Question 1

-The above figure shows the cost curves for a perfectly competitive firm. If all firms in the market have the same cost curves and the price equals $16 per unit

Accepted Answer

A)  the market is in its long-run equilibrium. 
B)  over time, firms will leave this market. 
C)  the firm is making zero economic profit. 
D)  over time, the price will fall as new firms enter the market. 
A)  the market is in its long-run equilibrium. 
B)  over time, firms will leave this market. 
C)  the firm is making zero economic profit. 
D)  over time, the price will fall as new firms enter the market. D

Question 2

-Petunia's Farm produces and sells milk. The market for milk is perfectly competitive. The market price of milk is $2.50 per gallon. The relationship between the farm's output and total costs is shown in the table above.
a) Draw Petunia's average variable, average total, and marginal cost curves.
b) Use your graphs to find Petunia's profit-maximizing output.
c) If Petunia maximizes her profit, how much profit does she make?
d) What is Petunia's shutdown point? What is her economic profit at the shut-down point?
e) Should Petunia shut down? Will farms with costs the same as Petunia's enter or exit the milk market? Explain.

Accepted Answer

a) Petunia's cost schedules are shown in the table above and the cost curves are shown in the figure above.
b) As shown in the graph, marginal cost equals the price when the farm produces 450 gallons of milk per day. So Petunia's profit-maximizing level of output is 450 gallons per day.
c) At the profit maximizing level of output, the average total cost is $2.86 per gallon. Because the price is $2.50 per gallon, the economic profit per gallon is $2.50 - $2.86 = -$0.36 per gallon, that is, an economic loss of $0.36 per gallon. The total economic loss is -$0.36 × 450 = -$162 per day.
d) A firm's shut-down point is the output and price at which the firm just covers its variable costs. As shown in the graph, Petunia can just cover her variable costs when the price falls to $1.90 per gallon and the farm produces 400 gallons of milk per day. At the shut-down point, the farm suffers an economic loss equal to the fixed costs. So Petunia's economic profit is negative $400.
e) As soon as the market price is above the shut-down point, Petunia should not shut down. If the farm continues to operate, it can cover part of the fixed costs and only loses $162 per day. If the firm shuts down, the economic loss equals total fixed cost, i.e. $400 per day. But since Petunia's profit is below normal, her farm and other farms with the same costs will exit the market in the long run.

Question 3

If firms in a competitive market are ________ then there is ________ for firms to ________ the industry.

Accepted Answer

A)  incurring economic losses; an incentive; exit 
B)  incurring economic losses; no incentive; exit 
C)  making economic profits; no incentive; enter 
D)  making zero economic profit; an incentive; exit 
A)  incurring economic losses; an incentive; exit 
B)  incurring economic losses; no incentive; exit 
C)  making economic profits; no incentive; enter 
D)  making zero economic profit; an incentive; exit A

Question 4

For a perfectly competitive firm, the shutdown point is the

Accepted Answer

A)  amount of output at which price equals minimum average variable cost. 
B)  amount of output at which price equals minimum average total cost. 
C)  price at which economic profit is zero. 
D)  price at which total opportunity cost is zero. 
A)  amount of output at which price equals minimum average variable cost. 
B)  amount of output at which price equals minimum average total cost. 
C)  price at which economic profit is zero. 
D)  price at which total opportunity cost is zero.

Question 5

-Archibald's Tattoos is a perfectly competitive firm. The firm's costs are shown in the table above. If the market price of a tattoo is $17.50 what is the firm's profit-maximizing output?

Accepted Answer

A)  2 tattoos per hour 
B)  3 tattoos per hour 
C)  4 tattoos per hour 
D)  5 tattoos per hour 
A)  2 tattoos per hour 
B)  3 tattoos per hour 
C)  4 tattoos per hour 
D)  5 tattoos per hour

Question 6

A firm's shutdown point is the output and price at which the firm's total revenue just equals its total variable cost.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is TRUE?

