Question 1

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 2

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run.Which of the following is one reason for this?

Accepted Answer

A)  Owners of perfectly competitive firms realise that their short-run profits are temporary. Therefore, they either sell their businesses or develop other products that will earn short-run profits. 
B)  Firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms. But eventually consumers realise that all of the firms sell virtually identical products. 
C)  Firms from other countries are able to produce similar products at lower costs. 
D)  Firms in these industries sell identical products. 
A)  Owners of perfectly competitive firms realise that their short-run profits are temporary. Therefore, they either sell their businesses or develop other products that will earn short-run profits. 
B)  Firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms. But eventually consumers realise that all of the firms sell virtually identical products. 
C)  Firms from other countries are able to produce similar products at lower costs. 
D)  Firms in these industries sell identical products.

Question 3

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.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 4

How are sunk costs and fixed costs related?

Accepted Answer

A)  They are not related in any way. 
B)  Sunk costs cannot be recovered and fixed costs can be avoided by shutting down. 
C)  In the short run they are equal to each other. 
D)  In the long run they are equal to each other. 
A)  They are not related in any way. 
B)  Sunk costs cannot be recovered and fixed costs can be avoided by shutting down. 
C)  In the short run they are equal to each other. 
D)  In the long run they are equal to each other.

Question 5

What assumptions are necessary for a market to be perfectly competitive? Explain why each of these assumptions is important.

Accepted Answer

The assumptions necessary for a market t

Question 6

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 7

Ben's Peanut Shoppe suffers a short-run loss.Ben will not choose to shut down if

Accepted Answer

A)  his Shoppe's total revenue exceeds his fixed cost. 
B)  his Shoppe's total revenue exceeds his variable cost. 
C)  his Shoppe's total revenue exceeds his implicit costs. 
D)  his Shoppe's total revenue exceeds his capital costs. 
A)  his Shoppe's total revenue exceeds his fixed cost. 
B)  his Shoppe's total revenue exceeds his variable cost. 
C)  his Shoppe's total revenue exceeds his implicit costs. 
D)  his Shoppe's total revenue exceeds his capital costs.

Question 8

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 9

If price is equal to average variable cost,a perfectly competitive firm breaks even.

Accepted Answer

A) True 
 B)False

Question 10

What is productive efficiency?

Accepted Answer

A)  A situation in which resources are allocated to their highest-profit use. 
B)  A situation in which resources are allocated such that goods can be produced at their lowest possible average cost. 
C)  A situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it. 
D)  A situation in which firms produce as much as possible. 
A)  A situation in which resources are allocated to their highest-profit use. 
B)  A situation in which resources are allocated such that goods can be produced at their lowest possible average cost. 
C)  A situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it. 
D)  A situation in which firms produce as much as possible.

Question 11

In the short run,a firm that is operating at a loss has two options.These options are

Accepted Answer

A)  to reduce output or reduce its variable costs. 
B)  to go out of business or declare bankruptcy. 
C)  to shut down temporarily or continue to produce. 
D)  to adopt new technology or change the size of its physical plant. 
A)  to reduce output or reduce its variable costs. 
B)  to go out of business or declare bankruptcy. 
C)  to shut down temporarily or continue to produce. 
D)  to adopt new technology or change the size of its physical plant.

Question 12

If a perfectly competitive firm raises the price it charges to consumers,which of the following is the most likely outcome?

Accepted Answer

A)  The firm's revenue will not change because some consumers will refuse to pay the higher price. 
B)  The firm will not sell any output. 
C)  The firm's total revenue will increase only if the demand for its product is inelastic. 
D)  The firm's total revenue will increase only if the demand for its product is elastic. 
A)  The firm's revenue will not change because some consumers will refuse to pay the higher price. 
B)  The firm will not sell any output. 
C)  The firm's total revenue will increase only if the demand for its product is inelastic. 
D)  The firm's total revenue will increase only if the demand for its product is elastic.

Question 13

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 14

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 firm's fixed cost increases by $1000 due to a new environmental regulation,what happens in the diagram above?

