Question 1

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 2

Which of the following is a characteristic of a firm in a perfectly competitive market?

Accepted Answer

A)  The firm cannot make a profit in the short run because it is too small a part of the total market. 
B)  The firm can make a profit in the long run but not in the short run. 
C)  The firm can sell as much as it wants without having to lower its price. 
D)  The firm must lower its price in order to increase quantity demanded.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Letters are used to represent the terms used to answer this question: price (P),quantity of output (Q),total cost (TC)and average total cost (ATC).Which of the following equations is equal to a firm's average profit?

Accepted Answer

A)  P - ATC 
B)  (P - AT
C)  × Q 
C)  (P × Q) - TC 
D)  P - TC

Question 5

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 6

In the long run,the entry of new firms in an industry

Accepted Answer

A)  harms consumers by forcing prices up above the level of average cost. 
B)  benefits consumers by forcing prices down to the level of total cost. 
C)  harms consumers by forcing prices up above the level of total cost. 
D)  benefits consumers by forcing prices down to the level of average cost.

Question 7

Ted's Pancake Kitchen suffers a short-run loss.When should Ted decide to shut down rather than continue to produce?

Accepted Answer

A)  if his Pancake Kitchen's revenue is less than its variable costs 
B)  if his Pancake Kitchen's revenue is less than its fixed costs 
C)  if his Pancake Kitchen's revenue is less than its explicit costs 
D)  if his Pancake Kitchen's revenue is less than its total costs

Question 8

What is productive efficiency?

Accepted Answer

A)  a situation in which resources are allocated to their highest profit use 
B)  a situation in which resources are allocated such that goods can be produced at their lowest possible average cost 
C)  a situation in which resources are allocated such the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it 
D)  a situation in which firms produce as much as possible

Question 9

In the long run,a firm in a perfectly competitive industry will supply output only if its total revenue covers its

Accepted Answer

A)  explicit costs plus its implicit costs. 
B)  fixed costs. 
C)  implicit costs. 
D)  explicit costs.

Question 10

Producing where marginal revenue equals marginal cost is equivalent to producing where

Accepted Answer

A)  average total cost equals average revenue. 
B)  average fixed cost is minimized. 
C)  total revenue is equal to total cost. 
D)  total profit is maximized.

Question 11

If in a perfectly competitive market,firms are facing a price below their average total cost but above average variable cost at the profit maximizing output,then

Accepted Answer

A)  the industry supply will not change. 
B)  new firms are attracted to the industry. 
C)  some existing firms will exit the industry. 
D)  firms are breaking even.

Question 12

If the market price is $25 in a perfectly competitive market,the marginal revenue from selling the fifth unit is

Accepted Answer

A)  $5. 
B)  $12.50. 
C)  $25. 
D)  $125.

Question 13

Table 9-1
 $\begin{array}{|c|c|c|}
\hline \text { Quantity } & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Variable Cost } \
\text { (dollars) }
\end{array} \
\hline 0 & \$ 1,000 & \$ 0 \
\hline 100 & 1,360 & 360 \
\hline 200 & 1,560 & 560 \
\hline 300 & 1,960 & 960 \
\hline 400 & 2,760 & 1,760 \
\hline 500 & 4,000 & 3,000 \
\hline 600 & 5,800 & 4,800 \
\hline
\end{array}$ Table 9-1 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 9-1.Suppose the fixed cost of production rises by $500 and the price per unit is still $8.What happens to the firm's profit-maximizing output level?

Accepted Answer

A)  It must fall. 
B)  It must rise to offset the increased cost. 
C)  It will remain the same. 
D)  The firm will shut down.

Question 14

Consider the market for wheat which is a perfectly competitive market.Is the market demand curve the same as the demand curve facing an individual producer? If not,explain how and why they are different? Illustrate your answer graphically.

Accepted Answer

The answer of Consider the market for wheat which is...

Question 15

A firm would decide to shut down if its production resulted in

Accepted Answer

A)  MR  AVC. 
C)  AFC > AVC. 
D)  MR < AVC.

Question 16

In the short run,a firm that is operating at a loss has two options.These options are

Accepted Answer

A)  to reduce output or reduce its variable costs. 
B)  to go out of business or declare bankruptcy. 
C)  to shut down temporarily or continue to produce. 
D)  to adopt new technology or change the size of its physical plant.

Question 17

If the long-run average cost curve is U-shaped,the optimal scale of production from society's viewpoint is

Accepted Answer

A)  the minimum efficient scale. 
B)  where maximum economic profit is earned by producers. 
C)  where firm profit is large enough to finance research and development. 
D)  one which guarantees economic profit.

Question 18

In early 2007,Pioneer and JVC,two Japanese electronics firms,each announced that their profits were going to be lower than expected because they both had to cut prices for LCD and plasma television sets.Which of the following could explain why these firms did not simply raise their prices and increase their profits?

Accepted Answer

A)  The move to cut prices is probably just a temporary one to gain market share. In the long run the firms will raise prices and be able to increase their profits. 
B)  Most likely, intense competition between these two major producers probably pushed prices down. Thereafter, each feared that it would lose its customers to the other if it raised its prices. 
C)  In perfect competition, prices are determined by the market and firms will keep lowering prices until there are no profits to be earned. 
D)  The firms are still making profits, just not as high as expected so there is room to lower prices until one can force the other out of business.

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

What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?

Accepted Answer

The answer of What is meant by allocative efficiency? How...

Exam 9: Firms in Perfectly Competitive Markets

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 is a characteristic of a firm in a perfectly competitive market?

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

Letters are used to represent the terms used to answer this question: price (P) ,quantity of output (Q) ,total cost (TC) and average total cost (ATC) .Which of the following equations is equal to a firm's average profit?

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

In the long run,the entry of new firms in an industry

Ted's Pancake Kitchen suffers a short-run loss.When should Ted decide to shut down rather than continue to produce?

What is productive efficiency?

In the long run,a firm in a perfectly competitive industry will supply output only if its total revenue covers its

Producing where marginal revenue equals marginal cost is equivalent to producing where

If in a perfectly competitive market,firms are facing a price below their average total cost but above average variable cost at the profit maximizing output,then

If the market price is $25 in a perfectly competitive market,the marginal revenue from selling the fifth unit is

Consider the market for wheat which is a perfectly competitive market.Is the market demand curve the same as the demand curve facing an individual producer? If not,explain how and why they are different? Illustrate your answer graphically.

A firm would decide to shut down if its production resulted in

In the short run,a firm that is operating at a loss has two options.These options are

If the long-run average cost curve is U-shaped,the optimal scale of production from society's viewpoint is

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

What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?