Accepted Answer

A)  The presence of positive economic profit in a perfectly competitive market is consistent with the characteristics of a long-run competitive equilibrium. 
B)  When firms in a perfectly competitive market incur economic losses, some will exit in the long run, thereby shifting the industry supply curve rightward. 
C)  If a profit-maximizing firm in a perfectly competitive market is making an economic profit, then it must be producing at a level of output where price is greater than average total cost. 
D)  If a profit-maximizing firm in a perfectly competitive market is incurring an economic loss, then it must be producing at a level of output where price is greater than average total cost. 
A)  The presence of positive economic profit in a perfectly competitive market is consistent with the characteristics of a long-run competitive equilibrium. 
B)  When firms in a perfectly competitive market incur economic losses, some will exit in the long run, thereby shifting the industry supply curve rightward. 
C)  If a profit-maximizing firm in a perfectly competitive market is making an economic profit, then it must be producing at a level of output where price is greater than average total cost. 
D)  If a profit-maximizing firm in a perfectly competitive market is incurring an economic loss, then it must be producing at a level of output where price is greater than average total cost.

Question 8

Which of the following is NOT a characteristic of a perfectly competitive industry?

Accepted Answer

A)  There are many firms. 
B)  There are no restrictions on entry into the market. 
C)  Each firm produces a slightly differentiated product. 
D)  Each firm takes price as given, determined by the equilibrium of industry supply and industry demand. 
A)  There are many firms. 
B)  There are no restrictions on entry into the market. 
C)  Each firm produces a slightly differentiated product. 
D)  Each firm takes price as given, determined by the equilibrium of industry supply and industry demand.

Question 9

In the short run a perfectly competitive firm will

Accepted Answer

A)  never shut down. 
B)  shut down if P  AFC. 
A)  never shut down. 
B)  shut down if P  AFC.

Question 10

A perfectly competitive firm will shut down rather than produce if its

Accepted Answer

A)  price is less than average variable cost. 
B)  price is less than total variable cost. 
C)  total revenue is less than total cost. 
D)  price is less than marginal cost. 
A)  price is less than average variable cost. 
B)  price is less than total variable cost. 
C)  total revenue is less than total cost. 
D)  price is less than marginal cost.

Question 11

-Fast Copy is a perfectly competitive firm. The figure above shows Fast Copy's cost curves. If the market price is 2 cents per page, what is Fast Copy's economic profit?

Accepted Answer

A)  zero 
B)  between 0 and $0.50 per hour 
C)  between $0.51 and $1.00 per hour 
D)  more than $1.00 per hour 
A)  zero 
B)  between 0 and $0.50 per hour 
C)  between $0.51 and $1.00 per hour 
D)  more than $1.00 per hour

Question 12

Will a perfectly competitive firm ever produce in the short run even though it is incurring an economic loss?

Accepted Answer

Yes, a perfectly competitive firm will c

Question 13

-In the above figure, if the price is $10, a profit-maximizing perfectly competitive firm will

Accepted Answer

A)  produce 40 units. 
B)  produce 25 units. 
C)  produce 10 units. 
D)  choose not to produce. 
A)  produce 40 units. 
B)  produce 25 units. 
C)  produce 10 units. 
D)  choose not to produce.

Question 14

-In the above table, the marginal revenue from the fourth unit of output is

Accepted Answer

A)  $30. 
B)  $147. 
C)  $150. 
D)  $180. 
A)  $30. 
B)  $147. 
C)  $150. 
D)  $180.

Question 15

A perfectly competitive firm maximizes its economic profit when it produces the quantity that sets

Accepted Answer

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

Question 16

The shutdown point occurs at the level of output for which the ________ is at its minimum.

Accepted Answer

A)  marginal cost 
B)  average variable cost 
C)  average fixed cost 
D)  total cost 
A)  marginal cost 
B)  average variable cost 
C)  average fixed cost 
D)  total cost

Question 17

-Consider the perfectly competitive firm in the above figure. At the profit maximizing level of output, the firm is

Accepted Answer

A)  incurring an economic loss equal to $119.00. 
B)  incurring an economic loss equal to $123.50. 
C)  incurring an economic loss equal to $187.00. 
D)  making zero economic profit. 
A)  incurring an economic loss equal to $119.00. 
B)  incurring an economic loss equal to $123.50. 
C)  incurring an economic loss equal to $187.00. 
D)  making zero economic profit.

Question 18

-Cory's is one of many ice cream stands in town. Cory's costs are shown in the table above.
a) If the market price of ice cream is $1.75 per cone, what is Cory's profit-maximizing quantity of cones?
b) If the market price of ice cream is $2.25 per cone, what is Cory's profit-maximizing quantity of coins?
c) If the market price of ice cream is $2.75 per cone, what is Cory's profit-maximizing quantity of coins?
d) Can you determine any points on Cory's supply curve?

