Question 1

If,as a perfectly competitive industry expands,it can supply larger quantities only at a higher long-run equilibrium price,it is

Accepted Answer

A) a constant-cost industry. 
B) an increasing-cost industry. 
C) a decreasing-cost industry. 
D) a fixed-cost industry. 
A) a constant-cost industry. 
B) an increasing-cost industry. 
C) a decreasing-cost industry. 
D) a fixed-cost industry.

Question 2

For a perfectly competitive firm,at profit maximisation

Accepted Answer

A) market price exceeds marginal cost. 
B) total revenue is maximised. 
C) marginal revenue equals marginal cost. 
D) production must occur where average cost is minimised. 
A) market price exceeds marginal cost. 
B) total revenue is maximised. 
C) marginal revenue equals marginal cost. 
D) production must occur where average cost is minimised.

Question 3

A perfectly competitive firm in a constant-cost industry produces 1000 units of a good at a total cost of $50 000.The prevailing market price is $48.Assuming that this firm continues to produce in the long run,what happens to output level in the long run?

Accepted Answer

A) The firm's output falls. 
B) The firm's output increases. 
C) The firm produces the same output level. 
D) There is insufficient information to answer the question. 
A) The firm's output falls. 
B) The firm's output increases. 
C) The firm produces the same output level. 
D) There is insufficient information to answer the question.

Question 4

Under what conditions should a competitive firm shut down in the short run?

Accepted Answer

When market price is below ave

Question 5

A perfectly competitive firm's short-run supply curve is

Accepted Answer

A) upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve. 
B) upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve. 
C) perfectly elastic at the market price. 
D) horizontal at the minimum average total cost. 
A) upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve. 
B) upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve. 
C) perfectly elastic at the market price. 
D) horizontal at the minimum average total cost.

Question 6

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,should the firm represented in the diagram continue to stay in business?

Accepted Answer

A) No,it should shut down because it is incurring a loss. 
B) No,it should shut down because it cannot cover its variable cost. 
C) Yes,because it is covering part of its fixed cost. 
D) Yes,because it is making a profit. 
A) No,it should shut down because it is incurring a loss. 
B) No,it should shut down because it cannot cover its variable cost. 
C) Yes,because it is covering part of its fixed cost. 
D) Yes,because it is making a profit.

Question 7

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.Assuming the firm is profit maximising,what is the amount of its total fixed cost?

Accepted Answer

A) $1080 
B) $1440 
C) $2520 
D) It cannot be determined. 
A) $1080 
B) $1440 
C) $2520 
D) It cannot be determined.

Question 8

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

Accepted Answer

A) True 
 B)False

Question 9

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The price of each good is $10.Calculate the firm's short-run profit or loss.

Accepted Answer

A) loss of $6000 
B) profit of $6000 
C) profit of $30 000 
D) There is insufficient information to answer the question. 
A) loss of $6000 
B) profit of $6000 
C) profit of $30 000 
D) There is insufficient information to answer the question.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

Accepted Answer

A) productive efficiency 
B) allocative efficiency 
C) marginal efficiency 
D) profit maximisation 
A) productive efficiency 
B) allocative efficiency 
C) marginal efficiency 
D) profit maximisation

Question 12

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The fixed cost of production is $20 000.The price of each good is $10.Should the firm continue to produce in the short run?

Accepted Answer

A) No,it should shut down because it is incurring a loss. 
B) Yes,it should continue to produce because its price exceeds its average fixed cost. 
C) Yes,it should continue to produce because it is minimising its loss. 
D) There is insufficient information to answer the question. 
A) No,it should shut down because it is incurring a loss. 
B) Yes,it should continue to produce because its price exceeds its average fixed cost. 
C) Yes,it should continue to produce because it is minimising its loss. 
D) There is insufficient information to answer the question.

Question 13

In the long run,a perfectly competitive market will

Accepted Answer

A) produce only the quantity of output that yields a long-run profit for the typical firm. 
B) supply whatever amount consumers will buy at a price which earns the market an economic profit. 
C) supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve. 
D) generate a long-run equilibrium where the typical firm operates at a loss. 
A) produce only the quantity of output that yields a long-run profit for the typical firm. 
B) supply whatever amount consumers will buy at a price which earns the market an economic profit. 
C) supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve. 
D) generate a long-run equilibrium where the typical firm operates at a loss.

Question 14

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.If the market price is $20,what is the firm's profit-maximising output?

