Question 1

Table 7-1
  Table 7-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.
-Refer to Table 7-1.If the market price of each camera case is $8,what is the profit-maximising quantity?

Accepted Answer

A)  300 units 
B)  400 units 
C)  500 units 
D)  600 units

Question 2

Figure 7-6 
-Refer to Figure 7-6.Suppose the market price is $120.Which of the following is true?

Accepted Answer

A)  The firm earns a profit equal to the area A. 
B)  The firm earns a profit equal to the area A + B. 
C)  The firm suffers a loss equal to the area A. 
D)  The firm will break even.

Question 3

If,for a given output level,a perfectly competitive firm's price is less than its average variable cost,the firm

Accepted Answer

A)  is earning a profit. 
B)  should shut down. 
C)  should increase output. 
D)  should increase price.

Question 4

At the profit-maximising level of output for a perfectly competitive firm,

Accepted Answer

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

Question 5

Perfect competition is characterised by all of the following except

Accepted Answer

A)  heavy advertising by individual sellers. 
B)  homogeneous products. 
C)  sellers are price takers. 
D)  a horizontal demand curve for individual sellers.

Question 6

What is the relationship among the following variables for a perfectly competitive firm: the market price,average revenue and marginal revenue?

Accepted Answer

A)  Average revenue is equal to the market price; average revenue is greater than marginal revenue. 
B)  The market price is equal to both average revenue and marginal revenue. 
C)  Average revenue is equal to marginal revenue; average revenue is greater than the market price. 
D)  As a firm lowers the market price to sell more output, marginal revenue and average revenue will be less than the market price.

Question 7

Figure 7-3 
-Refer to Figure 7-3.Suppose the prevailing price is P1 and the firm is currently producing its loss-minimising quantity.Identify the area that represents the loss.

Accepted Answer

A)  P2 deP1 
B)  P3cbP1 
C)  P3caP0 
D)  0P1 bQ1

Question 8

Figure 7-4  Figure 7-4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market.
-Refer to Figure 7-4.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.

Question 9

Apple introduced its iPhone 3G in July 2008 and within a month sales had topped 3 million units.By April 2009,more than 25 000 apps for the iPhone 3G were available in the iTunes store,an indication that in a competitive market,

Accepted Answer

A)  the ease with which a new firm can enter is low. 
B)  the ease with which a new firm can enter is high. 
C)  entry into the market is blocked. 
D)  entry into the market is restricted in the short run, but becomes easier in the long run.

Question 10

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 P3,the firm would produce

Accepted Answer

A)  Q2 units. 
B)  Q3 units. 
C)  Q4 units. 
D)  Q5 units.

Question 11

If in the long run a firm makes zero profit,it should exit the industry.

Accepted Answer

A) True 
 B)False

Question 12

Firms that are price takers

Accepted Answer

A)  must lower their prices to increase sales. 
B)  are able to sell a fixed quantity of output at the market price. 
C)  can raise their prices as a result of a successful advertising campaign. 
D)  are able to sell all their output at the market price.

Question 13

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54,then to maximise profits the firm should

Accepted Answer

A)  continue producing at the current output. 
B)  produce a larger level of output. 
C)  produce a smaller level of output. 
D)  There is not enough information given to answer the question.

Question 14

The minimum point on the average variable cost curve is called the loss-minimising point.

Accepted Answer

A) True 
 B)False

Question 15

Figure 7-1 
-Refer to Figure 7-1.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.

Question 16

A perfectly competitive wheat farmer in a constant-cost industry produces 1000 bushels of wheat at a total cost of $50 000.The prevailing market price is $48.What will happen to the market price of wheat in the long run?

Accepted Answer

A)  The price remains constant at $48. 
B)  The price falls below $48. 
C)  The price rises above $48. 
D)  There is insufficient information to answer the question.

Question 17

If,for a perfectly competitive firm,price exceeds the marginal cost of production,the firm should

Accepted Answer

A)  increase its output. 
B)  reduce its output. 
C)  keep output constant and enjoy the above normal profit. 
D)  lower the price.

Question 18

Figure 7-2 
-Refer to Figure 7-2.Why is the total revenue curve a ray from the origin?

