Question 1

Consider a perfectly competitive firm in the following position: output = 4000 units, market price =
$1, fixed costs = $2000, variable costs = $1000, and marginal cost = $1.10. To maximize profits the firm should

Accepted Answer

A)   reduce its output.
B)   increase the market price.
C)   not change its output.
D)   expand its output.
E)   shut down.F) A) and C)
G) C) and D)

Question 2

Consider the following total cost schedule for a perfectly competitive firm producing ball- point pens.   Output  per period  TVC ($)  TFC ($) 0051025203530654010550155 TABLE 9- 3\begin{array}{l}\begin{array} { | l | l | l | } \hline \begin{array} { l } 	ext { Output } \	ext { per period }\end{array} & 	ext { TVC } ( \$ )  & 	ext { TFC } ( \$ )  \\hline 0 & 0 & 5 \\hline 10 & 2 & 5 \\hline 20 & 3 & 5 \\hline 30 & 6 & 5 \\hline 40 & 10 & 5 \\hline 50 & 15 & 5 \\hline\end{array}\	ext { TABLE 9- } 3\end{array} Output  per period ​01020304050​ TVC ($) 02361015​ TFC ($) 555555​​ TABLE 9- 3​ 
-Refer to Table 9- 3. Suppose the prevailing market price for this firm's product is $0.45. If the firm is producing 20 units of output per period, then its profit per unit is and its total profit per period is .

Accepted Answer

A)   $6; $120
B)   $0.40; $8
C)   $9; $180
D)   $0.01; $2
E)   $0.05; $1.00 F) C) and D)
G) A) and B)

Question 3

If a perfectly competitive firm is producing where its MR=MC, but is operating to the left of the minimum point of its LRAC curve,

Accepted Answer

A)   it can still be in long- run equilibrium as long as P = SRATC.
B)   it cannot be optimizing its short- run behaviour.
C)   it is in a long- run profit maximizing position.
D)   it can reduce its average costs by building a larger plant.
E)   its profits will decrease if it builds a larger plant.F) D) and E)
G) B) and E)

Question 4

Suppose a typical competitive firm has the following data in the short run: price = $10; output =
100 units; ATC = $8; AVC = $7. What will likely happen?

Accepted Answer

A)   In the long run the industry will expand because of economic profits.
B)   The typical firm would shut down, until the remaining firms have a higher price.
C)   The size of the industry will remain the same in the long run.
D)   In the long run the industry will contract because firms are suffering losses.
E)   There is not enough information to formulate an answer.F) A) and E)
G) B) and C)

Question 5

Why will a perfectly competitive firm not sell its product below the prevailing market price?

Accepted Answer

A)   It faces inelastic demand.
B)   It can sell all it wishes at the market price.
C)   This would lead to a price war among sellers.
D)   The sellers in the market have agreed to not sell below a specified price.
E)   Its costs would increase dramatically.F) None of the above
G) C) and D)

Question 6

Consider the following cost curves for Firm X, a perfectly competitive firm.  FIGURE 9- 3
-Refer to Figure 9- 3. In this industry, which one of the following is FALSE?

Accepted Answer

A)   If the scale of Firm X at output Q2 and price P2 is large enough that Firm X has an appreciable share of the market, Firm X will no longer be a price taker.
B)   If the price were to fall below P2, firms would leave the industry.
C)   At output Q2 and price P2, Firm X is maximizing its long- run profits.
D)   If the price were to rise above P2, new firms would enter the industry.
E)   Only one firm can reach the size of output Q2.F) All of the above
G) None of the above

Question 7

For a given market price, a competitive firm's marginal- revenue curve

Accepted Answer

A)   is a straight line that coincides with the market demand curve.
B)   increases to the right and then declines when MC = MR.
C)   is the same as the firm's TR curve.
D)   is a positively sloped straight line, starting from the origin.
E)   is the same as the firm's demand curve.F) A) and B)
G) A) and C)

Question 8

In the long run it is not possible for a perfectly competitive firm to

Accepted Answer

A)   alter its plant size.
B)   set the product price.
C)   adjust its output.
D)   replace its antiquated equipment.
E)   adopt new technology.F) None of the above
G) A) and C)

Question 9

If a perfectly competitive market is in a short- run equilibrium and each firm has P > SRATC, then

Accepted Answer

A)   individual firms in the industry will increase their output.
B)   price will fall in the short run as it is too high and firms are making economic profits.
C)   the market supply curve will become less elastic.
D)   existing firms will continue to earn economic profits in the long run.
E)   new firms will enter the market because existing firms are earning economic profits.F) A) and C)
G) All of the above

Question 10

In economics, perfect competition refers to a market structure where

Accepted Answer

A)   firms co- operate with each other.
B)   firms can set the price of their product.
C)   all firms are earning profits.
D)   each firm has zero market power.
E)   firms behave strategically.F) All of the above
G) None of the above

Question 11

Under perfect competition, the demand curve facing an individual firm is

Accepted Answer

A)   downward sloping.
B)   upward sloping.
C)   a rectangular hyperbola.
D)   the same as the industry's demand curve.
E)   infinitely price elastic.F) B) and E)
G) A) and B)

Question 12

Consider the following short- run cost curves for a perfectly competitive firm.  FIGURE 9- 1
-Refer to Figure 9- 1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P3, the profit- maximizing firm in the short run should