Accepted Answer

A) 750 units 
B) 1100 units 
C) 1350 units 
D) 1800 units 
A) 750 units 
B) 1100 units 
C) 1350 units 
D) 1800 units

Question 15

The price a perfectly competitive firm receives for its output

Accepted Answer

A) is determined by the interaction of the firm and all of the consumers who buy from the firm. 
B) is determined by the interaction of all sellers and all buyers in the firm's market. 
C) will not change in response to changes in market demand and supply because the firm is a price taker. 
D) will be lowered by the firm in order to sell more output. 
A) is determined by the interaction of the firm and all of the consumers who buy from the firm. 
B) is determined by the interaction of all sellers and all buyers in the firm's market. 
C) will not change in response to changes in market demand and supply because the firm is a price taker. 
D) will be lowered by the firm in order to sell more output.

Question 16

Suppose there are economies of scale in the production of a specialised memory chip that is used in manufacturing microwaves.This suggests that the microwave industry is a decreasing-cost industry.

Accepted Answer

A) True 
 B)False

Question 17

In the short run,a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

Accepted Answer

A) True 
 B)False

Question 18

Table 8-4
   Table 8-4 shows the short-run cost data of a perfectly competitive firm.Assume that output can only be increased in batches of 20 units.
-Refer to Table 8-4.If the market price is $45,the firm

Accepted Answer

A) will earn a profit of $3600. 
B) will suffer a loss of $200. 
C) will break even. 
D) will earn profit of $1040. 
A) will earn a profit of $3600. 
B) will suffer a loss of $200. 
C) will break even. 
D) will earn profit of $1040.

Question 19

If the market price is $25 in a perfectly competitive market,the marginal revenue from selling the fifth unit is

Accepted Answer

A) $5. 
B) $12.50. 
C) $25. 
D) $125. 
A) $5. 
B) $12.50. 
C) $25. 
D) $125.

Question 20

Figure 8-12  
-Refer to Figure 8-12.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

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

If,as a perfectly competitive industry expands,it can supply larger quantities only at a higher long-run equilibrium price,it is

For a perfectly competitive firm,at profit maximisation

A perfectly competitive firm in a constant-cost industry produces 1000 units of a good at a total cost of $50 000.The prevailing market price is $48.Assuming that this firm continues to produce in the long run,what happens to output level in the long run?

Under what conditions should a competitive firm shut down in the short run?

A perfectly competitive firm's short-run supply curve 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,should the firm represented in the diagram continue to stay in business?

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.Assuming the firm is profit maximising,what is the amount of its total fixed cost?

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The price of each good is $10.Calculate the firm's short-run profit or loss.

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

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The fixed cost of production is $20 000.The price of each good is $10.Should the firm continue to produce in the short run?

In the long run,a perfectly competitive market will

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.If the market price is $20,what is the firm's profit-maximising output?

The price a perfectly competitive firm receives for its output

Suppose there are economies of scale in the production of a specialised memory chip that is used in manufacturing microwaves.This suggests that the microwave industry is a decreasing-cost industry.

In the short run,a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

Table 8-4 Table 8-4 shows the short-run cost data of a perfectly competitive firm.Assume that output can only be increased in batches of 20 units. -Refer to Table 8-4.If the market price is $45,the firm

If the market price is $25 in a perfectly competitive market,the marginal revenue from selling the fifth unit is

Figure 8-12 -Refer to Figure 8-12.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

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

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Exam 8: Firms in Perfectly Competitive Markets

If,as a perfectly competitive industry expands,it can supply larger quantities only at a higher long-run equilibrium price,it is

For a perfectly competitive firm,at profit maximisation

A perfectly competitive firm in a constant-cost industry produces 1000 units of a good at a total cost of $50 000.The prevailing market price is $48.Assuming that this firm continues to produce in the long run,what happens to output level in the long run?

Under what conditions should a competitive firm shut down in the short run?

A perfectly competitive firm's short-run supply curve 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,should the firm represented in the diagram continue to stay in business?

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.Assuming the firm is profit maximising,what is the amount of its total fixed cost?

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The price of each good is $10.Calculate the firm's short-run profit or loss.

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

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The fixed cost of production is $20 000.The price of each good is $10.Should the firm continue to produce in the short run?

In the long run,a perfectly competitive market will

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.If the market price is $20,what is the firm's profit-maximising output?

The price a perfectly competitive firm receives for its output

Suppose there are economies of scale in the production of a specialised memory chip that is used in manufacturing microwaves.This suggests that the microwave industry is a decreasing-cost industry.

In the short run,a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

Table 8-4 Table 8-4 shows the short-run cost data of a perfectly competitive firm.Assume that output can only be increased in batches of 20 units. -Refer to Table 8-4.If the market price is $45,the firm

If the market price is $25 in a perfectly competitive market,the marginal revenue from selling the fifth unit is

Figure 8-12 -Refer to Figure 8-12.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

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