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 and the firm maximises profit,what is the amount of the firm's profit or loss?

Accepted Answer

A)   $0 (it breaks even) 
B)   Loss of $1000
C)   Profit of $440
D)   Loss of $440E) B) and D)
F) B) and C)

Question 2

If a perfectly competitive firm achieves productive efficiency,then

Accepted Answer

A)   it will raise its price in order to earn an economic profit.
B)   the price of the good it sells is equal to the benefit consumers receive from consuming the last unit of the good sold.
C)   it is producing at minimum efficient scale.
D)   it is producing the good it sells at the lowest possible cost.E) A) and B)
F) C) and D)

Question 3

Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12.Which of the following will happen?

Accepted Answer

A)   The firm will sell more output than its competitors.
B)   The firm's revenue will increase.
C)   The firm will not sell any output.
D)   The firm's profits will increase.E) A) and B)
F) C) and D)

Question 4

Assume that firms in a perfectly competitive market are earning economic profits.Which of the following statements describes the change in market price and output as a result of the entry of new firms into this market?

Accepted Answer

A)   The market demand curve shifts to the right, causing price to rise and market output to increase.
B)   The market demand curve shifts to the left, causing price to fall and market output to decrease.
C)   The short-run market supply curve shifts to the right, causing price to fall and total market output to increase.
D)   The short-run market supply curve shifts to the left, causing price to rise and total market output to decrease.E) A) and D)
F) A) and B)

Question 5

A perfectly competitive firm's supply curve is its

Accepted Answer

A)   marginal cost curve.
B)   marginal cost curve above its minimum average total cost.
C)   marginal cost curve above its minimum average variable cost.
D)   marginal cost curve above its minimum average fixed cost.E) B) and C)
F) A) and D)

Question 6

In the long run,perfectly competitive firms earn zero economic profit.Why do firms enter an industry when they know that in the long run they will not earn any profit?

Accepted Answer

Even though in the long run firms earn z...

Question 7

Figure 7-8 
-Refer to Figure 7-8.At the profit-maximising output level,the firm earns

Accepted Answer

A)   zero economic profit.
B)   a profit of $600.
C)   a profit of $1200.
D)   a profit of $2700.E) A) and B)
F) B) and D)

Question 8

Figure 7-12 
-Refer to Figure 7-12.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 DE) B) and D)
F) All of the above

Question 9

If a firm shuts down in the short run,

Accepted Answer

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

Question 10

A firm will make a profit when

Accepted Answer

A)   P > AVC.
B)   P > ATC.
C)   P = ATC.
D)   P = MC.E) C) and D)
F) A) and B)

Question 11

What is a long-run supply curve? What does a long-run supply curve look like on a perfectly competitive market graph?

Accepted Answer

A long-run supply curve shows the relati...

Question 12

Which of the following is the best example of a perfectly competitive industry?

Accepted Answer

A)   Wheat production
B)   Steel production
C)   Electricity production
D)   Aeroplane productionE) A) and C)
F) B) and D)

Question 13

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

Accepted Answer

A) True 
 B)False

Question 14

Marty's Bird House suffers a short-run loss.Marty can reduce his loss below the amount of his total fixed costs by continuing to produce if his revenue

Accepted Answer

A)   exceeds his implicit costs.
B)   exceeds his non-monetary opportunity costs.
C)   exceeds his variable costs.
D)   exceeds his marginal costs.E) A) and C)
F) B) and D)

Question 15

Consider the market for wheat which is a perfectly competitive market.Is the market demand curve the same as the demand curve facing an individual producer? If not,explain how and why they are different? Illustrate your answer graphically.

Accepted Answer

The market demand is downward sloping wh...

Question 16

Figure 7-8 
-Refer to Figure 7-8.The firm's short-run supply curve is its

Accepted Answer

A)   marginal cost curve.
B)   marginal cost curve from b and above.
C)   marginal cost curve from c and above.
D)   marginal cost curve from d and above.E) All of the above
F) C) and D)

Question 17

Maximising average profit is equivalent to maximising total profit.

Accepted Answer

A) True 
 B)False

Question 18

The perfectly competitive market structure benefits consumers because

Accepted Answer

A)   firms do not produce goods at the lowest possible price in the long run.
B)   firms are forced by competitive pressure to be as efficient as possible.
C)   firms add a much smaller mark-up over average cost than firms in any other type of market structure.
D)   firms produce high quality goods at low prices.E) None of the above
F) B) and D)

Question 19

A perfectly competitive firm faces a demand curve that is

Accepted Answer

A)   horizontal.
B)   vertical.
C)   perpendicular to the quantity axis.
D)   perfectly inelastic.E) A) and B)
F) A) and D)

Question 20

In early 2007,Pioneer and JVC,two Japanese electronics firms,each announced that their profits were going to be lower than expected because they both had to cut prices for LCD and plasma television sets.Which of the following could explain why these firms did not simply raise their prices and increase their profits?

