Question 1

The demand curve for each seller's product in perfect competition is horizontal at the market price because

Accepted Answer

A)  each seller is too small to affect market price. 
B)  the price is set by the government. 
C)  all the sellers get together and set the price. 
D)  all the demanders get together and set the price. 
A)  each seller is too small to affect market price. 
B)  the price is set by the government. 
C)  all the sellers get together and set the price. 
D)  all the demanders get together and set the price.

Question 2

Figure 7-7   Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm.
-Refer to Figure 7-7.At price P2,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 3

Figure 7-9  
-Refer to Figure 7-9.Suppose the prevailing price is $20 and the firm is currently producing 1350 units.In the long-run equilibrium,the firm represented in the diagram

Accepted Answer

A)  will continue to produce the same quantity. 
B)  will reduce its output to 1100 units. 
C)  will reduce its output to 750 units. 
D)  will cease to exist. 
A)  will continue to produce the same quantity. 
B)  will reduce its output to 1100 units. 
C)  will reduce its output to 750 units. 
D)  will cease to exist.

Question 4

Figure 7-5   Figure 7-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 7-5.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 5

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

Question 6

A perfectly competitive firm in a constant-cost industry produces 3000 units of a good at a total cost of $36 000.The prevailing market price is $15.What will happen to the number of firms in the industry and to the industry's output in the long run?

Accepted Answer

A)  The number of firms and the industry's output increase. 
B)  The number of firms and the industry's output decrease. 
C)  The number of firms remains constant and the industry's output increases. 
D)  The number of firms remains constant and the industry's output decreases. 
A)  The number of firms and the industry's output increase. 
B)  The number of firms and the industry's output decrease. 
C)  The number of firms remains constant and the industry's output increases. 
D)  The number of firms remains constant and the industry's output decreases.

Question 7

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

Accepted Answer

A) True 
 B)False

Question 8

Assume that the LCD and plasma television set industry is perfectly competitive.Suppose a producer develops a successful innovation that enables it to lower its cost of production.What happens in the short run and in the long run?

Accepted Answer

A)  Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short-run profits because other firms would also innovate. 
B)  The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits. 
C)  This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation. 
D)  The firm will be able to increase its profits temporarily, but in the long run its profits will be eliminated as other firms copy the innovation. 
A)  Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short-run profits because other firms would also innovate. 
B)  The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits. 
C)  This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation. 
D)  The firm will be able to increase its profits temporarily, but in the long run its profits will be eliminated as other firms copy the innovation.

Question 9

If a firm shuts down it

Accepted Answer

A)  will suffer a loss equal to its fixed costs. 
B)  will produce nothing but must pay its variable costs. 
C)  will produce nothing but must pay its fixed and variable costs. 
D)  will earn enough revenue to cover its variable costs but not all of its fixed costs. 
A)  will suffer a loss equal to its fixed costs. 
B)  will produce nothing but must pay its variable costs. 
C)  will produce nothing but must pay its fixed and variable costs. 
D)  will earn enough revenue to cover its variable costs but not all of its fixed costs.

Question 10

Figure 7-9  
-Refer to Figure 7-9.Suppose the prevailing price is $20 and the firm is currently producing 1350 units.In the long-run equilibrium

Accepted Answer

A)  there will be fewer firms in the industry and total industry output decreases. 
B)  there will be more firms in the industry and total industry output increases. 
C)  there will be fewer firms in the industry but total industry output increases. 
D)  there will be more firms in the industry and total industry output remains constant. 
A)  there will be fewer firms in the industry and total industry output decreases. 
B)  there will be more firms in the industry and total industry output increases. 
C)  there will be fewer firms in the industry but total industry output increases. 
D)  there will be more firms in the industry and total industry output remains constant.

Question 11

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

Accepted Answer

A)  Q3 units. 
B)  Q4 units. 
C)  Q5 units. 
D)  Q6 units. 
A)  Q3 units. 
B)  Q4 units. 
C)  Q5 units. 
D)  Q6 units.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

What is the difference between 'shutting down temporarily' and 'exiting the industry'?

Accepted Answer

The difference between the two has to do

Question 14

A wheat farmer and a firm in a perfectly competitive market are similar in that

Accepted Answer

A)  both face vertical demand curves. 
B)  both have to lower their prices if a rival firm lowers its price. 
C)  both face horizontal demand curves. 
D)  both will earn an economic profit if their total revenue equals their total cost. 
A)  both face vertical demand curves. 
B)  both have to lower their prices if a rival firm lowers its price. 
C)  both face horizontal demand curves. 
D)  both will earn an economic profit if their total revenue equals their total cost.

Question 15

A perfectly competitive firm earns a profit when price is

Accepted Answer

A)  equal to minimum average total cost. 
B)  above minimum average total cost. 
C)  equal to minimum average variable cost. 
D)  equal to minimum average fixed cost. 
A)  equal to minimum average total cost. 
B)  above minimum average total cost. 
C)  equal to minimum average variable cost. 
D)  equal to minimum average fixed cost.

Question 16

Assume the market for organic produce sold at farmers' markets is perfectly competitive.All else being equal,as more farmers choose to produce and sell organic produce at farmers' markets,what is likely to happen to the equilibrium price of the produce and profits of the organic farmers in the long run?

