Question 1

The market for watermelons in Adelaide is perfectly competitive. A watermelon producer making zero economic profit could make an economic profit if the

Accepted Answer

A)  average total cost of selling watermelons does not change. 
B)  marginal cost of selling watermelons rises. 
C)  average total cost of selling watermelons falls. 
D)  average total cost of selling watermelons rises. 
E)  marginal cost of selling watermelons does not change. 
A)  average total cost of selling watermelons does not change. 
B)  marginal cost of selling watermelons rises. 
C)  average total cost of selling watermelons falls. 
D)  average total cost of selling watermelons rises. 
E)  marginal cost of selling watermelons does not change. C

Question 2

One requirement for an industry to be perfectly competitive is that

Accepted Answer

A)  many firms sell slightly different products. 
B)  there are many firms selling different products. 
C)  there are multiple restrictions on entry into or exit from the market. 
D)  there are no restrictions on entry into or exit from the market. 
E)  sellers and buyers have imperfect information about prices. 
A)  many firms sell slightly different products. 
B)  there are many firms selling different products. 
C)  there are multiple restrictions on entry into or exit from the market. 
D)  there are no restrictions on entry into or exit from the market. 
E)  sellers and buyers have imperfect information about prices. D

Question 3

A perfectly competitive market is in equilibrium and then demand decreases. The decrease in demand means the market price will ________ and eventually there will be ________.

Accepted Answer

A)  rise; entry by new firms 
B)  rise; exit by existing firms 
C)  fall; entry by new firms 
D)  fall; exit by existing firms 
E)  fall; neither entry nor exit because the market is perfectly competitive 
A)  rise; entry by new firms 
B)  rise; exit by existing firms 
C)  fall; entry by new firms 
D)  fall; exit by existing firms 
E)  fall; neither entry nor exit because the market is perfectly competitive D

Question 4

-Use the figure above to answer this question. Consider a perfectly competitive firm in a short-run equilibrium. Figure ________ shows a firm in bad times because the firm makes a(n) ________.

Accepted Answer

A)  A; economic loss of $4 so it must close 
B)  C; normal profit and can stay open in the long run 
C)  B; economic loss of $3 per unit 
D)  B; economic profit because the price exceeds average variable cost 
E)  A; economic loss of $4 per unit if the firm decides to operate 
A)  A; economic loss of $4 so it must close 
B)  C; normal profit and can stay open in the long run 
C)  B; economic loss of $3 per unit 
D)  B; economic profit because the price exceeds average variable cost 
E)  A; economic loss of $4 per unit if the firm decides to operate

Question 5

In the short run, a perfectly competitive firm

Accepted Answer

A)  can possibly make an economic profit or possibly incur an economic loss. 
B)  can make only zero economic profit. 
C)  produces the level of output that sets the average total cost equal to the market price. 
D)  can change only its fixed inputs. 
E)  can vary all its inputs. 
A)  can possibly make an economic profit or possibly incur an economic loss. 
B)  can make only zero economic profit. 
C)  produces the level of output that sets the average total cost equal to the market price. 
D)  can change only its fixed inputs. 
E)  can vary all its inputs.

Question 6

For a perfectly competitive firm, profit maximisation occurs when output is such that

Accepted Answer

A)  average total cost (AT
C)  is minimised. 
B)  total revenue (TR) equals total cost (T
C) . 
C)  total cost (T
C)  is minimised. 
D)  marginal revenue (MR) = marginal cost (M
C) . 
E)  total revenue (TR) is maximised. 
A)  average total cost (AT
C)  is minimised. 
B)  total revenue (TR) equals total cost (T
C) . 
C)  total cost (T
C)  is minimised. 
D)  marginal revenue (MR) = marginal cost (M
C) . 
E)  total revenue (TR) is maximised.

Question 7

If the market price is $50 per unit for a good produced in a perfectly competitive market and the firm's average total cost is $52, then the firm

Accepted Answer

A)  makes zero economic profit. 
B)  makes an economic profit of $2 per unit. 
C)  incurs an economic loss of $2 per unit. 
D)  incurs a total economic loss of $52. 
E)  More information is needed to determine the firm's economic profit or loss per unit. 
A)  makes zero economic profit. 
B)  makes an economic profit of $2 per unit. 
C)  incurs an economic loss of $2 per unit. 
D)  incurs a total economic loss of $52. 
E)  More information is needed to determine the firm's economic profit or loss per unit.