Accepted Answer

A)   The move to cut prices is probably just a temporary one to gain market share. In the long run the firms will raise prices and be able to increase their profits.
B)   Most likely, intense competition between these two major producers probably pushed prices down. Thereafter, each feared that it would lose its customers to the other if it raised its prices.
C)   In perfect competition, prices are determined by the market, and firms will keep lowering prices until there are no profits to be earned.
D)   The firms are still making profits, just not as high as expected, so there is room to lower prices until one can force the other out of business.E) A) and C)
F) C) and D)

Exam 7: Consumer Choice and Elasticity

A perfectly competitive firm faces a demand curve that is

Correct Answer
verified

Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12.Which of the following will happen?

Correct Answer
verified

Which of the following is the best example of a perfectly competitive industry?

Correct Answer
verified

The perfectly competitive market structure benefits consumers because

Correct Answer
verified

Correct Answer
verified

If a firm shuts down in the short run,

Correct Answer
verified

In the long run,perfectly competitive firms earn zero economic profit.Why do firms enter an industry when they know that in the long run they will not earn any profit?

Correct Answer
verified
Even though in the long run firms earn z...
View Answer

A firm will make a profit when

Correct Answer
verified

What is a long-run supply curve? What does a long-run supply curve look like on a perfectly competitive market graph?

Correct Answer
verified
A long-run supply curve shows the relati...
View Answer

Figure 7-12 -Refer to Figure 7-12.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 Answer
verified

Figure 7-8 -Refer to Figure 7-8.The firm's short-run supply curve is its

Correct Answer
verified

Figure 7-8 -Refer to Figure 7-8.At the profit-maximising output level,the firm earns

Correct Answer
verified

Assume that firms in a perfectly competitive market are earning economic profits.Which of the following statements describes the change in market price and output as a result of the entry of new firms into this market?

Correct Answer
verified

If a perfectly competitive firm achieves productive efficiency,then

Correct Answer
verified

Marty's Bird House suffers a short-run loss.Marty can reduce his loss below the amount of his total fixed costs by continuing to produce if his revenue

Correct Answer
verified

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

Correct Answer
verified

A perfectly competitive firm's supply curve is its

Correct Answer
verified

Consider the market for wheat which is a perfectly competitive market.Is the market demand curve the same as the demand curve facing an individual producer? If not,explain how and why they are different? Illustrate your answer graphically.

Correct Answer
verified
The market demand is downward sloping wh...
View Answer

Maximising average profit is equivalent to maximising total profit.

Correct Answer
verified

Correct Answer
verified

Exam 7: Consumer Choice and Elasticity

A perfectly competitive firm faces a demand curve that is

Correct AnswerverifiedShow Answer

Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12.Which of the following will happen?

Correct AnswerverifiedShow Answer

Which of the following is the best example of a perfectly competitive industry?

Correct AnswerverifiedShow Answer

The perfectly competitive market structure benefits consumers because

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a firm shuts down in the short run,

Correct AnswerverifiedShow Answer

In the long run,perfectly competitive firms earn zero economic profit.Why do firms enter an industry when they know that in the long run they will not earn any profit?

Correct AnswerverifiedEven though in the long run firms earn z...View AnswerShow Answer

A firm will make a profit when

Correct AnswerverifiedShow Answer

What is a long-run supply curve? What does a long-run supply curve look like on a perfectly competitive market graph?

Correct AnswerverifiedA long-run supply curve shows the relati...View AnswerShow Answer

Figure 7-12 -Refer to Figure 7-12.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

Figure 7-8 -Refer to Figure 7-8.The firm's short-run supply curve is its

Correct AnswerverifiedShow Answer

Figure 7-8 -Refer to Figure 7-8.At the profit-maximising output level,the firm earns

Correct AnswerverifiedShow Answer

Assume that firms in a perfectly competitive market are earning economic profits.Which of the following statements describes the change in market price and output as a result of the entry of new firms into this market?

Correct AnswerverifiedShow Answer

If a perfectly competitive firm achieves productive efficiency,then

Correct AnswerverifiedShow Answer

Marty's Bird House suffers a short-run loss.Marty can reduce his loss below the amount of his total fixed costs by continuing to produce if his revenue

Correct AnswerverifiedShow Answer

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

Correct AnswerverifiedShow Answer

A perfectly competitive firm's supply curve is its

Correct AnswerverifiedShow Answer

Consider the market for wheat which is a perfectly competitive market.Is the market demand curve the same as the demand curve facing an individual producer? If not,explain how and why they are different? Illustrate your answer graphically.

Correct AnswerverifiedThe market demand is downward sloping wh...View AnswerShow Answer

Maximising average profit is equivalent to maximising total profit.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Even though in the long run firms earn z...
View Answer

Correct Answer
verified

Correct Answer
verified
A long-run supply curve shows the relati...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The market demand is downward sloping wh...
View Answer

Correct Answer
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Correct Answer
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