Question 1

If total revenue exceeds fixed cost,a firm

Accepted Answer

A) should produce in the short run. 
B) has covered its variable cost. 
C) is making short-run profits. 
D) may or may not produce in the short run,depending on whether total revenue covers variable cost. 
A) should produce in the short run. 
B) has covered its variable cost. 
C) is making short-run profits. 
D) may or may not produce in the short run,depending on whether total revenue covers variable cost.

Question 2

In analysing the decision to shut down in the short run,we assume that the firm's fixed costs are

Accepted Answer

A) implicit costs. 
B) capital costs. 
C) nonmonetary opportunity costs. 
D) sunk costs. 
A) implicit costs. 
B) capital costs. 
C) nonmonetary opportunity costs. 
D) sunk costs.

Question 3

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-maximising quantity.

Accepted Answer

A) True 
 B)False

Question 4

In a graph that illustrates a perfectly competitive firm,marginal revenue is

Accepted Answer

A) a diagonal line that lies below the firm's demand curve. 
B) a line that intersects the firm's demand curve from below at its lowest point. 
C) a line that intersects the firm's average total cost curve from below at its lowest point. 
D) the same as the firm's demand curve. 
A) a diagonal line that lies below the firm's demand curve. 
B) a line that intersects the firm's demand curve from below at its lowest point. 
C) a line that intersects the firm's average total cost curve from below at its lowest point. 
D) the same as the firm's demand curve.

Question 5

Figure 8-4   Figure 8-4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market.
-Refer to Figure 8-4.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 $1080 
B) profit of $1440 
C) loss of $2520 
D) profit of $1300 
A) loss of $1080 
B) profit of $1440 
C) loss of $2520 
D) profit of $1300

Question 6

Figure 8-7   Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm.
-Refer to Figure 8-7.At price P4,the firm would

Accepted Answer

A) lose an amount equal to its fixed cost. 
B) make a profit. 
C) lose an amount less than fixed cost. 
D) make a normal profit. 
A) lose an amount equal to its fixed cost. 
B) make a profit. 
C) lose an amount less than fixed cost. 
D) make a normal profit.

Question 7

The minimum point on the average variable cost curve is called the loss-minimising point.

Accepted Answer

A) True 
 B)False

Question 8

In a perfectly competitive industry,in the long-run equilibrium

Accepted Answer

A) the typical firm is producing at the output where its long-run average total cost is not minimised. 
B) the typical firm is earning an accounting profit greater than its implicit costs. 
C) the typical firm earns zero profit. 
D) the typical firm is maximising its revenue. 
A) the typical firm is producing at the output where its long-run average total cost is not minimised. 
B) the typical firm is earning an accounting profit greater than its implicit costs. 
C) the typical firm earns zero profit. 
D) the typical firm is maximising its revenue.

Question 9

If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold,what should the farm do to maximise its profit?

Accepted Answer

A) determine what the total revenue and total cost of production are 
B) increase output 
C) decrease output 
D) lower its price to sell more 
A) determine what the total revenue and total cost of production are 
B) increase output 
C) decrease output 
D) lower its price to sell more

Question 10

In early 2007,Pioneer and JVC,two Japanese electronics firms,each announced that their profits were going to be lower than expected because they both had to cut prices for LCD and plasma television sets.Which of the following could explain why these firms did not simply raise their prices and increase their profits?

Accepted Answer

A) The move to cut prices is probably just a temporary one to gain market share.In the long run the firms will raise prices and be able to increase their profits. 
B) Most likely,intense competition between these two major producers probably pushed prices down.Thereafter,each feared that it would lose its customers to the other if it raised its prices. 
C) In perfect competition,prices are determined by the market,and firms will keep lowering prices until there are no profits to be earned. 
D) The firms are still making profits,just not as high as expected,so there is room to lower prices until one can force the other out of business. 
A) The move to cut prices is probably just a temporary one to gain market share.In the long run the firms will raise prices and be able to increase their profits. 
B) Most likely,intense competition between these two major producers probably pushed prices down.Thereafter,each feared that it would lose its customers to the other if it raised its prices. 
C) In perfect competition,prices are determined by the market,and firms will keep lowering prices until there are no profits to be earned. 
D) The firms are still making profits,just not as high as expected,so there is room to lower prices until one can force the other out of business.

Question 11

Which of the following statements is correct?

Accepted Answer

A) Economic profit takes into account all costs involved in producing a product. 
B) Accounting profit is not relevant in preparing the firm's financial statement. 
C) Economic profit always exceeds accounting profit. 
D) Accounting profit is the same as economic profit. 
A) Economic profit takes into account all costs involved in producing a product. 
B) Accounting profit is not relevant in preparing the firm's financial statement. 
C) Economic profit always exceeds accounting profit. 
D) Accounting profit is the same as economic profit.

Question 12

In a perfectly competitive market,the term 'price taker' applies to

Accepted Answer

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

Question 13

Explain two different ways to determine the profit-maximising level of output for a firm in a perfectly competitive market.

Accepted Answer

One way is using total revenue and total

Question 14

A perfectly competitive firm in a constant-cost industry produces 1000 units of a good at a total cost of $50 000.If the prevailing market price is $48,the number of firms and the industry's output will decrease in the long run.