Question 8

-The above figure illustrates a perfectly competitive firm. Curve A represents the

Accepted Answer

A)  MR curve. 
B)  ATC curve. 
C)  MC curve. 
D)  AVC curve. 
E)  AFC curve. 
A)  MR curve. 
B)  ATC curve. 
C)  MC curve. 
D)  AVC curve. 
E)  AFC curve.

Question 9

-The corn market is perfectly competitive, with thousands of corn farmers. In the 2000s, the price of corn soared so that new farmers entered the corn market. Initially, entry ________ the economic profit of the initial corn farmers and in the long run the initial corn farmers ________.

Accepted Answer

A)  decreased; made zero economic profit 
B)  decreased; incurred an economic loss 
C)  increased; made an economic profit 
D)  increased; made zero economic profit 
E)  increased; made an even greater economic profit than initially 
A)  decreased; made zero economic profit 
B)  decreased; incurred an economic loss 
C)  increased; made an economic profit 
D)  increased; made zero economic profit 
E)  increased; made an even greater economic profit than initially

Question 10

-Bill owns a lawn-care company in Bendigo, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals $32 per lawn mowed. If Bill's average total cost curve is ATC, his total economic ________ equals ________.

Accepted Answer

A)  profit; $1,280 per week 
B)  loss; $800 per week 
C)  loss; $1,280 per week 
D)  profit; $480 per week 
E)  profit; $32 per week 
A)  profit; $1,280 per week 
B)  loss; $800 per week 
C)  loss; $1,280 per week 
D)  profit; $480 per week 
E)  profit; $32 per week

Question 11

For a perfectly competitive beef farmer, if the price does not change, an economic profit could turn into an economic loss if the

Accepted Answer

A)  average fixed cost decreases. 
B)  average total cost curve does not change. 
C)  average total cost curve shifts upward. 
D)  average total cost curve shifts downward. 
E)  marginal cost curve shifts downward. 
A)  average fixed cost decreases. 
B)  average total cost curve does not change. 
C)  average total cost curve shifts upward. 
D)  average total cost curve shifts downward. 
E)  marginal cost curve shifts downward.

Question 12

Perfect competition ________ a fair outcome ________.

Accepted Answer

A)  achieves; because total surplus is maximised 
B)  may achieve; if average total costs are minimised 
C)  achieves; because both the fair rules and fair results conditions are met 
D)  does not achieve; because firms must be price takers 
E)  does not achieve; because entrepreneurs only earn a normal profit 
A)  achieves; because total surplus is maximised 
B)  may achieve; if average total costs are minimised 
C)  achieves; because both the fair rules and fair results conditions are met 
D)  does not achieve; because firms must be price takers 
E)  does not achieve; because entrepreneurs only earn a normal profit

Question 13

If a firm in a perfectly competitive market faces an equilibrium price of $5, its marginal revenue

Accepted Answer

A)  will be less than $5. 
B)  may be either greater or less than $5. 
C)  will be any amount but $5. 
D)  will also be $5. 
E)  will be greater than $5. 
A)  will be less than $5. 
B)  may be either greater or less than $5. 
C)  will be any amount but $5. 
D)  will also be $5. 
E)  will be greater than $5.

Question 14

-The above figure shows a perfectly competitive firm. If the market price is $20 per unit, the firm

Accepted Answer

A)  will definitely shut down to minimise its losses. 
B)  will stay open to produce and will make zero economic profit. 
C)  will stay open to produce and will incur an economic loss. 
D)  will stay open to produce and will make an economic profit. 
E)  might shut down but more information is needed about the fixed cost. 
A)  will definitely shut down to minimise its losses. 
B)  will stay open to produce and will make zero economic profit. 
C)  will stay open to produce and will incur an economic loss. 
D)  will stay open to produce and will make an economic profit. 
E)  might shut down but more information is needed about the fixed cost.

Question 15

How does the demand for any one seller's product in perfect competition compare to the market demand for that product?

Accepted Answer

A)  The demand for any one seller's product is perfectly elastic while the market demand curve is downward sloping. 
B)  The demand for any one seller is proportionally smaller but otherwise identical to the market demand. 
C)  The demand for any one seller's product is not perfectly elastic, while the market demand is perfectly elastic. 
D)  They are identical. 
E)  There is no demand for any one seller's competitively sold product. 
A)  The demand for any one seller's product is perfectly elastic while the market demand curve is downward sloping. 
B)  The demand for any one seller is proportionally smaller but otherwise identical to the market demand. 
C)  The demand for any one seller's product is not perfectly elastic, while the market demand is perfectly elastic. 
D)  They are identical. 
E)  There is no demand for any one seller's competitively sold product.

