Deck 9: Perfect Competition

Question 1

Recall the application about wireless women in Pakistan,why is the market for phones services perfectly competitive?

A)Thousands of Pakistan entrepreneur women sell phone services to the neighbors that each takes the market price as given.
B)The market of phone services has barrier to entry and many women in Pakistan have trouble getting services due to the shortage in supply.
C)The initial investment would be millions for entering the phone business in the Pakistan,and will keep the numbers of suppliers low.
D)none of the above

Answer 1

A

Question 2

Monopolistic industries are characterized by a homogeneous product.

Answer 2

False

Question 3

The perfectly competitive firm faces a demand curve that is ________ and ________:

A)perfectly inelastic;vertical
B)perfectly elastic;horizontal
C)unitary elastic;slopping downward
D)the same as the market demand for the product;vertical

Answer 3

B

Question 4

The best example of a monopolistically competitive industry is:

A)music stores.
B)grocery stores.
C)mobile phone service.
D)A and B are correct.

Question 5

In a monopoly,the firm specific demand curve is the same as:

A)the market supply curve.
B)the market demand curve.
C)the market price.
D)none of the above.

Question 6

In the form of market organization called "perfect competition," the firms tend to be ________ and the product they sell is ________.

A)large;identical
B)small;different
C)large;different
D)small;identical

Question 7

If a firm in a perfectly competitive market tries to raise its price above the going market price,then:

A)it will sell more output.
B)it will sell the same amount of output as before.
C)it will not be able to sell any output.
D)it will sell some output,but not as much as before.

Question 8

In a monopoly firms are called "price makers" because:

A)they are so small that they must accept any reasonable offer from consumers for their outputs.
B)they are able to affect the market price.
C)they are unable to sell their products at any price above the market price.
D)the firms are large relative to the size of the industry.

Question 9

In a perfectly competitive market:

A)the government imposes price ceilings on the products produced and buyers and sellers are price takers.
B)buyers set the price and sellers take the price.
C)both buyers and sellers are price takers.
D)the market demand for products produced is perfectly elastic.

Question 10

The best example of a perfectly competitive industry is:

A)music stores.
B)beer.
C)cigarettes.
D)corn.

Question 11

Which of the following is NOT a characteristic of perfectly competitive market?

A)there are many sellers.
B)the product is homogeneous
C)there are barriers to entry
D)all of the above

Question 12

A monopolistic competitive market has the following characteristics EXCEPT:

A)no barriers to entry.
B)the product is homogeneous.
C)many sellers.
D)relatively elastic demand.

Question 13

The best example of a monopolistic industry is:

A)grocery stores.
B)toothbrushes.
C)patented drugs.
D)automobiles.

Question 14

The best example of an oligopolistic industry is:

A)wheat.
B)restaurants.
C)automobiles.
D)all of the above.

Question 15

With respect to price,in a perfectly competitive market,firms can:

A)affect the market price.
B)set the market price.
C)take the market price.
D)negotiate the market price to certain extent.

Question 16

Additional Application
From 1992 to 2003 the number of milk producers in Florida has fallen from 300 to 190.In those same 10 years the number of dairy farms nationwide has decreased by more than 44,000.Why? The market price in a perfectly competitive industry is not determined by the individual sellers,but rather the market supply and demand.While the Florida dairy industry might not be "perfectly" competitive due to the certain USDA policies,its behavior does approximate one.If prices are not high enough to maintain some level of normal profit,firms will leave the industry.And this is what has been happening in the dairy industry.In the months after September 11,2001 the demand for milk fell,causing the price of 100 pounds of milk to decrease from about $19 to about $14,a 25-year low.In addition to falling prices,the costs of operating dairy farms have risen.Increased property taxes and environmental compliance permits have made dairy farming less viable.The average dairy farm in Florida is small with only about 700 cows.This further prevents a single supplier from being able to influence the market price.Many farmers view this business as a family operation and one they would like to pass on to their children.But continued low milk prices and profits make the likelihood of such an inheritance unlikely.
Greg C.Bruno."Milk Industry Turns Sour," The Gainesville Sun,January 22,2004,pp.1,4.
Why can't the milk farmers just increase their prices to insure higher profits?

