Question 1

In the short run,if a firm shuts down it avoids its variable cost but not its fixed cost.

Accepted Answer

A) True 
 B)False

Question 2

An individual seller in perfect competition will not sell at a price lower than the market price because

Accepted Answer

A)  demand for the product will exceed supply. 
B)  the seller would start a price war. 
C)  the seller can sell any quantity she wants at the prevailing market price. 
D)  demand is perfectly inelastic.

Question 3

A perfectly competitive wheat farmer in a constant-cost industry produces 3000 bushels of wheat at a total cost of $36 000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?

Accepted Answer

A)  The price remains constant at $15. 
B)  The price falls to $12. 
C)  The price rises above $15. 
D)  There is insufficient information to answer the question.

Question 4

A firm will break even when

Accepted Answer

A)  P = ATC. 
B)  P > ATC. 
C)  P < AVC. 
D)  P = AVC.

Question 5

Both individual buyers and sellers in perfect competition

Accepted Answer

A)  can influence the market price by their own individual actions. 
B)  can influence the market price by joining with a few of their competitors. 
C)  have to take the market price as a given. 
D)  have the market price dictated to them by the government.

Question 6

A perfectly competitive market is in long-run equilibrium.At present there are 100 identical firms each producing 5000 units of output.The prevailing market price is $20.Assume that each firm faces increasing marginal cost.Now suppose there is a sudden increase in demand for the industry's product,which causes the price of the good to rise to $24.Which of the following describes the effect of this increase in demand on a typical firm in the industry?

Accepted Answer

A)  In the short run, the typical firm increases its output and makes an above normal profit. 
B)  In the short run, the typical firm's output remains the same but because of the higher price, its profit increases. 
C)  In the short run, the typical firm increases its output but its total cost also increases, resulting in no change in profit. 
D)  In the short run, the typical firm increases its output but its total cost also increases. Hence, the effect on the firm's profit cannot be determined without more information.

Question 7

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.The figure shows the cost structure of a firm in a perfectly competitive market.If the firm's fixed cost increases by $1000 due to a new environmental regulation,what happens to its profit-maximising output level?

Accepted Answer

A)  It increases. 
B)  It decreases. 
C)  It remains the same. 
D)  It could increase, decrease or remain constant, depending on whether the firm is able to cut costs somewhere else.

Question 8

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 amount of the firm's fixed cost of production?

Accepted Answer

A)  $5400 
B)  $6750 
C)  $8100 
D)  It cannot be determined.

Question 9

Which of the following is not a characteristic of a perfectly competitive market structure?

Accepted Answer

A)  There is a very large number of firms that are small compared to the market. 
B)  All firms sell identical products. 
C)  There are no restrictions to entry by new firms. 
D)  There are restrictions on exit of firms.

Question 10

In perfect competition

Accepted Answer

A)  the market demand curve and the individual's demand are identical. 
B)  the market demand curve is perfectly inelastic while demand for an individual seller's product is perfectly elastic. 
C)  the market demand curve is perfectly elastic while demand for an individual seller's product is perfectly inelastic. 
D)  the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.

Question 11

If,for the last unit of a good produced by a perfectly competitive firm,MR > MC,then in producing it,the firm

Accepted Answer

A)  added more to total costs than it added to total revenue. 
B)  added more to total revenue than it added to total cost. 
C)  is maximising marginal profit. 
D)  has minimised its losses.

Question 12

In long-run competitive equilibrium,the perfectly competitive firm produces where price equals minimum average total cost.
a.What is this efficiency criterion called?
b.How does it benefit consumers?

Accepted Answer

The answer of In long-run competitive equilibrium,the perfectly competitive firm...

Question 13

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

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.

Question 14

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 firm's total revenue?

Accepted Answer

A)  $2400 
B)  $3200 
C)  $4000 
D)  $4800

Question 15

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 P1,the firm would produce

Accepted Answer

A)  Q1 units. 
B)  Q3 units. 
C)  Q5 units. 
D)  zero units.

Question 16

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product,the firm will be able to earn economic profits in the long run.

Accepted Answer

A) True 
 B)False

Question 17

Figure 7-7  Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm.
-Refer to Figure 7-7.Identify the short-run shutdown point for the firm.

Accepted Answer

A)  a 
B)  b 
C)  c 
D)  d

Question 18

In the long run,a perfectly competitive market will

Accepted Answer

A)  produce only the quantity of output that yields a long-run profit for the typical firm. 
B)  supply whatever amount consumers will buy at a price which earns the market an economic profit. 
C)  supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve. 
D)  generate a long-run equilibrium where the typical firm operates at a loss.

Question 19

Which of the following is not a characteristic of a monopolistically competitive market structure?

Accepted Answer

A)  There is a large number of independently acting small sellers. 
B)  All sellers sell products that are differentiated. 
C)  There are low barriers to entry of new firms. 
D)  Each firm must react to actions of other firms.

Question 20

What characteristic of a competitive market has made the 'long run pretty short' in the market for iPhone applications?

Accepted Answer

A)  Few firms in the market 
B)  Identical products 
C)  Ease of entry 
D)  Blocked entry

Exam 7: Consumer Choice and Elasticity

In the short run,if a firm shuts down it avoids its variable cost but not its fixed cost.

An individual seller in perfect competition will not sell at a price lower than the market price because

A perfectly competitive wheat farmer in a constant-cost industry produces 3000 bushels of wheat at a total cost of $36 000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?

A firm will break even when

Both individual buyers and sellers in perfect competition

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 amount of the firm's fixed cost of production?

Which of the following is not a characteristic of a perfectly competitive market structure?

In perfect competition

If,for the last unit of a good produced by a perfectly competitive firm,MR > MC,then in producing it,the firm

In long-run competitive equilibrium,the perfectly competitive firm produces where price equals minimum average total cost. a.What is this efficiency criterion called? b.How does it benefit consumers?

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

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 firm's total revenue?

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 P₁,the firm would produce

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product,the firm will be able to earn economic profits in the long run.

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.Identify the short-run shutdown point for the firm.

In the long run,a perfectly competitive market will

Which of the following is not a characteristic of a monopolistically competitive market structure?

What characteristic of a competitive market has made the 'long run pretty short' in the market for iPhone applications?

Exam 7: Consumer Choice and Elasticity

In the short run,if a firm shuts down it avoids its variable cost but not its fixed cost.

An individual seller in perfect competition will not sell at a price lower than the market price because

A perfectly competitive wheat farmer in a constant-cost industry produces 3000 bushels of wheat at a total cost of $36 000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?

A firm will break even when

Both individual buyers and sellers in perfect competition

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 amount of the firm's fixed cost of production?

Which of the following is not a characteristic of a perfectly competitive market structure?

In perfect competition

If,for the last unit of a good produced by a perfectly competitive firm,MR > MC,then in producing it,the firm

In long-run competitive equilibrium,the perfectly competitive firm produces where price equals minimum average total cost. a.What is this efficiency criterion called? b.How does it benefit consumers?

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

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 firm's total revenue?

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 P1,the firm would produce

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product,the firm will be able to earn economic profits in the long run.

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.Identify the short-run shutdown point for the firm.

In the long run,a perfectly competitive market will

Which of the following is not a characteristic of a monopolistically competitive market structure?

What characteristic of a competitive market has made the 'long run pretty short' in the market for iPhone applications?

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

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 P₁,the firm would produce