Accepted Answer

A) True 
 B)False

Question 15

Profit is the difference between

Accepted Answer

A) marginal revenue and marginal cost. 
B) total revenue and variable cost. 
C) total revenue and total explicit cost. 
D) total revenue and total cost. 
A) marginal revenue and marginal cost. 
B) total revenue and variable cost. 
C) total revenue and total explicit cost. 
D) total revenue and total cost.

Question 16

Figure 8-5   Figure 8-5 shows cost and demand curves facing a typical firm in a constant-cost,perfectly competitive industry.
-Refer to Figure 8-5.What is the amount of the firm's fixed cost of production?

Accepted Answer

A) $5400 
B) $6750 
C) $8100 
D) It cannot be determined. 
A) $5400 
B) $6750 
C) $8100 
D) It cannot be determined.

Question 17

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. 
A) explicit plus its implicit costs. 
B) fixed costs. 
C) implicit costs. 
D) explicit costs.

Question 18

If a firm in a perfectly competitive industry experiences persistent losses,in the long run it should

Accepted Answer

A) shut down temporarily and wait for market conditions to change. 
B) exit the industry. 
C) raise its price to cover average total cost. 
D) continue to operate if it can raise the demand for its product through advertising and quality improvements. 
A) shut down temporarily and wait for market conditions to change. 
B) exit the industry. 
C) raise its price to cover average total cost. 
D) continue to operate if it can raise the demand for its product through advertising and quality improvements.

Question 19

Figure 8-14  
-Refer to Figure 8-14.Which panel best represents the perfectly competitive organic produce market in which some firms are experiencing short-run losses,and consumers are displaying an increased preference for organic produce?

Accepted Answer

A) Panel A 
B) Panel B 
C) Panel C 
D) Panel D 
A) Panel A 
B) Panel B 
C) Panel C 
D) Panel D

Question 20

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. 
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.

If total revenue exceeds fixed cost,a firm

In analysing the decision to shut down in the short run,we assume that the firm's fixed costs are

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-maximising quantity.

In a graph that illustrates a perfectly competitive firm,marginal revenue is

Figure 8-4 Figure 8-4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market. -Refer to Figure 8-4.If the market price is $30 and the firm is producing output,what is the amount of the firm's profit or loss?

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₄,the firm would

The minimum point on the average variable cost curve is called the loss-minimising point.

In a perfectly competitive industry,in the long-run equilibrium

If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold,what should the farm do to maximise its profit?

Which of the following statements is correct?

In a perfectly competitive market,the term 'price taker' applies to

Explain two different ways to determine the profit-maximising level of output for a firm in a perfectly competitive market.

A perfectly competitive firm in a constant-cost industry produces 1000 units of a good at a total cost of $50 000.If the prevailing market price is $48,the number of firms and the industry's output will decrease in the long run.

Profit is the difference between

Figure 8-5 Figure 8-5 shows cost and demand curves facing a typical firm in a constant-cost,perfectly competitive industry. -Refer to Figure 8-5.What is the amount of the firm's fixed cost of production?

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

If a firm in a perfectly competitive industry experiences persistent losses,in the long run it should

Figure 8-14 -Refer to Figure 8-14.Which panel best represents the perfectly competitive organic produce market in which some firms are experiencing short-run losses,and consumers are displaying an increased preference for organic produce?

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,

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: the Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Consumer Choice and Behavioural Economics

Technology, Production and Costs

Monopoly Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

The Markets for Labour and Other Factors of Production

International Trade

Government Intervention in the Market

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

Exam 8: Firms in Perfectly Competitive Markets

If total revenue exceeds fixed cost,a firm

In analysing the decision to shut down in the short run,we assume that the firm's fixed costs are

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-maximising quantity.

In a graph that illustrates a perfectly competitive firm,marginal revenue is

Figure 8-4 Figure 8-4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market. -Refer to Figure 8-4.If the market price is $30 and the firm is producing output,what is the amount of the firm's profit or loss?

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P4,the firm would

The minimum point on the average variable cost curve is called the loss-minimising point.

In a perfectly competitive industry,in the long-run equilibrium

If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold,what should the farm do to maximise its profit?

Which of the following statements is correct?

In a perfectly competitive market,the term 'price taker' applies to

Explain two different ways to determine the profit-maximising level of output for a firm in a perfectly competitive market.

A perfectly competitive firm in a constant-cost industry produces 1000 units of a good at a total cost of $50 000.If the prevailing market price is $48,the number of firms and the industry's output will decrease in the long run.

Profit is the difference between

Figure 8-5 Figure 8-5 shows cost and demand curves facing a typical firm in a constant-cost,perfectly competitive industry. -Refer to Figure 8-5.What is the amount of the firm's fixed cost of production?

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

If a firm in a perfectly competitive industry experiences persistent losses,in the long run it should

Figure 8-14 -Refer to Figure 8-14.Which panel best represents the perfectly competitive organic produce market in which some firms are experiencing short-run losses,and consumers are displaying an increased preference for organic produce?

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,

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: the Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Consumer Choice and Behavioural Economics

Technology, Production and Costs

Monopoly Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

The Markets for Labour and Other Factors of Production

International Trade

Government Intervention in the Market

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₄,the firm would