Question 1

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows:
  
Suppose the current equilibrium price in the teapot market is $10.To maximize profit, how many teapots will Veronica produce, what price will she charge, and how much profit (or loss)will she make? Draw a graph to illustrate your answer.Your graph should include Veronica's demand, ATC, AVC, MC, and MR curves, the price she is charging, the quantity she is producing, and the area representing her profit (or loss).

Accepted Answer

The answer of Suppose Veronica sells teapots in the perfectly...

Question 2

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 3

If a firm's total variable cost exceeds its total revenue, the firm should stop production by shutting down temporarily.

Accepted Answer

A) True 
 B)False

Question 4

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 P₃, 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 5

An individual seller in perfect competition will not sell at a price lower than the market price because

Accepted Answer

A) demand for the product will exceed supply. 
B) the seller would start a price war. 
C) the seller can sell any quantity she wants at the prevailing market price. 
D) demand is perfectly inelastic.

Question 6

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 P₄, the firm would

Accepted Answer

A) lose an amount equal to its fixed cost. 
B) make a profit. 
C) lose an amount less than fixed cost. 
D) shut down.

Question 7

Assume that firms in a perfectly competitive market are earning economic profits.Which of the following statements describes the change in market price and output as a result of the entry of new firms into this market?

Accepted Answer

A) The market demand curve shifts to the right, causing price to rise and market output to increase. 
B) The market demand curve shifts to the left, causing price to fall and market output to decrease. 
C) The short-run market supply curve shifts to the right, causing price to fall and total market output to increase. 
D) The short-run market supply curve shifts to the left, causing price to rise and total market output to decrease.

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 P₃, the firm would produce

Accepted Answer

A) Q₂ units 
B) Q₃ units. 
C) Q₄ units. 
D) Q₅ units.

Question 9

Figure 12-6
  
Figure 12-6 shows the demand, marginal cost (MC)and average total cost (ATC)curves for Jason's House of Apples.
-Refer to Figure 12-6.To maximize his profit, Jason should produce the rate of output indicated by point

Accepted Answer

A) a. 
B) b. 
C) e. 
D) d.

Question 10

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 11

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?

Accepted Answer

A) The price remains constant at $15. 
B) The price falls to $12. 
C) The price rises above $15. 
D)  There is insufficient information to answer the question.

Question 12

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

Accepted Answer

A) productive efficiency 
B) allocative efficiency 
C) marginal efficiency 
D) profit maximization

Question 13

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm

Accepted Answer

A) is earning a profit. 
B) should shut down. 
C) should increase output. 
D) should increase price.

Question 14

Figure 12-16
 
-Refer to Figure 12-16.Which panel best represents the perfectly competitive organic produce market in which some firms are experiencing short-run losses, and consumers are displaying an increased preference for organic produce?

Accepted Answer

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

Question 15

A perfectly competitive firm's marginal revenue curve is downward sloping.

Accepted Answer

A) True 
 B)False

Question 16

When plasma television sets were first introduced prices were high and few firms were in the market.Later, economic profits attracted new firms and the price of plasma televisions fell.This example illustrates

Accepted Answer

A) a decreasing-cost industry. 
B) that consumers receive this new technology "free of charge" in the sense that they only have to pay a price for plasma televisions equal to the lowest production cost. 
C) an industry with a low minimum efficient scale. 
D) how fickle consumer demands are.

Question 17

New York Times writer Michael Lewis wrote that "The sad truth, for investors, seems to be that most of the benefits....are passed through to consumers free of charge." To which of the following did Lewis refer?

Accepted Answer

A) apple farming in New York state 
B) the Enron accounting scandal 
C) the medical screening industry 
D) new technologies developed in the 1990s

Question 18

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Accepted Answer

A) True 
 B)False

Question 19

Being a price taker, a perfectly competitive firm cannot receive a producer surplus in the short run.

Accepted Answer

A) True 
 B)False

Question 20

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run.Which of the following is one reason for this?

Accepted Answer

A) Owners of perfectly competitive firms realize that their short-run profits are temporary. Therefore, they either sell their businesses or develop other products that will earn short-run profits. 
B) Firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms. But eventually consumers realize that all of the firms sell virtually identical products. 
C) Firms from other countries are able to produce similar products at lower costs. 
D) Firms in these industries sell identical products.

Exam 12: Firms in Perfectly Competitive Markets

The minimum point on the average variable cost curve is called

If a firm's total variable cost exceeds its total revenue, the firm should stop production by shutting down temporarily.

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 P₃, the firm would

An individual seller in perfect competition will not sell at a price lower than the market price because

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 P₄, the firm would

Assume that firms in a perfectly competitive market are earning economic profits.Which of the following statements describes the change in market price and output as a result of the entry of new firms into this market?

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 P₃, the firm would produce

Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6.To maximize his profit, Jason should produce the rate of output indicated by point

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?

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm

Figure 12-16 -Refer to Figure 12-16.Which panel best represents the perfectly competitive organic produce market in which some firms are experiencing short-run losses, and consumers are displaying an increased preference for organic produce?

A perfectly competitive firm's marginal revenue curve is downward sloping.

When plasma television sets were first introduced prices were high and few firms were in the market.Later, economic profits attracted new firms and the price of plasma televisions fell.This example illustrates

New York Times writer Michael Lewis wrote that "The sad truth, for investors, seems to be that most of the benefits....are passed through to consumers free of charge." To which of the following did Lewis refer?

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Being a price taker, a perfectly competitive firm cannot receive a producer surplus in the short run.

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run.Which of the following is one reason for this?