Accepted Answer

A)  The equilibrium price is likely to increase, and profits are likely to remain unchanged. 
B)  The equilibrium price is likely to remain unchanged, and profits are likely to increase. 
C)  The equilibrium price is likely to decrease, and profits are likely to decrease. 
D)  The equilibrium price is likely to increase, and profits are likely to increase. 
A)  The equilibrium price is likely to increase, and profits are likely to remain unchanged. 
B)  The equilibrium price is likely to remain unchanged, and profits are likely to increase. 
C)  The equilibrium price is likely to decrease, and profits are likely to decrease. 
D)  The equilibrium price is likely to increase, and profits are likely to increase.

Question 17

A perfectly competitive industry achieves allocative efficiency because

Accepted Answer

A)  goods and services are produced at the lowest possible cost. 
B)  goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. 
C)  it produces where market price equals marginal production cost. 
D)  firms carry production surpluses. 
A)  goods and services are produced at the lowest possible cost. 
B)  goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. 
C)  it produces where market price equals marginal production cost. 
D)  firms carry production surpluses.

Question 18

Which of the following is not an assumption of perfectly competitive markets?

Accepted Answer

A)  There are many sellers and many buyers, all of which are small relative to the market. 
B)  Each firm produces a similar but not identical product. 
C)  There are no barriers to new firms entering the market. 
D)  The products sold by all firms in the market are identical. 
A)  There are many sellers and many buyers, all of which are small relative to the market. 
B)  Each firm produces a similar but not identical product. 
C)  There are no barriers to new firms entering the market. 
D)  The products sold by all firms in the market are identical.

Question 19

Of the following industries,which are perfectly competitive? For those that are not perfectly competitive,explain why.
a.Restaurants
b.Corn
c.University education
d.Local radio and television

Accepted Answer

a.Restaurants are not perfectly competit

Question 20

Figure 7-1  
-Refer to Figure 7-1.If the firm is producing 700 units,

Accepted Answer

A)  it is making a profit. 
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 is making a profit. 
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.

The demand curve for each seller's product in perfect competition is horizontal at the market price because

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₂,the firm would

Figure 7-9 -Refer to Figure 7-9.Suppose the prevailing price is $20 and the firm is currently producing 1350 units.In the long-run equilibrium,the firm represented in the diagram

Figure 7-5 Figure 7-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 7-5.If the market price is $20,what is the firm's profit-maximising output?

A perfectly competitive firm in a constant-cost industry produces 3000 units of a good at a total cost of $36 000.The prevailing market price is $15.What will happen to the number of firms in the industry and to the industry's output in the long run?

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

Assume that the LCD and plasma television set industry is perfectly competitive.Suppose a producer develops a successful innovation that enables it to lower its cost of production.What happens in the short run and in the long run?

If a firm shuts down it

Figure 7-9 -Refer to Figure 7-9.Suppose the prevailing price is $20 and the firm is currently producing 1350 units.In the long-run equilibrium

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

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

What is the difference between 'shutting down temporarily' and 'exiting the industry'?

A wheat farmer and a firm in a perfectly competitive market are similar in that

A perfectly competitive firm earns a profit when price is

A perfectly competitive industry achieves allocative efficiency because

Which of the following is not an assumption of perfectly competitive markets?

Of the following industries,which are perfectly competitive? For those that are not perfectly competitive,explain why. a.Restaurants b.Corn c.University education d.Local radio and television

Figure 7-1 -Refer to Figure 7-1.If the firm is producing 700 units,

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Exam 7: Consumer Choice and Elasticity

The demand curve for each seller's product in perfect competition is horizontal at the market price because

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P2,the firm would

Figure 7-9 -Refer to Figure 7-9.Suppose the prevailing price is $20 and the firm is currently producing 1350 units.In the long-run equilibrium,the firm represented in the diagram

Figure 7-5 Figure 7-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 7-5.If the market price is $20,what is the firm's profit-maximising output?

A perfectly competitive firm in a constant-cost industry produces 3000 units of a good at a total cost of $36 000.The prevailing market price is $15.What will happen to the number of firms in the industry and to the industry's output in the long run?

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

Assume that the LCD and plasma television set industry is perfectly competitive.Suppose a producer develops a successful innovation that enables it to lower its cost of production.What happens in the short run and in the long run?

If a firm shuts down it

Figure 7-9 -Refer to Figure 7-9.Suppose the prevailing price is $20 and the firm is currently producing 1350 units.In the long-run equilibrium

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

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

What is the difference between 'shutting down temporarily' and 'exiting the industry'?

A wheat farmer and a firm in a perfectly competitive market are similar in that

A perfectly competitive firm earns a profit when price is

A perfectly competitive industry achieves allocative efficiency because

Which of the following is not an assumption of perfectly competitive markets?

Of the following industries,which are perfectly competitive? For those that are not perfectly competitive,explain why. a.Restaurants b.Corn c.University education d.Local radio and television

Figure 7-1 -Refer to Figure 7-1.If the firm is producing 700 units,

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₂,the firm would

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