Question 1

In the short run, if price falls below a firm's minimum average total cost, the firm should shut down.

Accepted Answer

A) True 
 B)False

Question 2

Table 12-3
  Arnie sells basketballs in a perfectly competitive market. Table 12-3 summarizes Arnie's output per day (Q) , total cost (TC) , average total cost (ATC)  and marginal cost (MC) .
-Refer to Table 12-3. 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.E) C) and D)
F) B) and D)

Question 3

Figure 12-2 
-Refer to Figure 12-2. Suppose the firm is currently producing Q2 units. What happens if it expands output to Q3 units?

Accepted Answer

A)   Its profit increases by the size of the vertical distance df.
B)   It makes less profit.
C)   It incurs a loss.
D)   It will be moving toward its profit maximizing output.E) None of the above
F) A) and B)

Question 4

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 - TCE) All of the above
F) A) and C)

Question 5

A very large number of small sellers who sell identical products imply

Accepted Answer

A)   a multitude of vastly different selling prices.
B)   a downward-sloping demand for each seller's product.
C)   the inability of one seller to influence price.
D)   chaos in the market.E) C) and D)
F) A) and B)

Question 6

A perfectly competitive firm in a constant-cost industry produces 3,000 units of a good at a total cost of $36,000. The prevailing market price is $15. What will happen to the number of firms in the industry and to the industry's output in the long run?

Accepted Answer

A)   The number of firms and the industry's output increase.
B)   The number of firms and the industry's output decrease.
C)   The number of firms remains constant and the industry's output increases.
D)   The number of firms remains constant and the industry's output decreases.E) B) and C)
F) B) and D)

Question 7

Assume that firms in a perfectly competitive market are earning economic profits. Which of the following statements describes the change in market price and output as a result of the entry of new firms into this market?

Accepted Answer

A)   The market demand curve shifts to the right, causing price to rise and market output to increase.
B)   The market demand curve shifts to the left, causing price to fall and market output to decrease.
C)   The short-run market supply curve shifts to the right, causing price to fall and total market output to increase.
D)   The short-run market supply curve shifts to the left, causing price to rise and total market output to decrease.E) All of the above
F) None of the above

Question 8

Molly Sharp is producing a documentary about the plight of the six-toed ferrets of Sri Lanka. Molly has spent $125,000 of her own money on this project and the documentary is now complete. Molly just found out that no studio is willing to release her documentary and she must now shop it to cable television networks, where she knows she will not be able to recoup her investment. Which of the following statements regarding Molly Sharp's documentary is true?

Accepted Answer

A)   She should not try to have her documentary aired on television because she cannot recoup her $125,000 investment.
B)   Since the $125,000 is a sunk cost, she should still try to have her documentary aired on television even though she will not see a profit.
C)   The $125,000 is a variable cost, so will not be incurred if she chooses not to have her documentary aired.
D)   The $125,000 investment is an economic cost, and she will still make an accounting profit even if the television network willing to air her documentary pays her less than $125,000.E) A) and D)
F) None of the above

Question 9

Assume the market for organically-grown produce is perfectly competitive. All else equal, as farmers find it less profitable to produce and sell organic produce in this market,

Accepted Answer

A)   the demand curve will shift to the left and the equilibrium price will decrease.
B)   the supply curve will shift to the left and the equilibrium price will increase.
C)   the supply curve will shift to the right, the demand curve will shift to the left, and the equilibrium price will decrease.
D)   the supply curve will shift to the left, the demand curve will shift to the left, and the equilibrium price will increase.E) A) and C)
F) A) and B)

Question 10

A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000. The price of each bushel is $50. Calculate the firm's short-run profit or loss.

Accepted Answer

A)   loss of $14,000
B)   profit of $14,000
C)   profit of $50,000
D)   There is insufficient information to answer the question.E) None of the above
F) All of the above

Question 11

Writing in the New York Times on the technology boom of the late 1990s, Michael Lewis argues, "The sad truth, for investors, seems to be that most of the benefits of new technologies are passed right through to consumers free of charge." What does Lewis means by the benefits of new technology being "passed right through to consumers free of charge"?

Accepted Answer

A)   Firms in perfect competition are price takers. Since they cannot influence price, they cannot dictate who benefits from new technologies, even if the benefits of new technology are being "passed right through to consumers free of charge."
B)   In perfect competition, price equals marginal cost of production. In this sense, consumers receive the new technology "free of charge."
C)   In the long run, price equals the lowest possible average cost of production. In this sense, consumers receive the new technology "free of charge."
D)   In perfect competition, consumers place a value on the good equal to its marginal cost of production and since they are willing to pay the marginal valuation of the good, they are essentially receiving the new technology "free of charge."E) B) and C)
F) C) and D)

Question 12

A firm will make a profit when

Accepted Answer

A)   P > AVC.
B)   P > ATC.
C)   P = ATC.
D)   P = MC.E) B) and D)
F) All of the above

Question 13

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 P2, the firm would

Accepted Answer

A)   lose an amount equal to its fixed cost.
B)   lose an amount more than fixed cost.
C)   lose an amount less than fixed cost.
D)   break even.E) B) and C)
F) A) and D)

Question 14

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

a. Productive efficiency
b. Productive e...