Accepted Answer

A)  Because revenue increases at an increasing rate 
B)  Because revenue increases at a decreasing rate 
C)  Because the firm can sell its product at a constant price 
D)  Because the firm must lower its price to sell more

Question 19

Fill in the columns in the following table and use the values in the table to determine the profit-maximising level of output.

Accepted Answer

The answer of Fill in the columns in the following...

Question 20

A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.

Accepted Answer

A) True 
 B)False

Exam 7: Consumer Choice and Elasticity

Table 7-1 Table 7-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units. -Refer to Table 7-1.If the market price of each camera case is $8,what is the profit-maximising quantity?

Figure 7-6 -Refer to Figure 7-6.Suppose the market price is $120.Which of the following is true?

If,for a given output level,a perfectly competitive firm's price is less than its average variable cost,the firm

At the profit-maximising level of output for a perfectly competitive firm,

Perfect competition is characterised by all of the following except

What is the relationship among the following variables for a perfectly competitive firm: the market price,average revenue and marginal revenue?

Figure 7-3 -Refer to Figure 7-3.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimising quantity.Identify the area that represents the loss.

Figure 7-4 Figure 7-4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market. -Refer to Figure 7-4.If the market price is $30,should the firm represented in the diagram continue to stay in business?

Apple introduced its iPhone 3G in July 2008 and within a month sales had topped 3 million units.By April 2009,more than 25 000 apps for the iPhone 3G were available in the iTunes store,an indication that in a competitive market,

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 P₃,the firm would produce

If in the long run a firm makes zero profit,it should exit the industry.

Firms that are price takers

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54,then to maximise profits the firm should

The minimum point on the average variable cost curve is called the loss-minimising point.

Figure 7-1 -Refer to Figure 7-1.If the firm is producing 200 units,

A perfectly competitive wheat farmer in a constant-cost industry produces 1000 bushels of wheat at a total cost of $50 000.The prevailing market price is $48.What will happen to the market price of wheat in the long run?

If,for a perfectly competitive firm,price exceeds the marginal cost of production,the firm should

Figure 7-2 -Refer to Figure 7-2.Why is the total revenue curve a ray from the origin?

Fill in the columns in the following table and use the values in the table to determine the profit-maximising level of output.

A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.

Exam 7: Consumer Choice and Elasticity

Table 7-1 Table 7-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units. -Refer to Table 7-1.If the market price of each camera case is $8,what is the profit-maximising quantity?

Figure 7-6 -Refer to Figure 7-6.Suppose the market price is $120.Which of the following is true?

If,for a given output level,a perfectly competitive firm's price is less than its average variable cost,the firm

At the profit-maximising level of output for a perfectly competitive firm,

Perfect competition is characterised by all of the following except

What is the relationship among the following variables for a perfectly competitive firm: the market price,average revenue and marginal revenue?

Figure 7-3 -Refer to Figure 7-3.Suppose the prevailing price is P1 and the firm is currently producing its loss-minimising quantity.Identify the area that represents the loss.

Figure 7-4 Figure 7-4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market. -Refer to Figure 7-4.If the market price is $30,should the firm represented in the diagram continue to stay in business?

Apple introduced its iPhone 3G in July 2008 and within a month sales had topped 3 million units.By April 2009,more than 25 000 apps for the iPhone 3G were available in the iTunes store,an indication that in a competitive market,

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 P3,the firm would produce

If in the long run a firm makes zero profit,it should exit the industry.

Firms that are price takers

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54,then to maximise profits the firm should

The minimum point on the average variable cost curve is called the loss-minimising point.

Figure 7-1 -Refer to Figure 7-1.If the firm is producing 200 units,

A perfectly competitive wheat farmer in a constant-cost industry produces 1000 bushels of wheat at a total cost of $50 000.The prevailing market price is $48.What will happen to the market price of wheat in the long run?

If,for a perfectly competitive firm,price exceeds the marginal cost of production,the firm should

Figure 7-2 -Refer to Figure 7-2.Why is the total revenue curve a ray from the origin?

Fill in the columns in the following table and use the values in the table to determine the profit-maximising level of output.

A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.

Figure 7-3 -Refer to Figure 7-3.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimising quantity.Identify the area that represents the loss.

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 P₃,the firm would produce