Question 1

Ethan Nicholas, who developed the iShoot application for the iPhone 3G, found that to maintain sales in a profitable competitive market, the price of a product

Accepted Answer

A) will usually rise. 
B) will usually fall. 
C) will usually remain stable. 
D) will eventually fall to zero.

Question 2

Figure 8.7  Figure 8.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm.
-Refer to Figure 8.7.Identify the short-run shut down point for the firm.

Accepted Answer

A) a 
B) b 
C) c 
D) d

Question 3

Figure 8.11 
-Refer to Figure 8.11.Suppose the prevailing price is P1 and the firm is currently producing its loss-minimising quantity.If the firm represented in the diagram continues to stay in business, in the long-run equilibrium

Accepted Answer

A) it will reduce its output to Q0 and face a price of P0. 
B) it will continue to produce Q1 but faces the higher price of P2. 
C) it will expand its output to Q2 and face a price of P2. 
D) it will expand its output to Q3 and face a price of P1.

Question 4

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 5

Which of the following is true of firms that are price takers?

Accepted Answer

A) Must lower their prices to increase sales. 
B) Are able to sell a fixed quantity of output at the market price. 
C) Can raise their prices as a result of a successful advertising campaign. 
D) Are able to sell all their output at the market price.

Question 6

Explain two different ways to determine the profit-maximising level of output for a firm in a perfectly competitive market.
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Accepted Answer

The answer of Explain two different ways to determine the...

Question 7

What are the two options for a firm that is operating at a loss in the short run?

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 8

Assuming a market price of $4, fill in the columns in the following table.What is the profit-maximising level of production? What are the two ways to determine the profit-maximising level of production?  __________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

The answer of Assuming a market price of $4, fill...

Question 9

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

Accepted Answer

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

Question 10

After an increase in demand in a constant-cost industry, firms will find themselves with higher average cost curves.

Accepted Answer

A) True 
 B)False

Question 11

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximise profits the firm should

Accepted Answer

A) continue producing at the current output. 
B) produce a larger level of output. 
C) produce a smaller level of output. 
D) There is not enough information given to answer the question.

Question 12

The demand curve for an individual seller's product in perfect competition is

Accepted Answer

A) the same as market demand. 
B) downward sloping. 
C) vertical. 
D) horizontal.

Question 13

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 maximise 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).
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Accepted Answer

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

Question 14

For a perfectly competitive firm, at the profit-maximising output, average revenue equals marginal cost.

Accepted Answer

A) True 
 B)False

Question 15

What assumptions are necessary for a market to be perfectly competitive? Explain why each of these assumptions is important.
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Accepted Answer

The answer of What assumptions are necessary for a market...

Question 16

Figure 8.16 
-Refer to Figure 8.16.If the market price is P1, the allocatively efficient output level is

Accepted Answer

A) Q0 
B) Q1 
C) Q2 
D) There is no allocatively efficient output level because the firm is incurring a loss.

Question 17

Table 8.3  Arnie sells basketballs in a perfectly competitive market.Table 8.3 summarises Arnie's output per day (Q), total cost (TC), average total cost (ATC)and marginal cost (MC).
-Refer to Table 8.3.What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Accepted Answer

A) Q = 1; profit = -$10. 
B) Q = 3; profit = -$7.50 
C) Q = 0; profit = -$10.00 
D) Price and profit cannot be determined from the information given.

Question 18

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 $20.To maximise 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 19

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 profit?

Accepted Answer

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

Question 20

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

Accepted Answer

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

Exam 8: Firms in Perfectly Competitive Markets

Ethan Nicholas, who developed the iShoot application for the iPhone 3G, found that to maintain sales in a profitable competitive market, the price of a product

Figure 8.7 Figure 8.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 8.7.Identify the short-run shut down point for the firm.

Figure 8.11 -Refer to Figure 8.11.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimising quantity.If the firm represented in the diagram continues to stay in business, in the long-run equilibrium

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

Which of the following is true of firms that are price takers?

What are the two options for a firm that is operating at a loss in the short run?

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

After an increase in demand in a constant-cost industry, firms will find themselves with higher average cost curves.

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximise profits the firm should

The demand curve for an individual seller's product in perfect competition is

For a perfectly competitive firm, at the profit-maximising output, average revenue equals marginal cost.

Figure 8.16 -Refer to Figure 8.16.If the market price is P₁, the allocatively efficient output level is

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 profit?

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

Exam 8: Firms in Perfectly Competitive Markets

Ethan Nicholas, who developed the iShoot application for the iPhone 3G, found that to maintain sales in a profitable competitive market, the price of a product

Figure 8.7 Figure 8.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 8.7.Identify the short-run shut down point for the firm.

Figure 8.11 -Refer to Figure 8.11.Suppose the prevailing price is P1 and the firm is currently producing its loss-minimising quantity.If the firm represented in the diagram continues to stay in business, in the long-run equilibrium

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

Which of the following is true of firms that are price takers?

What are the two options for a firm that is operating at a loss in the short run?

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

After an increase in demand in a constant-cost industry, firms will find themselves with higher average cost curves.

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximise profits the firm should

The demand curve for an individual seller's product in perfect competition is

For a perfectly competitive firm, at the profit-maximising output, average revenue equals marginal cost.

Figure 8.16 -Refer to Figure 8.16.If the market price is P1, the allocatively efficient output level is

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 profit?

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

Figure 8.11 -Refer to Figure 8.11.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimising quantity.If the firm represented in the diagram continues to stay in business, in the long-run equilibrium

Figure 8.16 -Refer to Figure 8.16.If the market price is P₁, the allocatively efficient output level is