A)Each farmer is too large to charge a higher price.
B)Each farmer has too many cows and does not know the market price.
C)The average farm is too small to influence the market price.
D)The government will not allow the farmers to raise their prices.

Question 17

Perfectly competitive industries are characterized by a homogeneous product.

Question 18

Additional Application
From 1992 to 2003 the number of milk producers in Florida has fallen from 300 to 190.In those same 10 years the number of dairy farms nationwide has decreased by more than 44,000.Why? The market price in a perfectly competitive industry is not determined by the individual sellers,but rather the market supply and demand.While the Florida dairy industry might not be "perfectly" competitive due to the certain USDA policies,its behavior does approximate one.If prices are not high enough to maintain some level of normal profit,firms will leave the industry.And this is what has been happening in the dairy industry.In the months after September 11,2001 the demand for milk fell,causing the price of 100 pounds of milk to decrease from about $19 to about $14,a 25-year low.In addition to falling prices,the costs of operating dairy farms have risen.Increased property taxes and environmental compliance permits have made dairy farming less viable.The average dairy farm in Florida is small with only about 700 cows.This further prevents a single supplier from being able to influence the market price.Many farmers view this business as a family operation and one they would like to pass on to their children.But continued low milk prices and profits make the likelihood of such an inheritance unlikely.
Greg C.Bruno."Milk Industry Turns Sour," The Gainesville Sun,January 22,2004,pp.1,4.
In the long run,what will occur in a perfectly competitive industry that is incurring losses?

A)The government will subsidize the industry so that this never occurs.
B)Some firms will leave the industry,supply will decrease,and losses will disappear.
C)Some buyers will leave the market,demand will decrease,and price will rise.
D)Some firms will enter the industry,supply will increase,and losses will disappear.

Question 19

Additional Application
From 1992 to 2003 the number of milk producers in Florida has fallen from 300 to 190.In those same 10 years the number of dairy farms nationwide has decreased by more than 44,000.Why? The market price in a perfectly competitive industry is not determined by the individual sellers,but rather the market supply and demand.While the Florida dairy industry might not be "perfectly" competitive due to the certain USDA policies,its behavior does approximate one.If prices are not high enough to maintain some level of normal profit,firms will leave the industry.And this is what has been happening in the dairy industry.In the months after September 11,2001 the demand for milk fell,causing the price of 100 pounds of milk to decrease from about $19 to about $14,a 25-year low.In addition to falling prices,the costs of operating dairy farms have risen.Increased property taxes and environmental compliance permits have made dairy farming less viable.The average dairy farm in Florida is small with only about 700 cows.This further prevents a single supplier from being able to influence the market price.Many farmers view this business as a family operation and one they would like to pass on to their children.But continued low milk prices and profits make the likelihood of such an inheritance unlikely.
Greg C.Bruno."Milk Industry Turns Sour," The Gainesville Sun,January 22,2004,pp.1,4.
Which one of the following characteristics is NOT true of the milk industry?

A)many sellers
B)a homogeneous product
C)sellers are price takers
D)large barriers to entry

Question 20

A perfectly competitive market is one in which:

A)firms do not attempt to maximize profit.
B)all firms produce the same level of output.
C)all firms sell an homogeneous product.
D)there are only a few firms in the industry.

Question 21

For a firm in a perfectly competitive market,at the profit maximizing level of output:

A)Price = Marginal Revenue = Marginal Cost.
B)Price > Marginal Revenue > Marginal Cost.
C)Price < Marginal Revenue < Marginal Cost.
D)Price > 0 and Marginal Revenue = 0.

Question 22

What are the assumptions of perfect competition?

Question 23

In perfect competition,the marginal revenue curve:

A)and the demand curve facing the firm are identical.
B)is always above the demand curve facing the firm.
C)is always below the demand curve facing the firm.
D)intersects the demand curve when marginal revenue is minimized.

Question 24

Accounting profit is equal to:

A)total revenue minus economic cost.
B)total revenue minus accounting cost.
C)total revenue minus explicit costs.
D)total revenue minus implicit costs.

