Question 1

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

Accepted Answer

A) shutting down 
B) reducing production 
C) reducing the use of variable factors 
D) raising price 
A) shutting down 
B) reducing production 
C) reducing the use of variable factors 
D) raising price

Question 2

A perfectly competitive industry achieves allocative efficiency in the long run.What does allocative efficiency mean?

Accepted Answer

A) Each firm produces up to the point where the price of the good equals the marginal cost of producing the last unit. 
B) Each firm produces up to the point where all scale economies are exhausted. 
C) Production occurs at the lowest average total cost. 
D) Firms use an input combination that minimises cost and maximises output. 
A) Each firm produces up to the point where the price of the good equals the marginal cost of producing the last unit. 
B) Each firm produces up to the point where all scale economies are exhausted. 
C) Production occurs at the lowest average total cost. 
D) Firms use an input combination that minimises cost and maximises output.

Question 3

The minimum point on the average variable cost curve is called

Accepted Answer

A) the shutdown point. 
B) the break-even point. 
C) the loss minimising point. 
D) the point of diminishing returns. 
A) the shutdown point. 
B) the break-even point. 
C) the loss minimising point. 
D) the point of diminishing returns.

Question 4

Market supply is found by

Accepted Answer

A) vertically summing the relevant part of each individual producer's marginal cost curve. 
B) horizontally summing the relevant part of each individual producer's marginal cost curve. 
C) vertically summing each individual producer's average total cost curve. 
D) horizontally summing each individual producer's average total cost curve. 
A) vertically summing the relevant part of each individual producer's marginal cost curve. 
B) horizontally summing the relevant part of each individual producer's marginal cost curve. 
C) vertically summing each individual producer's average total cost curve. 
D) horizontally summing each individual producer's average total cost curve.

Question 5

In the short run,a profit-maximising firm will shut down if its total revenue is greater than its variable costs.

Accepted Answer

A) True 
 B)False

Question 6

Some markets have many buyers and sellers but fall into the category of monopolistic competition rather than perfect competition.The most common reason for this is

Accepted Answer

A) there are high barriers to entering these markets. 
B) firms in these markets sell identical products. 
C) firms in these markets make high profits. 
D) firms in these markets do not sell identical products. 
A) there are high barriers to entering these markets. 
B) firms in these markets sell identical products. 
C) firms in these markets make high profits. 
D) firms in these markets do not sell identical products.

Question 7

The demand curve for an individual seller's product in perfect competition is

Accepted Answer

A) the same as market demand. 
B) downward sloping. 
C) vertical. 
D) horizontal. 
A) the same as market demand. 
B) downward sloping. 
C) vertical. 
D) horizontal.

Question 8

An individual seller in perfect competition will not sell at a price lower than the market price because

Accepted Answer

A) demand for the product will exceed supply. 
B) the seller would start a price war. 
C) the seller can sell any quantity she wants at the prevailing market price. 
D) demand is perfectly inelastic. 
A) demand for the product will exceed supply. 
B) the seller would start a price war. 
C) the seller can sell any quantity she wants at the prevailing market price. 
D) demand is perfectly inelastic.

Question 9

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 P3,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. 
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.

Question 10

If a firm's total variable cost exceeds its total revenue,the firm should stop production by shutting down temporarily.

Accepted Answer

A) True 
 B)False

Question 11

Jason,a high-school student,mows lawns for families in his neighbourhood.The going rate is $12 for each lawn-mowing service.Jason would like to charge $20 because he believes he has more experience mowing lawns than the many other teenagers who also offer the same service.If the market for lawn mowing services is perfectly competitive,what would happen if Jason raised his price?

Accepted Answer

A) He would lose some but not all his customers. 
B) Initially,his customers might complain but over time they will come to accept the new rate. 
C) If Jason raises his price he would lose all his customers. 
D) If Jason raises his price,then all others supplying the same service will also raise their prices. 
A) He would lose some but not all his customers. 
B) Initially,his customers might complain but over time they will come to accept the new rate. 
C) If Jason raises his price he would lose all his customers. 
D) If Jason raises his price,then all others supplying the same service will also raise their prices.

Question 12

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 minimum price the firm requires to produce output?

Accepted Answer

A) $20 
B) $14 
C) $5 
D) It cannot be determined. 
A) $20 
B) $14 
C) $5 
D) It cannot be determined.

Question 13

If,in a perfectly competitive industry,the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue,

Accepted Answer

A) the industry supply will not change. 
B) new firms are attracted to the industry. 
C) some existing firms will exit the industry. 
D) firms are breaking even. 
A) the industry supply will not change. 
B) new firms are attracted to the industry. 
C) some existing firms will exit the industry. 
D) firms are breaking even.

Question 14

Figure 8-16  
-Refer to Figure 8-16.If the market price is P1,what is the allocatively efficient output level?

Accepted Answer

A) Q0 
B) Q1 
C) Q2 
D) There is no allocatively efficient output level because the firm is incurring a loss. 
A) Q0 
B) Q1 
C) Q2 
D) There is no allocatively efficient output level because the firm is incurring a loss.