Accepted Answer

@#IMG-DLM& a) Cory's profit is maximized when his

Question 19

-The above table gives Amy's total cost schedule for producing holiday wreaths. Amy is a perfect competitor and can sell each wreath for $9.
a) Complete the table by calculating Amy's total revenue and her profit or loss schedule.
b) When Amy is producing 4 wreaths, what is her total cost? What is her total revenue? What is her economic profit or economic loss?
c) What number of wreaths maximizes Amy's profit?

Accepted Answer

@#IMG-DLM& a) The completed table is above.
b) Whe

Question 20

-In a perfectly competitive market, the market supply curve is the sum of the

Accepted Answer

A)  supply curves of all the individual firms. 
B)  average variable cost curves of all the individual firms. 
C)  average total cost curves of all the individual firms. 
D)  average fixed cost curves of all the individual firms. 
A)  supply curves of all the individual firms. 
B)  average variable cost curves of all the individual firms. 
C)  average total cost curves of all the individual firms. 
D)  average fixed cost curves of all the individual firms.

-The above figure shows the cost curves for a perfectly competitive firm. If all firms in the market have the same cost curves and the price equals $16 per unit

If firms in a competitive market are then there is for firms to the industry.

For a perfectly competitive firm, the shutdown point is the

-Archibald's Tattoos is a perfectly competitive firm. The firm's costs are shown in the table above. If the market price of a tattoo is $17.50 what is the firm's profit-maximizing output?

A firm's shutdown point is the output and price at which the firm's total revenue just equals its total variable cost.

Which of the following statements is TRUE?

Which of the following is NOT a characteristic of a perfectly competitive industry?

In the short run a perfectly competitive firm will

A perfectly competitive firm will shut down rather than produce if its

-Fast Copy is a perfectly competitive firm. The figure above shows Fast Copy's cost curves. If the market price is 2 cents per page, what is Fast Copy's economic profit?

Will a perfectly competitive firm ever produce in the short run even though it is incurring an economic loss?

-In the above figure, if the price is $10, a profit-maximizing perfectly competitive firm will

-In the above table, the marginal revenue from the fourth unit of output is

A perfectly competitive firm maximizes its economic profit when it produces the quantity that sets

The shutdown point occurs at the level of output for which the ________ is at its minimum.

-Consider the perfectly competitive firm in the above figure. At the profit maximizing level of output, the firm is

-In a perfectly competitive market, the market supply curve is the sum of the

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Monopoly

Monopolistic Competition

Oligopoly

Public Choices, Public Goods, and Healthcare

Externalities

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Filters

Exam 12: Perfect Competition

-The above figure shows the cost curves for a perfectly competitive firm. If all firms in the market have the same cost curves and the price equals $16 per unit

If firms in a competitive market are ________ then there is ________ for firms to ________ the industry.

For a perfectly competitive firm, the shutdown point is the

-Archibald's Tattoos is a perfectly competitive firm. The firm's costs are shown in the table above. If the market price of a tattoo is $17.50 what is the firm's profit-maximizing output?

A firm's shutdown point is the output and price at which the firm's total revenue just equals its total variable cost.

Which of the following statements is TRUE?

Which of the following is NOT a characteristic of a perfectly competitive industry?

In the short run a perfectly competitive firm will

A perfectly competitive firm will shut down rather than produce if its

-Fast Copy is a perfectly competitive firm. The figure above shows Fast Copy's cost curves. If the market price is 2 cents per page, what is Fast Copy's economic profit?

Will a perfectly competitive firm ever produce in the short run even though it is incurring an economic loss?

-In the above figure, if the price is $10, a profit-maximizing perfectly competitive firm will

-In the above table, the marginal revenue from the fourth unit of output is

A perfectly competitive firm maximizes its economic profit when it produces the quantity that sets

The shutdown point occurs at the level of output for which the ________ is at its minimum.

-Consider the perfectly competitive firm in the above figure. At the profit maximizing level of output, the firm is

-In a perfectly competitive market, the market supply curve is the sum of the

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Monopoly

Monopolistic Competition

Oligopoly

Public Choices, Public Goods, and Healthcare

Externalities

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Filters

If firms in a competitive market are then there is for firms to the industry.