Question 25

In a perfectly competitive market,an individual firm faces a perfectly elastic demand curve.

Question 26

In all four types of markets a firm' s main objective is to:

A)maximize revenue.
B)maximize output.
C)maximize economic profit.
D)minimize fixed cost.

Question 27

If a firm is producing where marginal revenue is greater than marginal cost:

A)the revenue gained by producing one more unit of output exceeds the additional cost incurred by doing so.
B)the revenue gained by producing one more unit of output equals the additional cost incurred by doing so.
C)the revenue gained by producing one more unit of output is less than the additional cost incurred by doing so.
D)the firm is already maximizing profits because revenue is being increased by more than costs.

Question 28

The added revenue that a firm earns from selling an additional unit of output is:

A)total revenue.
B)marginal revenue.
C)variable revenue.
D)fixed revenue.

Question 29

Refer to Figure 9.1.A farmer earns a total revenue of $900.Each bushel of corn is sold for $5.This farmer must be selling ________ bushels of corn.

A)180
B)450
C)900
D)4,500

Question 30

What does it mean for a firm to be suffering an economic loss? Does this imply that the firm is incurring a loss in the accounting sense? Explain.

Question 31

Refer to Figure 9.1.A farmer produces 100 bushels of corn and sells each bushel at $5.The cost of producing each unit bushel is $2.This farmer's total revenue is:

A)$20.
B)$200.
C)$300.
D)$500.

Question 32

Assume that a smartphone maker operates in a perfectly competitive market producing 25,000 smartphones per day.At this output level,price is less than this firm's marginal cost.It follows that producing one more smartphone will cause this firm's:

A)total cost to decrease.
B)profits to increase.
C)profits to decrease.
D)profits to remain unchanged.

Question 33

In a perfectly competitive market,an individual firm cannot charge any price it wants.

Question 34

The firm faces the market demand curve in a monopolistic competition industry.

Question 35

Profit-maximizing firms want to maximize the difference between:

A)total revenue and marginal cost.
B)total revenue and total cost.
C)marginal revenue and marginal cost.
D)marginal revenue and average cost.

Question 36

Johan's Shoe Sole Inc.is producing at the level at which marginal revenue is equal to marginal cost.Johan's Shoe Sole Inc.must be:

A)earning a zero economic profit.
B)incurring a loss.
C)maximizing profits.
D)maximizing revenue but not maximizing profits.

Question 37

For oligopolistic industries the demand is more elastic than demand facing monopolistically competitive industries.

Question 38

Marginal revenue is:

A)the ratio of total revenue to quantity.
B)the difference between total revenue and total costs.
C)the added revenue that a firm takes in from selling an additional unit of output.
D)the additional profit the firm earns when it sells an additional unit of output.

Question 39

Monopolistic competition is characterized by barriers to entry.

Question 40

Economic profit is equal to:

A)the amount received from the sale of the product.
B)total revenue divided by average costs.
C)the opportunity cost of each factor of production.
D)total revenue minus total economic cost.

Question 41

Refer to Figure 9.5.If this farmer is maximizing his profits,his total variable cost is:

A)$24.
B)$42.
C)$108.
D)$255.

Question 42

Refer to Figure 9.3.At the market price of $8 per bushel,if this farmer produces at the profit-maximizing level of output,his total revenue would be:

A)$1,200.
B)$2,800.
C)$5,600.
D)$8,400.

Question 43

Refer to Figure 9.5.For this farmer to maximize profits he should produce ________ bushels of wheat.

A)6
B)9
C)12
D)16

Question 44

Refer to Figure 9.4.At the market price of $18 per bushel,if this farmer produces at the profit-maximizing level of output,her total revenue would be:

A)$1,200.
B)$2,800.
C)$5,600.
D)$6,300.

Question 45

Refer to Figure 9.4.If the market price of hay falls to $18,then to maximize profits this farmer should produce:

A)350 bales of hay.
B)500 bales of hay.
C)750 bales of hay.
D)a level of output that is indeterminate from this information.

Question 46

Refer to Figure 9.3.If this farmer is producing the profit-maximizing level of output,his profit is:

A)$0.
B)$2,800.
C)$3,000.
D)$12,000.