Question 16

-Bill owns a lawn-care company in Bendigo, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals $32 per lawn mowed. Bill's average total cost curve is ATC, so his TOTAL cost of production equals

Accepted Answer

A)  more than $1,800 per week. 
B)  more than $1,400 per week and less than $1,800 per week. 
C)  $0 because Bill shuts down. 
D)  more than $1,200 and less than $1,400 per week. 
E)  more than $0 and less than $1,200 per week. 
A)  more than $1,800 per week. 
B)  more than $1,400 per week and less than $1,800 per week. 
C)  $0 because Bill shuts down. 
D)  more than $1,200 and less than $1,400 per week. 
E)  more than $0 and less than $1,200 per week.

Question 17

In a perfectly competitive industry, when a firm is producing so that its total revenue equals its total cost, the firm is

Accepted Answer

A)  making zero economic profit. 
B)  making an economic profit. 
C)  definitely not maximising its profit. 
D)  incurring an economic loss. 
E)  None of the above answers is correct because the relationship between total revenue and total cost has nothing to do with the firm's profit or loss. 
A)  making zero economic profit. 
B)  making an economic profit. 
C)  definitely not maximising its profit. 
D)  incurring an economic loss. 
E)  None of the above answers is correct because the relationship between total revenue and total cost has nothing to do with the firm's profit or loss.

Question 18

For a perfectly competitive banana producer whose average total cost curve does not change, an economic profit could turn into an economic loss if the

Accepted Answer

A)  marginal cost curve shifts downward. 
B)  market demand for bananas does not change. 
C)  market demand for bananas decreases. 
D)  market demand for bananas increases. 
E)  price of bananas rises. 
A)  marginal cost curve shifts downward. 
B)  market demand for bananas does not change. 
C)  market demand for bananas decreases. 
D)  market demand for bananas increases. 
E)  price of bananas rises.

Question 19

Jennifer's Bakery Shop produces baked goods in a perfectly competitive market. If Jennifer decides to produce her 100th batch of cookies, the marginal cost is $120. She can sell this batch of cookies at a market price of $110. To maximise her profit, Jennifer should

Accepted Answer

A)  shut down. 
B)  charge $120 for this batch. 
C)  not produce this additional batch. 
D)  produce this batch of cookies because its MR exceeds its MC. 
E)  produce this batch of cookies because it will help lower her average fixed cost. 
A)  shut down. 
B)  charge $120 for this batch. 
C)  not produce this additional batch. 
D)  produce this batch of cookies because its MR exceeds its MC. 
E)  produce this batch of cookies because it will help lower her average fixed cost.

Question 20

Which of the following market types has the fewest number of firms?

Accepted Answer

A)  Monopoly 
B)  Perfect competition 
C)  Monopolistic competition 
D)  Perfect competition and monopolistic competition 
E)  Oligopoly 
A)  Monopoly 
B)  Perfect competition 
C)  Monopolistic competition 
D)  Perfect competition and monopolistic competition 
E)  Oligopoly

The market for watermelons in Adelaide is perfectly competitive. A watermelon producer making zero economic profit could make an economic profit if the

One requirement for an industry to be perfectly competitive is that

A perfectly competitive market is in equilibrium and then demand decreases. The decrease in demand means the market price will and eventually there will be .

-Use the figure above to answer this question. Consider a perfectly competitive firm in a short-run equilibrium. Figure shows a firm in bad times because the firm makes a(n) .

In the short run, a perfectly competitive firm

For a perfectly competitive firm, profit maximisation occurs when output is such that

If the market price is $50 per unit for a good produced in a perfectly competitive market and the firm's average total cost is $52, then the firm

-The above figure illustrates a perfectly competitive firm. Curve A represents the

-The corn market is perfectly competitive, with thousands of corn farmers. In the 2000s, the price of corn soared so that new farmers entered the corn market. Initially, entry the economic profit of the initial corn farmers and in the long run the initial corn farmers .

-Bill owns a lawn-care company in Bendigo, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals $32 per lawn mowed. If Bill's average total cost curve is ATC, his total economic equals .