Accepted Answer

A)  All the cost curves shift upward. 
B)  Only the average variable cost and average total cost curves shift upward; marginal cost is not affected. 
C)  Only the average total cost curve shifts upward; the marginal cost and average variable cost curves are not affected. 
D)  None of the curves shift; only the fixed cost curve, which is not shown here, is affected. 
A)  All the cost curves shift upward. 
B)  Only the average variable cost and average total cost curves shift upward; marginal cost is not affected. 
C)  Only the average total cost curve shifts upward; the marginal cost and average variable cost curves are not affected. 
D)  None of the curves shift; only the fixed cost curve, which is not shown here, is affected.

Question 15

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

Accepted Answer

A)  The market demand curve is a horizontal line; the firm's demand curve is downward sloping. 
B)  The market demand curve is downward sloping; the firm's demand curve is a vertical line. 
C)  The market demand curve cannot have a constant slope; the firm's demand curve has a slope equal to zero. 
D)  The market demand curve is downward sloping; the firm's demand curve is a horizontal line. 
A)  The market demand curve is a horizontal line; the firm's demand curve is downward sloping. 
B)  The market demand curve is downward sloping; the firm's demand curve is a vertical line. 
C)  The market demand curve cannot have a constant slope; the firm's demand curve has a slope equal to zero. 
D)  The market demand curve is downward sloping; the firm's demand curve is a horizontal line.

Question 16

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable 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 17

Assuming a market price of $4,fill in the columns in the following table.What is the profit-maximising level of production? What are the two ways to determine the profit-maximising level of production?

Accepted Answer

@#IMG-DLM& The profit-maximising level of producti

Question 18

What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?

Accepted Answer

Allocative efficiency refers to a state

Question 19

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that,for both,

Accepted Answer

A)  fixed costs are lower than variable costs. 
B)  there are many other suppliers of similar goods or services. 
C)  the implicit costs of production exceed the explicit costs of production. 
D)  average costs of production do not change when their industry expands. 
A)  fixed costs are lower than variable costs. 
B)  there are many other suppliers of similar goods or services. 
C)  the implicit costs of production exceed the explicit costs of production. 
D)  average costs of production do not change when their industry expands.

Question 20

Figure 7-1  
-Refer to Figure 7-1.If the firm is producing 700 units,what is the amount of its profit or loss?

Accepted Answer

A)  Loss of $280 
B)  Loss equivalent to the area A 
C)  Profit equivalent to the area A 
D)  There is insufficient information to answer the question. 
A)  Loss of $280 
B)  Loss equivalent to the area A 
C)  Profit equivalent to the area A 
D)  There is insufficient information to answer the question.

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

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run.Which of the following is one reason for this?

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.What is the minimum price the firm requires to produce output?

How are sunk costs and fixed costs related?

What assumptions are necessary for a market to be perfectly competitive? Explain why each of these assumptions is important.

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

Ben's Peanut Shoppe suffers a short-run loss.Ben will not choose to shut down if

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

If price is equal to average variable cost,a perfectly competitive firm breaks even.

What is productive efficiency?

In the short run,a firm that is operating at a loss has two options.These options are

If a perfectly competitive firm raises the price it charges to consumers,which of the following is the most likely outcome?

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

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 firm's fixed cost increases by $1000 due to a new environmental regulation,what happens in the diagram above?

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost,the firm

Assuming a market price of $4,fill in the columns in the following table.What is the profit-maximising level of production? What are the two ways to determine the profit-maximising level of production?

What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that,for both,

Figure 7-1 -Refer to Figure 7-1.If the firm is producing 700 units,what is the amount of its profit or loss?

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

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

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run.Which of the following is one reason for this?

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.What is the minimum price the firm requires to produce output?

How are sunk costs and fixed costs related?

What assumptions are necessary for a market to be perfectly competitive? Explain why each of these assumptions is important.

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

Ben's Peanut Shoppe suffers a short-run loss.Ben will not choose to shut down if

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

If price is equal to average variable cost,a perfectly competitive firm breaks even.

What is productive efficiency?

In the short run,a firm that is operating at a loss has two options.These options are

If a perfectly competitive firm raises the price it charges to consumers,which of the following is the most likely outcome?

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

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 firm's fixed cost increases by $1000 due to a new environmental regulation,what happens in the diagram above?

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost,the firm

Assuming a market price of $4,fill in the columns in the following table.What is the profit-maximising level of production? What are the two ways to determine the profit-maximising level of production?

What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that,for both,

Figure 7-1 -Refer to Figure 7-1.If the firm is producing 700 units,what is the amount of its profit or loss?

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