Question 15

The marginal revenue curve for a perfectly competitive firm

Accepted Answer

A) is downward sloping. 
B) is the same as its demand curve. 
C) is perfectly inelastic. 
D) is the same as its marginal cost curve. 
A) is downward sloping. 
B) is the same as its demand curve. 
C) is perfectly inelastic. 
D) is the same as its marginal cost curve.

Question 16

Werner & Sons is a manufacturer of three-ring binders operating in a perfectly competitive industry.Table 8-5 shows the firm's cost schedule.
Table 8-5
   
Use the table to answer the following questions.
a.Complete Table 8-5 by filling in the blank cells.
b.Werner is selling in a perfectly competitive market at a price of $40.What is the profit maximising or loss-minimising output?
c.Calculate the firm's profit or loss.
d.Should the firm continue to produce in the short run? Explain.
e.If the firm's fixed costs were $30 higher,what would be the profit-maximising output level in the short run? Indicate whether the output level will increase,decrease or remain unchanged compared to your answer in b.
f.Suppose fixed cost remains at $76.If the price of three-ring binders falls to $20 what is the profit-maximising or loss-minimising output?
g.Calculate the profit or loss.Should the firm continue to produce in the short run? Explain your answer.
h.Suppose the fixed cost remains at $76.What price corresponds to the shut-down point?
i.Suppose the fixed cost remains at $76.What price corresponds to the break-even point?

Accepted Answer

a.
 @#IMG-DLM& 
b.Quantity = 8 units.
c.Profit = $

Question 17

Figure 8-1  
-Refer to Figure 8-1.If the firm is producing 200 units,

Accepted Answer

A) it breaks even. 
B) it is incurring a loss. 
C) it should cut back its output to maximise profit. 
D) it should increase its output to maximise profit. 
A) it breaks even. 
B) it is incurring a loss. 
C) it should cut back its output to maximise profit. 
D) it should increase its output to maximise profit.

Question 18

If a perfectly competitive firm's price is above its average total cost,the firm

Accepted Answer

A) is earning a profit. 
B) should shut down. 
C) is incurring a loss. 
D) is breaking even. 
A) is earning a profit. 
B) should shut down. 
C) is incurring a loss. 
D) is breaking even.

Question 19

Figure 8-13  
-Refer to Figure 8-13.Assume that the medical screening industry is perfectly competitive and that some firms are incurring short-run losses.Suppose the medical screening industry runs an effective advertising campaign which convinces a large number of people that yearly CT scans are critical for good health.Which of the diagrams in the figure best describes what happens in the industry?

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

Figure 8-6  
-Refer to Figure 8-6.Suppose the firm produces 4000 units.What does the shaded area labeled A represent?

Accepted Answer

A) total variable cost 
B) profit 
C) total fixed cost 
D) total revenue 
A) total variable cost 
B) profit 
C) total fixed cost 
D) total revenue

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

A perfectly competitive industry achieves allocative efficiency in the long run.What does allocative efficiency mean?

The minimum point on the average variable cost curve is called

Market supply is found by

In the short run,a profit-maximising firm will shut down if its total revenue is greater than its variable costs.

Some markets have many buyers and sellers but fall into the category of monopolistic competition rather than perfect competition.The most common reason for this is

The demand curve for an individual seller's product in perfect competition is

An individual seller in perfect competition will not sell at a price lower than the market price because

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 P₃,the firm would

If a firm's total variable cost exceeds its total revenue,the firm should stop production by shutting down temporarily.

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 minimum price the firm requires to produce output?

If,in a perfectly competitive industry,the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue,

Figure 8-16 -Refer to Figure 8-16.If the market price is P₁,what is the allocatively efficient output level?

The marginal revenue curve for a perfectly competitive firm

Figure 8-1 -Refer to Figure 8-1.If the firm is producing 200 units,

If a perfectly competitive firm's price is above its average total cost,the firm

Figure 8-6 -Refer to Figure 8-6.Suppose the firm produces 4000 units.What does the shaded area labeled A represent?

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

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

A perfectly competitive industry achieves allocative efficiency in the long run.What does allocative efficiency mean?

The minimum point on the average variable cost curve is called

Market supply is found by

In the short run,a profit-maximising firm will shut down if its total revenue is greater than its variable costs.

Some markets have many buyers and sellers but fall into the category of monopolistic competition rather than perfect competition.The most common reason for this is

The demand curve for an individual seller's product in perfect competition is

An individual seller in perfect competition will not sell at a price lower than the market price because

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 P3,the firm would

If a firm's total variable cost exceeds its total revenue,the firm should stop production by shutting down temporarily.

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 minimum price the firm requires to produce output?

If,in a perfectly competitive industry,the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue,

Figure 8-16 -Refer to Figure 8-16.If the market price is P1,what is the allocatively efficient output level?

The marginal revenue curve for a perfectly competitive firm

Figure 8-1 -Refer to Figure 8-1.If the firm is producing 200 units,

If a perfectly competitive firm's price is above its average total cost,the firm

Figure 8-6 -Refer to Figure 8-6.Suppose the firm produces 4000 units.What does the shaded area labeled A represent?

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 P₃,the firm would

Figure 8-16 -Refer to Figure 8-16.If the market price is P₁,what is the allocatively efficient output level?