cost. 
D) Yes, because it is making a profit.

Question 8

Figure 12-13
 
-Refer to Figure 12-13.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity.In the long-run equilibrium

Accepted Answer

A) there will be fewer firms in the industry and total industry output decreases. 
B) there will be more firms in the industry and total industry output increases. 
C) there will be fewer firms in the industry but total industry output increases. 
D) there will be more firms in the industry and total industry output remains constant.

Question 9

Which of the following is not an assumption of perfectly competitive markets?

Accepted Answer

A) There are many sellers and many buyers, all of which are small relative to the market. 
B) Each firm produces a similar but not identical product. 
C) There are no barriers to new firms entering the market. 
D) The products sold by all firms in the market are identical.

Question 10

Molly Sharp is producing a documentary about the plight of the six-toed ferrets of Sri Lanka.Molly has spent $125,000 of her own money on this project and the documentary is now complete.Molly just found out that no studio is willing to release her documentary and she must now shop it to cable television networks, where she knows she will not be able to recoup her investment.Which of the following statements regarding Molly Sharp's documentary is true?

Accepted Answer

A) She should not try to have her documentary aired on television because she cannot recoup her $125,000 investment. 
B) Since the $125,000 is a sunk cost, she should still try to have her documentary aired on television even though she will not see a profit. 
C) The $125,000 is a variable cost, so will not be incurred if she chooses not to have her documentary aired. 
D) The $125,000 investment is an economic cost, and she will still make an accounting profit even if the television network willing to air her documentary pays her less than $125,000.

Question 11

Table 12-1
  
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.The firm will not produce in the short run if the output price falls below

Accepted Answer

A) $8. 
B) $4. 
C) $3.20. 
D) $2.80.

Question 12

If a perfectly competitive firm achieves productive efficiency then

Accepted Answer

A) it will raise its price in order to earn an economic profit. 
B) the price of the good it sells is equal to the benefit consumers receive from consuming the last unit of the good sold. 
C) it is producing at minimum efficient scale. 
D) it is producing the good it sells at the lowest possible cost.

Question 13

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.

Question 14

At the profit-maximizing level of output for a perfectly competitive firm, price equals marginal cost.Which of the following is also true?

Accepted Answer

A) The difference between total revenue and total cost is the greatest. 
B) Total revenue equals total cost. 
C) Average revenue equals average total cost. 
D) Marginal profit equals marginal cost.

Question 15

The minimum point on the average variable cost curve is called the loss-minimizing point.

Accepted Answer

A) True 
 B)False

Question 16

Figure 12-17
  
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 current market price is $3 but the firm will be able to increase the price in the future. 
B) The current market price is $3 but the price will fall in the long run as a result of a decrease in demand. 
C) The current market price is $3 but the price will fall in the long run as new firms enter the market. 
D) The current market price is $3 but the price will increase in the future as the market demand increases.

Question 17

Figure 12-11
 
-Refer to Figure 12-11.If this is a constant-cost industry, what is the market price in the long-run equilibrium?

Accepted Answer

A) $5 
B) $14 
C) $15 
D) $20

Question 18

Which of the following is the best example of a perfectly competitive firm?

Accepted Answer

A) a corn farmer in Illinois 
B) a Taco Bell restaurant 
C) the Ford Motor Company 
D) United Parcel Service (UPS)

Question 19

A perfectly competitive firm will maximize its profit at the level of output where the vertical distance between its total revenue curve and total cost curve is the largest.This is the same level of output where

Accepted Answer

A) average total cost equals marginal revenue. 
B) marginal revenue equals marginal profit. 
C) marginal revenue equals marginal cost. 
D) marginal revenue equals average revenue.

Question 20

Figure 12-16
 
-Refer to Figure 12-16.Which panel best represents the perfectly competitive organic produce market in which firms are breaking even, economically, organic produce is considered a normal good, and the average income level of consumers is rising?

Accepted Answer

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

Exam 12: Firms in Perfectly Competitive Markets

All of the following can be used to compute average profit except

The minimum point on the average variable cost curve is called

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.If the market price is $20, what is the average profit at the profit-maximizing quantity?

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

Figure 12-4 Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 12-4.If the market price is $30, should the firm represented in the diagram continue to stay open?

Figure 12-13 -Refer to Figure 12-13.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity.In the long-run equilibrium

Which of the following is not an assumption of perfectly competitive markets?

Table 12-1 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.The firm will not produce in the short run if the output price falls below

If a perfectly competitive firm achieves productive efficiency then

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?

At the profit-maximizing level of output for a perfectly competitive firm, price equals marginal cost.Which of the following is also true?

The minimum point on the average variable cost curve is called the loss-minimizing point.

Figure 12-17 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?

Figure 12-11 -Refer to Figure 12-11.If this is a constant-cost industry, what is the market price in the long-run equilibrium?

Which of the following is the best example of a perfectly competitive firm?

A perfectly competitive firm will maximize its profit at the level of output where the vertical distance between its total revenue curve and total cost curve is the largest.This is the same level of output where

Figure 12-16 -Refer to Figure 12-16.Which panel best represents the perfectly competitive organic produce market in which firms are breaking even, economically, organic produce is considered a normal good, and the average income level of consumers is rising?