Question 15

In the long run, a firm in a perfectly competitive industry will supply output only if its total revenue covers its

Accepted Answer

A)   explicit plus its implicit costs.
B)   fixed costs.
C)   implicit costs.
D)   explicit costs.E) None of the above
F) A) and B)

Question 16

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.E) B) and C)
F) None of the above

Question 17

What is productive efficiency?

Accepted Answer

A)   a situation in which resources are allocated to their highest profit use
B)   a situation in which resources are allocated such that goods can be produced at their lowest possible average cost
C)   a situation in which resources are allocated such the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it
D)   a situation in which firms produce as much as possibleE) A) and B)
F) A) and C)

Question 18

If a firm shuts down, it

Accepted Answer

A)   will suffer a loss equal to its fixed costs.
B)   will produce nothing but must pay its variable costs.
C)   will produce nothing but must pay its fixed and variable costs.
D)   will earn enough revenue to cover its variable costs but not all of its fixed costs.E) A) and C)
F) All of the above

Question 19

In the long run, perfectly competitive firms earn zero economic profit. Why do firms enter an industry when they know that in the long run, they will not earn any profit?

Accepted Answer

Even though in the long run firms earn z...

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 12: Firms in Perfectly Competitive Markets

If a firm shuts down, it

Correct Answer
verified

A perfectly competitive firm in a constant-cost industry produces 3,000 units of a good at a total cost of $36,000. The prevailing market price is $15. What will happen to the number of firms in the industry and to the industry's output in the long run?

Correct Answer
verified

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 P2, the firm would

Correct Answer
verified

Figure 12-2 -Refer to Figure 12-2. Suppose the firm is currently producing Q2 units. What happens if it expands output to Q3 units?

Correct Answer
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What is productive efficiency?

Correct Answer
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Correct Answer
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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?

Correct Answer
verified

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

Correct Answer
verified

A very large number of small sellers who sell identical products imply

Correct Answer
verified

A firm will make a profit when

Correct Answer
verified

Assume that firms in a perfectly competitive market are earning economic profits. Which of the following statements describes the change in market price and output as a result of the entry of new firms into this market?

Correct Answer
verified

In the long run, perfectly competitive firms earn zero economic profit. Why do firms enter an industry when they know that in the long run, they will not earn any profit?

Correct Answer
verified
Even though in the long run firms earn z...
View Answer

In the short run, if price falls below a firm's minimum average total cost, the firm should shut down.

Correct Answer
verified

A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000. The price of each bushel is $50. Calculate the firm's short-run profit or loss.

Correct Answer
verified

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

Correct Answer
verified

Assume the market for organically-grown produce is perfectly competitive. All else equal, as farmers find it less profitable to produce and sell organic produce in this market,

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

In the long run, a firm in a perfectly competitive industry will supply output only if its total revenue covers its

Correct Answer
verified

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?

Correct Answer
verified
a. Productive efficiency
b. Productive e...
View Answer

Exam 12: Firms in Perfectly Competitive Markets

If a firm shuts down, it

Correct AnswerverifiedShow Answer

A perfectly competitive firm in a constant-cost industry produces 3,000 units of a good at a total cost of $36,000. The prevailing market price is $15. What will happen to the number of firms in the industry and to the industry's output in the long run?

Correct AnswerverifiedShow Answer

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 P2, the firm would

Correct AnswerverifiedShow Answer

Figure 12-2 -Refer to Figure 12-2. Suppose the firm is currently producing Q2 units. What happens if it expands output to Q3 units?

Correct AnswerverifiedShow Answer

What is productive efficiency?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A very large number of small sellers who sell identical products imply

Correct AnswerverifiedShow Answer

A firm will make a profit when

Correct AnswerverifiedShow Answer

Assume that firms in a perfectly competitive market are earning economic profits. Which of the following statements describes the change in market price and output as a result of the entry of new firms into this market?

Correct AnswerverifiedShow Answer

In the long run, perfectly competitive firms earn zero economic profit. Why do firms enter an industry when they know that in the long run, they will not earn any profit?

Correct AnswerverifiedEven though in the long run firms earn z...View AnswerShow Answer

In the short run, if price falls below a firm's minimum average total cost, the firm should shut down.

Correct AnswerverifiedShow Answer

A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000. The price of each bushel is $50. Calculate the firm's short-run profit or loss.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Assume the market for organically-grown produce is perfectly competitive. All else equal, as farmers find it less profitable to produce and sell organic produce in this market,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the long run, a firm in a perfectly competitive industry will supply output only if its total revenue covers its

Correct AnswerverifiedShow Answer

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?

Correct Answerverifieda. Productive efficiencyb. Productive e...View AnswerShow Answer

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Even though in the long run firms earn z...
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a. Productive efficiency
b. Productive e...
View Answer