Question 1

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 2

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 3

A perfectly competitive firm's short-run supply curve is

Accepted Answer

A)  upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve. 
B)  upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve. 
C)  perfectly elastic at the market price. 
D)  horizontal at the minimum average total cost.

Question 4

In long-run competitive equilibrium,the perfectly competitive firm produces where price equals minimum average total cost.
a.What is this efficiency criterion called?
b.How does it benefit consumers?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

The answer of In long-run competitive equilibrium,the perfectly competitive firm...

Question 5

By what is the price of a seller's product in perfect competition determined?

Accepted Answer

A)  The individual seller 
B)  A few of the sellers 
C)  Market demand and market supply 
D)  The individual demander

Question 6

Competition has driven the economic profits in the video rental business to zero.Surya Bacha,who owns a video rental business,would be better off leaving the industry for another alternative.

Accepted Answer

A) True 
 B)False

Question 7

Table 7.4
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Quantity } & \begin{array} { c } 
\text { Average } \
\text { Fixed Cost }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Variable Cost }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Cost }
\end{array} \
\hline 20 & \$ 40 & \$ 18 & \$ 18 \
\hline 40 & 20 & 14 & 10 \
\hline 60 & 13.1 & 16 & 20 \
\hline 80 & 10 & 22 & 40 \
\hline 100 & 8 & 30 & 62 \
\hline 120 & 6.61 & 40 & 90 \
\hline
\end{array}$$ Table 7.4 shows the short-run cost data of a perfectly competitive firm. Assume that output can only be increased in batches of 20 units.
-Refer to Table 7.4.If the market price is $45,the firm

Accepted Answer

A)  will earn a profit of $3600. 
B)  will suffer a loss of $200. 
C)  will break even. 
D)  will earn profit of $1040.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

A perfectly competitive firm will maximise its profit at the rate of output where the vertical distance between its total revenue and total cost 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 10

To what does the term 'price taker' apply in a perfectly competitive market?

Accepted Answer

A)  sellers and buyers 
B)  firms but not buyers 
C)  buyers but not sellers 
D)  only the smallest sellers and buyers

Question 11

A perfectly competitive wheat farmer in a constant-cost industry produces 1000 bushels of wheat at a total cost of $50 000.The prevailing market price is $48.What will happen to the market price of wheat in the long run?

Accepted Answer

A)  The price remains constant at $48. 
B)  The price falls below $48. 
C)  The price rises above $48. 
D)  There is insufficient information to answer the question.

Question 12

If,for the last bushel of apples produced and sold by an apple farm,marginal revenue exceeds marginal cost,then in producing that bushel the farm

Accepted Answer

A)  added more to total cost than it added to total revenue. 
B)  added an equal amount to both total revenue and total cost. 
C)  added more to total revenue than it added to total cost. 
D)  maximised its profits or minimised its losses.

Question 13

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 14

Figure 7.7  Figure 7.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm.
-Refer to Figure 7.7.At price P2,the firm would produce

Accepted Answer

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

Question 15

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 16

In the short run,a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

Accepted Answer

A) True 
 B)False

Question 17

In analysing the decision to shut down in the short run,we assume that the firm's fixed costs are

Accepted Answer

A)  implicit costs. 
B)  capital costs. 
C)  nonmonetary opportunity costs. 
D)  sunk costs.

Question 18

Figure 7.10 
-Refer to Figure 7.10.Consider a typical firm in a perfectly competitive industry that makes short-run profits.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

Accepted Answer

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

Question 19

Figure 7.7  Figure 7.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm.
-Refer to Figure 7.7.Identify the firm's short-run supply curve.

Accepted Answer

A)  The marginal cost curve 
B)  The marginal cost curve from a and above 
C)  The marginal cost curve from b and above 
D)  The marginal cost curve from d and above

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 7: Firms in Perfectly Competitive Markets

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

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

A perfectly competitive firm's short-run supply curve is

By what is the price of a seller's product in perfect competition determined?

Competition has driven the economic profits in the video rental business to zero.Surya Bacha,who owns a video rental business,would be better off leaving the industry for another alternative.

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

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

To what does the term 'price taker' apply in a perfectly competitive market?

A perfectly competitive wheat farmer in a constant-cost industry produces 1000 bushels of wheat at a total cost of $50 000.The prevailing market price is $48.What will happen to the market price of wheat in the long run?

If,for the last bushel of apples produced and sold by an apple farm,marginal revenue exceeds marginal cost,then in producing that bushel the farm

Figure 7.7 Figure 7.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7.7.At price P₂,the firm would produce

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?

In the short run,a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

In analysing the decision to shut down in the short run,we assume that the firm's fixed costs are

Figure 7.10 -Refer to Figure 7.10.Consider a typical firm in a perfectly competitive industry that makes short-run profits.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

Figure 7.7 Figure 7.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7.7.Identify the firm's short-run supply curve.

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

Exam 7: Firms in Perfectly Competitive Markets

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

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

A perfectly competitive firm's short-run supply curve is

By what is the price of a seller's product in perfect competition determined?

Competition has driven the economic profits in the video rental business to zero.Surya Bacha,who owns a video rental business,would be better off leaving the industry for another alternative.

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

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

To what does the term 'price taker' apply in a perfectly competitive market?

A perfectly competitive wheat farmer in a constant-cost industry produces 1000 bushels of wheat at a total cost of $50 000.The prevailing market price is $48.What will happen to the market price of wheat in the long run?

If,for the last bushel of apples produced and sold by an apple farm,marginal revenue exceeds marginal cost,then in producing that bushel the farm

Figure 7.7 Figure 7.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7.7.At price P2,the firm would produce

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?

In the short run,a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

In analysing the decision to shut down in the short run,we assume that the firm's fixed costs are

Figure 7.10 -Refer to Figure 7.10.Consider a typical firm in a perfectly competitive industry that makes short-run profits.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

Figure 7.7 Figure 7.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7.7.Identify the firm's short-run supply curve.

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

Figure 7.7 Figure 7.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7.7.At price P₂,the firm would produce