Question 47

Refer to Figure 9.3.This farmer's profit-maximizing level of output is ________ units of output.

A)200
B)700
C)1,000
D)1,400.

Question 48

Refer to Figure 9.5.This farmer would earn zero economic profit if price was:

A)$7.
B)$9.
C)$10.
D)$11.

Question 49

Refer to Figure 9.5.This farmer's fixed costs are:

A)$0.
B)$24.
C)$45.
D)indeterminate unless we know the level of output the firm is producing.

Question 50

Refer to Figure 9.3.If the market price of soybeans falls to $8,then to maximize profits this farmer should produce:

A)200 bushels of soybeans.
B)700 bushels of soybeans.
C)1,000 bushels of soybeans.
D)a level of output that is indeterminate from this information.

Question 51

Refer to Figure 9.5.If this farmer is maximizing profits,his total costs will be:

A)$11.
B)$66.
C)$90.
D)$132.

Question 52

A milk company in a perfectly competitive industry is producing 10000 gallons of milk,its profit-maximizing quantity.Industry price for a gallon of milk is $3.50,total fixed costs are $5,000,and total variable costs are $10,000.The firm's economic profit is:

A)$35,000.
B)$30,000.
C)$20,000.
D)$15,000.

Question 53

Refer to Figure 9.5.If this farmer is maximizing profits,his total revenue will be:

A)$90.
B)$135.
C)$180.
D)$240.

Question 54

Refer to Figure 9.2.If Buffy gives 17 perms per day,her daily profit is:

A)$3.
B)$10.
C)$45.
D)$51.

Question 55

Refer to Figure 9.5.If this farmer is maximizing profits,his profit will be:

A)-$24.
B)$45.
C)$48.
D)$72.

Question 56

Recall the application on the break-even price for switchgrass,a feedstock for biofuel.What are the following statements is true about the implications f in order to get some North Dakota farmers to switch their crops to switchgrass?

A)the higher the price,the larger the acreage devoted to switchgrass
B)the lower the price,the more amount of farmers who would switch their crops to switchgrass
C)There are no farmers willing to switch their crops to switchgrass.
D)There is no fertile land in North Dakota to grow switchgrass.

Question 57

A pasta producer is in a perfectly competitive market.To maximize profits,the pasta producer should make the output level where:

A)price equals fixed cost.
B)price equals average variable cost.
C)price equals average total cost.
D)price equals marginal cost.

Question 58

A perfectly competitive firm is producing 75 units of output.The market price is $7 and the firm's marginal cost is $8.The firm should:

A)lower its price.
B)raise its price.
C)increase production.
D)decrease production.

Question 59

Refer to Figure 9.4.This farmer's profit-maximizing level of output is ________ units of output.

A)100
B)350
C)500
D)700

Question 60

Refer to Figure 9.4.If this farmer is producing the profit maximizing level of output,her profit is:

A)$0.
B)$1,000.
C)$3,000.
D)$2,000.

Question 61

Scenario 9.1: 21st Century Pen Inc.produces 2000 pens per day,and hires 20 workers at a cost of $200 per day per worker.The price of each pen is $5 each.21st Century Pen Inc.pays a daily rental rate of $60 on its factory and a daily insurance rate of $20.21st Century Pen Inc.has a ten year lease on the factory and insurance contract for a year,the company has no other expenses.
Refer to Scenario 9.1.21st Century Pen Inc.'s profit is:

A)$5920 per day.
B)$6000 per day.
C)$4000 per day.
D)$4060 per day.

Question 62

Scenario 9.1: 21st Century Pen Inc.produces 2000 pens per day,and hires 20 workers at a cost of $200 per day per worker.The price of each pen is $5 each.21st Century Pen Inc.pays a daily rental rate of $60 on its factory and a daily insurance rate of $20.21st Century Pen Inc.has a ten year lease on the factory and insurance contract for a year,the company has no other expenses.
Refer to Scenario 9.1.21st Century Pen Inc.'s average total cost at an output of 2000 pens per day is approximately:

A)$2.03 per unit.
B)$2 per unit.
C)$2.04 per unit.
D)$2.01 per unit.

