Question 1

What is meant by the term "long-run competitive equilibrium?

Accepted Answer

Long-run competitive equilibri...

Question 2

If a firm shuts down in the short run

Accepted Answer

A)  its loss equals zero.
B)  its loss equals its fixed cost.
C)  is makes zero economic profit.
D)  its total revenue is not large enough to cover its fixed cost.

Question 3

Which of the following is a characteristic of a firm in a perfectly competitive market?

Accepted Answer

A)  The firm cannot make a profit in the short run because it is too small a part of the total market.
B)  The firm can make a profit in the long run but not in the short run.
C)  The firm can sell as much as it wants without having to lower its price.
D)  The firm must lower its price in order to increase quantity demanded.

Question 4

Why are individual buyers and sellers in perfect competition called price takers?

Accepted Answer

They are called price takers b...

Question 5

If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit, then

Accepted Answer

A)  marginal revenue is less than price.
B)  average total cost is at a minimum.
C)  total revenue equals total cost.
D)  price exceeds average total cost.

Question 6

In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are

Accepted Answer

A)  implicit costs.
B)  capital costs.
C)  nonmonetary opportunity costs.
D)  sunk costs.

Question 7

Assume the market for cage-free eggs is perfectly competitive.All else equal, as farmers find it less profitable to produce and sell cage-free eggs in this market

Accepted Answer

A)  the demand curve will shift to the left and the equilibrium price will decrease.
B)  the supply curve will shift to the left and the equilibrium price will increase.
C)  the supply curve will shift to the right, the demand curve will shift to the left, and the equilibrium price will decrease.
D)  the supply curve will shift to the left, the demand curve will shift to the left, and the equilibrium price will increase.

Question 8

A perfectly competitive industry achieves allocative efficiency because

Accepted Answer

A)  goods and services are produced at the lowest possible cost.
B)  goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.
C)  it produces where market price equals marginal production cost.
D)  firms carry production surpluses.

Question 9

Figure 12-10
 
-Refer to Figure 12-10.The total cost at the profit-maximizing output level equals

Accepted Answer

A)  $4,800.
B)  $3,300.
C)  $2,500.
D)  $1,800.

Question 10

If a perfectly competitive firm's price is above its average total cost, the firm

Accepted Answer

A)  is earning a profit.
B)  should shut down.
C)  is incurring a loss.
D)  is breaking even.

Question 11

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

Accepted Answer

Productive efficiency refers to the situ...

Question 12

The demand curve for an individual seller's product in perfect competition is

Accepted Answer

A)  the same as market demand.
B)  downward sloping.
C)  vertical.
D)  horizontal.

Question 13

A firm's total profit can be calculated as all of the following except

Accepted Answer

A)  total revenue minus total cost.
B)  average profit per unit times quantity sold.
C)  (price minus average total cost) times quantity sold.
D)  marginal profit times quantity sold.

Question 14

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

Accepted Answer

Allocative efficiency refers to a state ...

Question 15

To maximize profit, a perfectly competitive firm

Accepted Answer

A)  should sell the quantity of output determined by the interaction between industry demand and supply.
B)  should sell the quantity of output that results in a value for total revenue that is equal to total cost.
C)  should produce the quantity of output that results in the greatest difference between total revenue and total cost.
D)  should produce the quantity of output that results in the greatest difference between marginal revenue and marginal cost.

Question 16

The demand curve for each seller's product in perfect competition is horizontal at the market price because

Accepted Answer

A)  each seller is too small to affect market price.
B)  the price is set by the government.
C)  all the sellers get together and set the price.
D)  all the demanders get together and set the price.

Question 17

Figure 12-14
 
-Refer to Figure 12-14.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

Accepted Answer

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

Question 18

A firm could continue to operate for years without ever earning a profit as long as it is producing an output where

Accepted Answer

A)  MR 
B)  ATC > AVC.
C)  MR > AVC.
D)  AFC < AVC.

Question 19

Figure 12-5
  
Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 12-5.If the market price is $20, what is the amount of the firm's profit?

Accepted Answer

A)  $5,400
B)  $6,750
C)  $8,100
D)  $16,200

Question 20

The price a perfectly competitive firm receives for its output

Accepted Answer

A)  is determined by the interaction of the firm and all of the consumers who buy from the firm.
B)  is determined by the interaction of all sellers and all buyers in the firm's market.
C)  will not change in response to changes in market demand and supply because the firm is a price taker.
D)  will be lowered by the firm in order to sell more output.

Exam 12: Firms in Perfectly Competitive Markets

Why are individual buyers and sellers in perfect competition called price takers?

Correct AnswerverifiedThey are called price takers b...View AnswerShow Answer

If a perfectly competitive firm's price is above its average total cost, the firm

Correct AnswerverifiedShow Answer

A firm's total profit can be calculated as all of the following except

Correct AnswerverifiedShow Answer

Which of the following is a characteristic of a firm in a perfectly competitive market?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedAllocative efficiency refers to a state ...View AnswerShow Answer

In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are

Correct AnswerverifiedShow Answer

Figure 12-14 -Refer to Figure 12-14.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

Correct AnswerverifiedShow Answer

The demand curve for each seller's product in perfect competition is horizontal at the market price because

Correct AnswerverifiedShow Answer

The demand curve for an individual seller's product in perfect competition is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedProductive efficiency refers to the situ...View AnswerShow Answer

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.If the market price is $20, what is the amount of the firm's profit?

Correct AnswerverifiedShow Answer

If a firm shuts down in the short run

Correct AnswerverifiedShow Answer

A firm could continue to operate for years without ever earning a profit as long as it is producing an output where

Correct AnswerverifiedShow Answer

Assume the market for cage-free eggs is perfectly competitive.All else equal, as farmers find it less profitable to produce and sell cage-free eggs in this market

Correct AnswerverifiedShow Answer

Figure 12-10 -Refer to Figure 12-10.The total cost at the profit-maximizing output level equals

Correct AnswerverifiedShow Answer

A perfectly competitive industry achieves allocative efficiency because

Correct AnswerverifiedShow Answer

The price a perfectly competitive firm receives for its output

Correct AnswerverifiedShow Answer

To maximize profit, a perfectly competitive firm

Correct AnswerverifiedShow Answer

If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit, then

Correct AnswerverifiedShow Answer

What is meant by the term "long-run competitive equilibrium?

Correct AnswerverifiedLong-run competitive equilibri...View AnswerShow Answer

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They are called price takers b...
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Allocative efficiency refers to a state ...
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Productive efficiency refers to the situ...
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Long-run competitive equilibri...
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