Question 1

Figure 7-14 
-Refer to Figure 7-14.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D

Question 2

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.Suppose the fixed cost of production rises by $500 and the price per unit is still $8.What happens to the firm's profit-maximising output level?

Accepted Answer

A)  It must fall. 
B)  It must rise to offset the increased cost. 
C)  It will remain the same. 
D)  The firm will shut down.

Question 3

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

Accepted Answer

A) True 
 B)False

Question 4

In August 2008,Ethan Nicholas developed the iShoot application for the apple iPhone 3G,and within five months had earned $800 000 from this program.By May 2009,Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,

Accepted Answer

A)  earning an economic profit in the long run is extremely easy. 
B)  earning an economic profit in the long run is extremely difficult. 
C)  it is impossible to earn an economic profit in either the short run or the long run. 
D)  economic profits are only earned in the long run.

Question 5

All of the following can be used to compute average profit except

Accepted Answer

A)  marginal profit minus marginal cost. 
B)  total profit divided by quantity. 
C)  average revenue minus average total cost. 
D)  price minus average total cost.

Question 6

Which of the following characteristics of a farmers' market makes it a good example of a perfectly competitive market?

Accepted Answer

A)  Selling product at a farmers' market was very profitable for farmers in the early 2000s. As result, many farmers sold their farms to larger firms. 
B)  Farmers who sell product at a farmers' market are similar to other entrepreneurs who introduce products that earn short-run profits but invite competition that drives down prices and profits in the long run. 
C)  Farmers who sell product at a farmers' market are similar to other business owners who take advantage of the willingness of some consumers to pay high prices for new and different products. 
D)  Farmers selling product at a farmers' market provide a product that is a necessity, rather than a luxury.

Question 7

Letters are used to represent the terms used to answer this question: price (P),quantity of output (Q),total cost (TC)and average total cost (ATC).Which of the following equations is equal to a firm's average profit?

Accepted Answer

A)  P - ATC 
B)  (P - AT
C)  × Q 
C)  (P × Q) - TC 
D)  P - TC

Question 8

Figure 7-2 
-Refer to Figure 7-2.What is the amount of profit if the firm produces Q2 units?

Accepted Answer

A)  It is equal to the vertical distance c to g. 
B)  It is equal to the vertical distance c to Q2. 
C)  It is equal to the vertical distance g to Q2. 
D)  It is equal to the vertical distance c to g multiplied by Q2 units.

Question 9

A perfectly competitive apple farm produces 1000 bushels of apples at a total cost of $36 000.The price of each bushel is $50.Calculate the firm's short-run profit or loss.

Accepted Answer

A)  Loss of $14 000 
B)  Profit of $14 000 
C)  Profit of $50 000 
D)  There is insufficient information to answer the question.

Question 10

If total revenue exceeds fixed cost,a firm

Accepted Answer

A)  should produce in the short run. 
B)  has covered its variable cost. 
C)  is making short-run profits. 
D)  may or may not produce in the short run, depending on whether total revenue covers variable cost.

Question 11

Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterises the industry if,as demand for tuna increases,fishing boats have to go farther into the ocean to harvest tuna?

Accepted Answer

A)  A constant-cost industry 
B)  An increasing-cost industry 
C)  A decreasing-cost industry 
D)  A fixed-cost industry

Question 12

In the short run,if price falls below a firm's minimum average total cost,the firm should shut down.

Accepted Answer

A) True 
 B)False

Question 13

Table 7-2
  Arnie sells basketballs in a perfectly competitive market. Table 7-2 summarises Arnie's output per day (Q), total cost (TC), average total cost (ATC) and marginal cost (MC).
-Refer to Table 7-2.What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Accepted Answer

A)  Q = 1; profit = -$10. 
B)  Q = 3; profit = -$7.50 
C)  Q = 0; profit = -$10.00 
D)  Price and profit cannot be determined from the information given.

Question 14

An increase in a firm's fixed cost will not change the firm's profit-maximising output in the short run.

Accepted Answer

A) True 
 B)False

Question 15

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Accepted Answer

A) True 
 B)False

Question 16

If a perfectly competitive firm's total revenue is less than its total variable cost,the firm

Accepted Answer

A)  should raise its price above its average variable cost. 
B)  should continue to produce and increase its demand. 
C)  should stop production by shutting down temporarily. 
D)  should adopt new technology in order to lower its costs of production.

