Question 1

If firms do not earn economic profits in a competitive equilibrium, why would the firms choose to stay in business?

Accepted Answer

The answer of If firms do not earn economic profits...

Question 2

If productive efficiency characterizes a market

Accepted Answer

A) the marginal cost of production is minimized. 
B) firms produce the goods that consumers desire most. 
C) the output is being produced at the lowest possible cost. 
D) firms use the best technology available to produce the good.

Question 3

Figure 12-2
 
-Refer to Figure 12-2.Why is the total revenue curve a ray from the origin?

Accepted Answer

A) because revenue increases at an increasing rate 
B) because revenue increases at a decreasing rate 
C) because the firm can sell its product at a constant price 
D) because the firm must lower its price to sell more

Question 4

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

Accepted Answer

A) wheat production 
B) steel production 
C) electricity production 
D) airplane production

Question 5

Figure 12-9
  
Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 12-9.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.

Question 6

Maximizing average profit is equivalent to maximizing total profit.

Accepted Answer

A) True 
 B)False

Question 7

Figure 12-11
 
-Refer to Figure 12-11.Suppose the prevailing price is $20 and the firm is currently producing 1,350 units.In the long-run equilibrium, the firm represented in the diagram

Accepted Answer

A) will continue to produce the same quantity. 
B) will reduce its output to 1,100 units. 
C) will reduce its output to 750 units. 
D) will cease to exist.

Question 8

Figure 12-9
  
Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 12-9.At price P₂, the firm would produce

Accepted Answer

A) Q₂ units. 
B) Q₃ units. 
C) Q₄ units. 
D) zero units.

Question 9

A perfectly competitive firm breaks even at a price equal to its minimum average total cost.

Accepted Answer

A) True 
 B)False

Question 10

What is a long-run supply curve? What does a long-run supply curve look like on a perfectly competitive market graph?

Accepted Answer

The answer of What is a long-run supply curve? What...

Question 11

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 12

Table 12-3
  
Arnie sells basketballs in a perfectly competitive market.Table 12-3 summarizes Arnie's output per day (Q), total cost (TC), average total cost (ATC)and marginal cost (MC).
-Refer to Table 12-3.What price (P)will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?

Accepted Answer

A) Price and profit cannot be determined from the information given. 
B) P = $12.50; profit = $52.50 
C) P = $12.50; profit = $22.50 
D) P = $20; profit = $75.00.

Question 13

In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output.

Accepted Answer

A) True 
 B)False

Question 14

Suppose there are economies of scale in the production of a specialized memory chip that is used in manufacturing microwaves.This suggests that the microwave industry is a decreasing-cost industry.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?

Accepted Answer

A) Restaurants do not sell identical products. 
B) Restaurants compete in small market areas - neighborhoods and cities - rather than in regional or national markets. Therefore, restaurants are not small relative to their market size. 
C) Restaurants usually have entry barriers in the form of zoning restrictions and health regulations. 
D) Restaurants have significant liability costs that perfectly competitive firms do not have; for example, customers may sue if they suffer from food poisoning.

Question 16

In the short run, if price falls below a firm's minimum average total cost, the firm should shut down.

Accepted Answer

A) True 
 B)False

Question 17

A perfectly competitive firm will maximize its profit at the rate of output where the vertical distance between its total revenue curve and total cost curve is the largest.This is the same rate 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 18

Figure 12-1
 
-Refer to Figure 12-3.If the firm is producing 500 units

Accepted Answer

A) it is making a profit. 
B) it is making a loss. 
C) it should maintain its output to maximize profit. 
D) it should increase its output to maximize profit.

Question 19

Figure 12-1
 
-Refer to Figure 12-3.If the firm is charging a price of $12 per unit

Accepted Answer

A) it breaks even. 
B) it is making a profit. 
C) it is selling 700 units. 
D) it is not selling any output.

Question 20

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

Accepted Answer

A) True 
 B)False

Exam 12: Firms in Perfectly Competitive Markets

If firms do not earn economic profits in a competitive equilibrium, why would the firms choose to stay in business?

If productive efficiency characterizes a market

Figure 12-2 -Refer to Figure 12-2.Why is the total revenue curve a ray from the origin?

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

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9.At price P₁, the firm would

Maximizing average profit is equivalent to maximizing total profit.

Figure 12-11 -Refer to Figure 12-11.Suppose the prevailing price is $20 and the firm is currently producing 1,350 units.In the long-run equilibrium, the firm represented in the diagram

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9.At price P₂, the firm would produce

A perfectly competitive firm breaks even at a price equal to its minimum average total cost.

What is a long-run supply curve? What does a long-run supply curve look like on a perfectly competitive market graph?

If a perfectly competitive firm achieves productive efficiency then

In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output.

Suppose there are economies of scale in the production of a specialized memory chip that is used in manufacturing microwaves.This suggests that the microwave industry is a decreasing-cost industry.

Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?

In the short run, if price falls below a firm's minimum average total cost, the firm should shut down.

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

Figure 12-1 -Refer to Figure 12-3.If the firm is producing 500 units

Figure 12-1 -Refer to Figure 12-3.If the firm is charging a price of $12 per unit

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.