Question 1

Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 12-4.If the market price is $30 and the firm is producing output,what is the amount of the firm's profit or loss?

Accepted Answer

A) loss of $1,080 
B) profit of $1,440 
C) loss of $2,520 
D) profit of $1,300

Question 2

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 market price is $20,what is the amount of the firm's profit?

Accepted Answer

A) $5,400 
B) $6,750 
C) $8,100 
D) $16,200

Question 3

If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit,then

Accepted Answer

A) marginal revenue is less than price. 
B) average total cost is at a minimum. 
C) total revenue equals total cost. 
D) price exceeds average total cost.

Question 4

Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost,perfectly competitive industry.
-Refer to Figure 12-5.The firm's manager suggests that the firm's goal should be to maximize average profit.In that case,what is the output level and what is the average profit that will achieve the manager's goal?

Accepted Answer

A) Q = 1,350 units,average profit = $5 
B) Q = 1,100 units,average profit = $6 
C) Q = 1,350 units,average profit = $9 
D) Q = 1,800 units,average profit = $20

Question 5

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

Accepted Answer

A) Allocative efficiency is achieved only in the long run.Productive efficiency is achieved only in the short run. 
B) Allocative efficiency is achieved only in the long run.Productive efficiency is achieved in the short run and the long run. 
C) Allocative efficiency is achieved only in the short run.Productive efficiency is achieved only in the long run. 
D) Allocative efficiency is achieved in the short run and the long run.Productive efficiency is achieved only in the long run.

Question 6

The supply curve of a perfectly competitive firm in the short run is

Accepted Answer

A) the firm's average variable cost curve. 
B) the portion of the firm's marginal cost curve below the minimum point of the average variable cost curve. 
C) the portion of the firm's marginal cost curve above the minimum point of the average variable cost curve. 
D) the portion of the firm's marginal cost curve above the minimum point of the average total cost curve.

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 market price is $20,what is the firm's profit-maximizing output?

Accepted Answer

A) 750 units 
B) 1,100 units 
C) 1,350 units 
D) 1,800 units

Question 8

Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 12-4.If the market price is $30,the firm's profit-maximizing output level is

Accepted Answer

A) 0. 
B) 130. 
C) 180. 
D) 240.

Question 9

Figure 12-9 shows cost and demand curves facing a profit-maximizing,perfectly competitive firm.
-Refer to Figure 12-9.At price P4,the firm would produce

Accepted Answer

A) Q3 units. 
B) Q4 units. 
C) Q5 units. 
D) Q6 units.

Question 10

Figure 12-19 
-Refer to Figure 12-19.The figure above shows the cost curves of a perfectly competitive firm in the coffee market.Use the graph in Figure 12-19 to answer the following questions.Assume the market price is $3 per pound.
a.What is the lowest price at which the coffee grower will supply output in the short run?
b.In the diagram draw the firm's demand curve (label this "MR" for marginal revenue).
c.What is the firm's profit-maximizing output?
d.Is the firm earning a profit or a loss? Identify the area in the graph that represents the firm's profit or loss.
e.Explain how entry or exit will occur in the market to ensure that firms will break even in the long run.

Accepted Answer

The answer of Figure 12-19 
-Refer to Figure 12-19.The figure...

Question 11

If a firm shuts down in the short run

Accepted Answer

A) its loss equals zero. 
B) its loss equals its fixed cost. 
C) is makes zero economic profit. 
D) its total revenue is not large enough to cover its fixed cost.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Accepted Answer

A) True 
 B)False

Question 14

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 15

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 16

Assume that price is greater than average variable cost.If a perfectly competitive firm is producing at an output where price is $114 and the marginal cost is $102,then the firm is probably producing more than its profit-maximizing quantity.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

If a typical firm in a perfectly competitive industry is incurring losses,then

Accepted Answer

A) all firms will continue to lose money. 
B) some firms will exit in the long run,causing market supply to decrease and market price to rise increasing profits for the remaining firms. 
C) some firms will exit in the long run,causing market supply to decrease and market price to fall increasing losses for the remaining firms. 
D) some firms will enter in the long run,causing market supply to increase and market price to rise increasing profit for all firms.

Question 19

To maximize profit,a perfectly competitive firm

Accepted Answer

A) should sell the quantity of output determined by the interaction between industry demand and supply. 
B) should sell the quantity of output that results in a value for total revenue that is equal to total cost. 
C) should produce the quantity of output that results in the greatest difference between total revenue and total cost. 
D) should produce the quantity of output that results in the greatest difference between marginal revenue and marginal cost.

Question 20

In a perfectly competitive market the term "price taker" applies to

Accepted Answer

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

Exam 12: Firms in Perfectly Competitive Markets

Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 12-4.If the market price is $30 and the firm is producing output,what is the amount of the firm's profit or loss?

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 market price is $20,what is the amount of the firm's profit?

If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit,then

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

The supply curve of a perfectly competitive firm in the short run is

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 market price is $20,what is the firm's profit-maximizing output?

Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 12-4.If the market price is $30,the firm's profit-maximizing output level is

Figure 12-9 shows cost and demand curves facing a profit-maximizing,perfectly competitive firm. -Refer to Figure 12-9.At price P4,the firm would produce

If a firm shuts down in the short run

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

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

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 is not an assumption of perfectly competitive markets?

Assume that price is greater than average variable cost.If a perfectly competitive firm is producing at an output where price is $114 and the marginal cost is $102,then the firm is probably producing more than its profit-maximizing quantity.

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

If a typical firm in a perfectly competitive industry is incurring losses,then

To maximize profit,a perfectly competitive firm

In a perfectly competitive market the term "price taker" applies to