Question 17

If,as a perfectly competitive industry expands,it can supply larger quantities at the same long-run market price,it is

Accepted Answer

A)  a constant-cost industry. 
B)  an increasing-cost industry. 
C)  a decreasing-cost industry. 
D)  a fixed-cost industry.

Question 18

If the market price is $40,the average revenue of selling five units is

Accepted Answer

A)  $8. 
B)  $20. 
C)  $40. 
D)  $200.

Question 19

Why would a company continue to operate for many years while never once turning a profit,rather than shut down immediately? Using revenue and cost analysis,explain when the company would shut down.

Accepted Answer

The answer of Why would a company continue to operate...

Question 20

An industry's long-run supply curve shows

Accepted Answer

A)  the relationship in the long run between market price and quantity supplied. 
B)  how the government determines the price of the product. 
C)  how average productivity is changing. 
D)  greater than normal profit.

Exam 7: Consumer Choice and Elasticity

Figure 7-14 -Refer to Figure 7-14.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

In August 2008,Ethan Nicholas developed the iShoot application for the apple iPhone 3G,and within five months had earned $800 000 from this program.By May 2009,Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,

All of the following can be used to compute average profit except

Which of the following characteristics of a farmers' market makes it a good example of a perfectly competitive market?

Letters are used to represent the terms used to answer this question: price (P) ,quantity of output (Q) ,total cost (TC) and average total cost (ATC) .Which of the following equations is equal to a firm's average profit?

Figure 7-2 -Refer to Figure 7-2.What is the amount of profit if the firm produces Q₂ units?

A perfectly competitive apple farm produces 1000 bushels of apples at a total cost of $36 000.The price of each bushel is $50.Calculate the firm's short-run profit or loss.

If total revenue exceeds fixed cost,a firm

Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterises the industry if,as demand for tuna increases,fishing boats have to go farther into the ocean to harvest tuna?

In the short run,if price falls below a firm's minimum average total cost,the firm should shut down.

An increase in a firm's fixed cost will not change the firm's profit-maximising output in the short run.

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

If a perfectly competitive firm's total revenue is less than its total variable cost,the firm

If,as a perfectly competitive industry expands,it can supply larger quantities at the same long-run market price,it is

If the market price is $40,the average revenue of selling five units is

Why would a company continue to operate for many years while never once turning a profit,rather than shut down immediately? Using revenue and cost analysis,explain when the company would shut down.

An industry's long-run supply curve shows

Exam 7: Consumer Choice and Elasticity

Figure 7-14 -Refer to Figure 7-14.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

In August 2008,Ethan Nicholas developed the iShoot application for the apple iPhone 3G,and within five months had earned $800 000 from this program.By May 2009,Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,

All of the following can be used to compute average profit except

Which of the following characteristics of a farmers' market makes it a good example of a perfectly competitive market?

Letters are used to represent the terms used to answer this question: price (P) ,quantity of output (Q) ,total cost (TC) and average total cost (ATC) .Which of the following equations is equal to a firm's average profit?

Figure 7-2 -Refer to Figure 7-2.What is the amount of profit if the firm produces Q2 units?

A perfectly competitive apple farm produces 1000 bushels of apples at a total cost of $36 000.The price of each bushel is $50.Calculate the firm's short-run profit or loss.

If total revenue exceeds fixed cost,a firm

Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterises the industry if,as demand for tuna increases,fishing boats have to go farther into the ocean to harvest tuna?

In the short run,if price falls below a firm's minimum average total cost,the firm should shut down.

An increase in a firm's fixed cost will not change the firm's profit-maximising output in the short run.

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

If a perfectly competitive firm's total revenue is less than its total variable cost,the firm

If,as a perfectly competitive industry expands,it can supply larger quantities at the same long-run market price,it is

If the market price is $40,the average revenue of selling five units is

Why would a company continue to operate for many years while never once turning a profit,rather than shut down immediately? Using revenue and cost analysis,explain when the company would shut down.

An industry's long-run supply curve shows

Figure 7-2 -Refer to Figure 7-2.What is the amount of profit if the firm produces Q₂ units?