Question 1

Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterizes the industry if,as demand for tuna increases,fishing boats have to go farther into the ocean to harvest tuna?

Accepted Answer

A) a constant-cost industry 
B) an increasing-cost industry 
C) a decreasing-cost industry 
D) a fixed-cost industry

Question 2

For a firm in a perfectly competitive market,price is

Accepted Answer

A) equal to both average revenue and marginal revenue. 
B) equal to average revenue but greater than marginal revenue. 
C) greater than marginal revenue but less than average revenue. 
D) less than both average revenue and marginal revenue.

Question 3

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 4

Figure 12-10 
-Refer to Figure 12-10.The total cost at the profit-maximizing output level equals

Accepted Answer

A) $4,800. 
B) $3,300. 
C) $2,500. 
D) $1,800.

Question 5

Article Summary
According to the Department of Agriculture,net farm income will fall from $91.1 billion in 2014 to $58.3 billion in 2015,a 36 percent drop and the largest percentage decline since 1983.Falling prices on corn and soybeans are responsible for a portion of the decline in income,as are lower prices for dairy products,hogs,and chickens.The USDA is,however,predicting lower production costs due to falling prices for energy,seed,fertilizer,and pesticides.
-Refer to the Article Summary.Assume that after the record decline in U.S.farm income in 2015,farmers are expected to break even in 2016.This means that at the quantity being produced in 2016

Accepted Answer

A) MC =AVC. 
B) MR =MC. 
C) MR =ATC. 
D) AVC =ATC.

Question 6

Which of the following is a characteristic of a monopoly?

Accepted Answer

A) It is easy for new firms to enter the market. 
B) There is only one seller in the market. 
C) The product is not unique. 
D) The firm has no control over price.

Question 7

Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost,perfectly competitive industry.
-Refer to Figure 12-5.If the firm's fixed cost increases by $1,000 due to a new environmental regulation,what happens in the diagram above?

Accepted Answer

A) All the cost curves shift upward. 
B) Only the average variable cost and average total cost curves shift upward;marginal cost is not affected. 
C) Only the average total cost curve shifts upward;the marginal cost and average variable cost curves are not affected. 
D) None of the curves shifts;only the fixed cost curve,which is not shown here,is affected.

Question 8

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 9

Of the following industries,which are perfectly competitive? For those that are not perfectly competitive,explain why.
a.Restaurants
b.Corn
c.College education
d.Local radio and television

Accepted Answer

The answer of Of the following industries,which are perfectly competitive?...

Question 10

A wheat farmer and a firm in a perfectly competitive market are similar in that

Accepted Answer

A) both face vertical demand curves. 
B) both have to lower their prices if a rival firm lowers its price. 
C) both face horizontal demand curves. 
D) both will earn an economic profit if their total revenue equals their total cost.

Question 11

Mark Frost grows apples in a perfectly competitive market.If we drew a line in a graph that illustrates Mark's total revenue from selling apples,it would be

Accepted Answer

A) a straight,upward-sloping line. 
B) a horizontal line. 
C) a straight,downward-sloping line. 
D) a curve that is negatively sloped at low levels of output and positively sloped at higher levels of output.

Question 12

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 13

For a given quantity,the total profit of a perfectly competitive firm is equal to the vertical distance between the firm's total revenue curve and its total cost curve.

Accepted Answer

A) True 
 B)False

Question 14

Perfectly competitive industries tend to produce low-priced,low-technology products.

Accepted Answer

A) True 
 B)False

Question 15

A constant-cost,perfectly competitive market is in long-run equilibrium.At present,there are 1,000 firms each producing 400 units of output.The price of the good is $60.Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $64.In the new long-run equilibrium,how will the average total cost of producing the good compare to what it was before the price of the good rose?

Accepted Answer

A) The average total cost will be higher than it was before the price increase since the increase in demand will drive up input prices. 
B) The average total cost will be lower than it was before the price increase because of economies of scale. 
C) The average total cost will be higher than it was before the price increase because of diseconomies of scale arising from the increased demand. 
D) The average total cost will be the same as it was before the price increase.

Question 16

Figure 12-13 
-Refer to Figure 12-13.Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing 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 17

Apple introduced its iPhone 3G in July 2008 and within a month sales had topped 3 million units.By April 2009,more than 25,000 apps for the iPhone 3G were available in the iTunes store,an indication that in a competitive market

Accepted Answer

A) the ease at which a new firm can enter a competitive market is low. 
B) the ease at which a new firm can enter a competitive market is high. 
C) entry into the market is blocked. 
D) entry into the market is restricted in the short run,but becomes easier in the long run.

Question 18

A perfectly competitive firm will maximize its profit at the rate of output where the vertical distance between its total revenue curve and total cost curve 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 19

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 20

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

Exam 12: Firms in Perfectly Competitive Markets