For a perfectly competitive beef farmer, if the price does not change, an economic profit could turn into an economic loss if the

Perfect competition a fair outcome .

If a firm in a perfectly competitive market faces an equilibrium price of $5, its marginal revenue

-The above figure shows a perfectly competitive firm. If the market price is $20 per unit, the firm

How does the demand for any one seller's product in perfect competition compare to the market demand for that product?

-Bill owns a lawn-care company in Bendigo, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals $32 per lawn mowed. Bill's average total cost curve is ATC, so his TOTAL cost of production equals

In a perfectly competitive industry, when a firm is producing so that its total revenue equals its total cost, the firm is

For a perfectly competitive banana producer whose average total cost curve does not change, an economic profit could turn into an economic loss if the

Jennifer's Bakery Shop produces baked goods in a perfectly competitive market. If Jennifer decides to produce her 100th batch of cookies, the marginal cost is $120. She can sell this batch of cookies at a market price of $110. To maximise her profit, Jennifer should

Which of the following market types has the fewest number of firms?

Getting Started

The Australian and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Taxes

Global Markets in Action

Externalities

Public Goods and Common Resources

Consumer Choice and Demand

Production and Cost

Monopoly

Monopolistic Competition

Oligopoly

Markets for Factors of Production

Economic Inequality

Filters

Exam 14: Perfect Competition

The market for watermelons in Adelaide is perfectly competitive. A watermelon producer making zero economic profit could make an economic profit if the

One requirement for an industry to be perfectly competitive is that

A perfectly competitive market is in equilibrium and then demand decreases. The decrease in demand means the market price will ________ and eventually there will be ________.

-Use the figure above to answer this question. Consider a perfectly competitive firm in a short-run equilibrium. Figure ________ shows a firm in bad times because the firm makes a(n) ________.

In the short run, a perfectly competitive firm

For a perfectly competitive firm, profit maximisation occurs when output is such that

If the market price is $50 per unit for a good produced in a perfectly competitive market and the firm's average total cost is $52, then the firm

-The above figure illustrates a perfectly competitive firm. Curve A represents the

-The corn market is perfectly competitive, with thousands of corn farmers. In the 2000s, the price of corn soared so that new farmers entered the corn market. Initially, entry ________ the economic profit of the initial corn farmers and in the long run the initial corn farmers ________.

-Bill owns a lawn-care company in Bendigo, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals $32 per lawn mowed. If Bill's average total cost curve is ATC, his total economic ________ equals ________.

For a perfectly competitive beef farmer, if the price does not change, an economic profit could turn into an economic loss if the

Perfect competition ________ a fair outcome ________.

If a firm in a perfectly competitive market faces an equilibrium price of $5, its marginal revenue

-The above figure shows a perfectly competitive firm. If the market price is $20 per unit, the firm

How does the demand for any one seller's product in perfect competition compare to the market demand for that product?

-Bill owns a lawn-care company in Bendigo, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals $32 per lawn mowed. Bill's average total cost curve is ATC, so his TOTAL cost of production equals

In a perfectly competitive industry, when a firm is producing so that its total revenue equals its total cost, the firm is

For a perfectly competitive banana producer whose average total cost curve does not change, an economic profit could turn into an economic loss if the

Jennifer's Bakery Shop produces baked goods in a perfectly competitive market. If Jennifer decides to produce her 100th batch of cookies, the marginal cost is $120. She can sell this batch of cookies at a market price of $110. To maximise her profit, Jennifer should

Which of the following market types has the fewest number of firms?

Getting Started

The Australian and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Taxes

Global Markets in Action

Externalities

Public Goods and Common Resources

Consumer Choice and Demand

Production and Cost

Monopoly

Monopolistic Competition

Oligopoly

Markets for Factors of Production

Economic Inequality

Filters

A perfectly competitive market is in equilibrium and then demand decreases. The decrease in demand means the market price will and eventually there will be .

-Use the figure above to answer this question. Consider a perfectly competitive firm in a short-run equilibrium. Figure shows a firm in bad times because the firm makes a(n) .

-The corn market is perfectly competitive, with thousands of corn farmers. In the 2000s, the price of corn soared so that new farmers entered the corn market. Initially, entry the economic profit of the initial corn farmers and in the long run the initial corn farmers .

-Bill owns a lawn-care company in Bendigo, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals $32 per lawn mowed. If Bill's average total cost curve is ATC, his total economic equals .

Perfect competition a fair outcome .