Question 1

Some markets have many buyers and sellers but fall into the category of monopolistic competition rather than perfect competition. The most common reason for this is

Accepted Answer

A)  there are high barriers to entering these markets. 
B)  firms in these markets sell identical products. 
C)  firms in these markets make high profits. 
D)  firms in these markets do not sell identical products.

Question 2

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 3

Figure 12-2 
-Refer to Figure 12-2. The firm breaks even at an output level of

Accepted Answer

A)  Q1 units. 
B)  Q2 units. 
C)  Q3 units. 
D)  Q4 units.

Question 4

The market demand curve in a perfectly competitive market is downward sloping.

Accepted Answer

A) True 
 B)False

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 P3, the firm would produce

Accepted Answer

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

Question 6

The price of a seller's product in perfect competition is determined by

Accepted Answer

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

Question 7

Table 12-5
  Use the table to answer the following questions.
a. Complete Table 12-5 by filling in the blank cells.
b. Werner is selling in a perfectly competitive market at a price of $40. What is the profit maximizing or loss-minimizing output?
c. Calculate the firm's profit or loss.
d. Should the firm continue to produce in the short run? Explain.
e. If the firm's fixed costs were $30 higher what would be the profit-maximizing output level in the short run? Indicate whether the output level will increase, decrease or remain unchanged compared to your answer in b.
f. Suppose fixed cost remains at $76. If the price of three-ring binders falls to $20 what is the profit-maximizing or loss-minimizing output?
g. Calculate the profit or loss. Should the firm continue to produce in the short run? Explain your answer.
h. Suppose the fixed cost remains at $76. What price corresponds to the shut-down point?
i. Suppose the fixed cost remains at $76. What price corresponds to the break-even point?
-Werner & Sons is a manufacturer of three-ring binders operating in a perfectly competitive industry. Table 12-5 shows the firm's cost schedule.

Accepted Answer

The answer of Table 12-5
  Use the table to...

Question 8

For a perfectly competitive firm, average revenue is equal to

Accepted Answer

A)  marginal cost. 
B)  the market price. 
C)  total revenue. 
D)  average fixed cost.

Question 9

Figure 12-5  Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 12-5. What is the minimum price the firm requires to produce output?

Accepted Answer

A)  $20 
B)  $14 
C)  $5 
D)  It cannot be determined

Question 10

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

Accepted Answer

A)  shutting down 
B)  reducing production 
C)  reducing the use of variable factors 
D)  raising price

Question 11

The marginal revenue curve for a perfectly competitive firm

Accepted Answer

A)  is downward sloping. 
B)  is the same as its demand curve. 
C)  is perfectly inelastic. 
D)  is the same as its marginal cost curve.

Question 12

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...

Question 13

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 14

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 15

Figure 12-9  Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

Accepted Answer

A)  should produce in the short run. 
B)  is making short-run profits. 
C)  should shut down in the short run. 
D)  has covered its fixed cost.

Question 16

If the market price is $25, the average revenue of selling five units is

Accepted Answer

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

Question 17

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 18

Use a graph to show the demand, AVC, ATC, MC, and MR curves of a firm that should temporarily shut down in the short run. Identify the shutdown point on the graph.

Accepted Answer

The answer of Use a graph to show the demand,...

Question 19

Figure 12-10 
-Refer to Figure 12-10. Total revenue at the profit-maximizing level of output is

Accepted Answer

A)  $1,200. 
B)  $2,500. 
C)  $4,800. 
D)  $6,000.

Question 20

Figure 12-1 
-Refer to Figure 12-1. 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.

Exam 12: Firms in Perfectly Competitive Markets

Some markets have many buyers and sellers but fall into the category of monopolistic competition rather than perfect competition. The most common reason for this is

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

Figure 12-2 -Refer to Figure 12-2. The firm breaks even at an output level of

The market demand curve in a perfectly competitive market is downward sloping.

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