Question 63

Assume that Bright Lights Inc.is part of a perfectly competitive market.If Bright Lights Inc.decides to raise their prices for the vanity light fixtures by 20%,which of the following is most likely to result?

A)Bright Lights Inc.'s supply curve will shift to the left and they will produce less output.
B)Bright Lights Inc.will increase the price of their output to compensate for the rise in their rent.
C)Bright Lights Inc.will earn less profit but will produce the same amount of output.
D)Bright Lights Inc.will shut down immediately.

Question 64

Scenario 9.1: 21st Century Pen Inc.produces 2000 pens per day,and hires 20 workers at a cost of $200 per day per worker.The price of each pen is $5 each.21st Century Pen Inc.pays a daily rental rate of $60 on its factory and a daily insurance rate of $20.21st Century Pen Inc.has a ten year lease on the factory and insurance contract for a year,the company has no other expenses.
Refer to Scenario 9.1.Suppose that 21st Century Pen Inc.continues to produce the same level of output and hires the same number of workers.21st Century Pen Inc.will shut down in the short run if the price falls below:

A)$3.
B)$2.
C)$1.
D)$4.

Question 65

When a firm's economic profit is equal to one,the firm is at the break-even point.

Question 66

The marginal cost curve for a perfectly competitive firm is downward sloping over the entire range of output.

Question 67

At the break-even point,economic profit is zero,pice is equal to the average total cost.

Question 68

Refer to Figure 9.6.At a market price of $20,this profit maximizing firm would earn $ ________ economic profit.

A)30
B)25
C)20
D)0

Question 69

For firms in perfect competition,price is equal to marginal revenue at all levels of output.

Question 70

Scenario 9.1: 21st Century Pen Inc.produces 2000 pens per day,and hires 20 workers at a cost of $200 per day per worker.The price of each pen is $5 each.21st Century Pen Inc.pays a daily rental rate of $60 on its factory and a daily insurance rate of $20.21st Century Pen Inc.has a ten year lease on the factory and insurance contract for a year,the company has no other expenses.
Refer to Scenario 9.1.21st Century Pen Inc.will earn positive economic profit as long as price is:

A)greater than average variable cost.
B)greater than average total cost.
C)greater than marginal cost.
D)greater than average fixed cost.

Question 71

Suppose a farmer suddenly realized that his marginal cost was below the market price of the output.How would he react if he were a profit maximizer? Explain.

Question 72

Define marginal revenue.For a perfectly competitive firm,why are price and marginal revenue equal?

Question 73

For firms in perfect competition,price is equal to marginal cost at all levels of output.

Question 74

Maxine's Cookie Shop sells chocolate chip cookies in a perfectly competitive market for $2 per dozen.Maxine currently produces 200 dozen cookies per day and average total cost at this level of production is $1.75.What level of profit is this firm earning? Explain.

Question 75

Scenario 9.1: 21st Century Pen Inc.produces 2000 pens per day,and hires 20 workers at a cost of $200 per day per worker.The price of each pen is $5 each.21st Century Pen Inc.pays a daily rental rate of $60 on its factory and a daily insurance rate of $20.21st Century Pen Inc.has a ten year lease on the factory and insurance contract for a year,the company has no other expenses.
Refer to Scenario 9.1.21st Century Pen Inc.'s fixed cost is:

A)$4000 per day.
B)$4080 per day.
C)$80 per day.
D)$60 per day.

Question 76

To maximize total profits,a firm should produce at the level of output at which there is the greatest difference between marginal revenue and marginal cost.

Question 77

What is the shape of the marginal revenue curve for a perfectly competitive firm? Why is it that way?

Question 78

Refer to Figure 9.6.At a market price of $20,this perfectly competitive profit maximizing firm should produce approximately ________ units.

A)30
B)35
C)40
D)45

Question 79

Explain why,for all firms,profits are maximized where marginal revenue equals marginal cost.

Question 80

Refer to Figure 9.6.At a market price of $9,this perfectly competitive profit maximizing firm should produce ________ units.

A)30
B)25
C)20
D)0