Accepted Answer

A)   produce output A.
B)   produce output F or shut down, as it doesn't matter which.
C)   produce output D.
D)   shut down because more profits could be earned in another industry.
E)   produce output F.F) A) and B)
G) A) and C)

Question 13

If a competitive firm is producing to the left of the minimum point of its long- run average cost curve, then

Accepted Answer

A)   it can reduce its unit costs by building a larger plant.
B)   its profits will decrease if it builds a larger plant.
C)   it should shut down.
D)   it cannot be producing its present output efficiently.
E)   it can still be in long- run equilibrium as long as P = SRATC.F) A) and D)
G) A) and C)

Question 14

In the short run, a profit- maximizing firm will expand output

Accepted Answer

A)   until total revenue equals total cost.
B)   as long as marginal revenue is greater than marginal cost.
C)   until marginal revenue equals average variable cost.
D)   as long as marginal cost is greater than marginal revenue.
E)   until marginal cost begins to rise.F) A) and E)
G) C) and E)

Question 15

For any firm operating in any market structure, marginal revenue is defined as

Accepted Answer

A)   price times quantity of the product sold.
B)   the total amount received by the seller from the sale of a product.
C)   total revenue divided by the number of units sold.
D)   the change in price resulting from the sale of an additional unit of the product.
E)   the change in total revenue resulting from the sale of an additional unit of the product.F) D) and E)
G) B) and C)

Question 16

If a perfectly competitive firm is faced with average revenue below average variable cost it will shut down so as to reduce its

Accepted Answer

A)   losses to the amount of its marginal costs.
B)   costs to below its revenue.
C)   losses to the amount of its variable costs.
D)   costs to zero.
E)   losses to the amount of its fixed costs.F) B) and D)
G) C) and E)

Question 17

Consider the following short- run cost curves for a perfectly competitive firm.  FIGURE 9- 1
-Refer to Figure 9- 1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P4, the profit- maximizing firm in the short run should produce output

Accepted Answer

A)   C.
B)   F.
C)   G.
D)   H.
E)   I.F) A) and B)
G) A) and C)

Question 18

The demand curve facing a perfectly competitive firm depends on

Accepted Answer

A)   the marginal cost of the firm.
B)   market demand alone.
C)   market demand and the firm's supply curve.
D)   market supply alone.
E)   market demand and the market supply curve.F) B) and E)
G) C) and D)

Question 19

When economists say that a firm is a price taker they mean that

Accepted Answer

A)   the demand curve that the firm faces is perfectly inelastic.
B)   the firm can alter the market price as it changes its rate of production.
C)   the firm initially takes price as given and tries to influence it through advertising.
D)   at the price prevailing in the market, the firm will be willing to sell an infinite quantity.
E)   the firm can alter its rate of production and sales without affecting the market price of the product.F) A) and B)
G) A) and E)

Question 20

Consider the following cost curves for Firm X, a perfectly competitive firm.  FIGURE 9- 3
-Refer to Figure 9- 3. At output Q2 and price P2, which of the following is FALSE?

Accepted Answer

A)   Firm X is producing at its minimum efficient scale.
B)   There are economic profits to attract new entrants.
C)   There are no unexploited internal economies of scale.
D)   P = MC = SRATC = LRAC.
E)   The firm producing Q2 is at its long- run profit- maximizing position.F) None of the above
G) C) and D)

Exam 9: Competitive Markets

Correct Answer
verified

Suppose a typical competitive firm has the following data in the short run: price = $10; output = 100 units; ATC = $8; AVC = $7. What will likely happen?

Correct Answer
verified

In the long run it is not possible for a perfectly competitive firm to

Correct Answer
verified

Consider the following cost curves for Firm X, a perfectly competitive firm. FIGURE 9- 3 -Refer to Figure 9- 3. At output Q2 and price P2, which of the following is FALSE?

Correct Answer
verified

If a perfectly competitive firm is faced with average revenue below average variable cost it will shut down so as to reduce its

Correct Answer
verified

In the short run, a profit- maximizing firm will expand output

Correct Answer
verified

Why will a perfectly competitive firm not sell its product below the prevailing market price?

Correct Answer
verified

For a given market price, a competitive firm's marginal- revenue curve

Correct Answer
verified

The demand curve facing a perfectly competitive firm depends on

Correct Answer
verified

Consider the following short- run cost curves for a perfectly competitive firm. FIGURE 9- 1 -Refer to Figure 9- 1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P4, the profit- maximizing firm in the short run should produce output

Correct Answer
verified

For any firm operating in any market structure, marginal revenue is defined as

Correct Answer
verified

Consider a perfectly competitive firm in the following position: output = 4000 units, market price = $1, fixed costs = $2000, variable costs = $1000, and marginal cost = $1.10. To maximize profits the firm should

Correct Answer
verified

Consider the following short- run cost curves for a perfectly competitive firm. FIGURE 9- 1 -Refer to Figure 9- 1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P3, the profit- maximizing firm in the short run should

Correct Answer
verified

If a perfectly competitive market is in a short- run equilibrium and each firm has P > SRATC, then

Correct Answer
verified

Consider the following cost curves for Firm X, a perfectly competitive firm. FIGURE 9- 3 -Refer to Figure 9- 3. In this industry, which one of the following is FALSE?

Correct Answer
verified

Under perfect competition, the demand curve facing an individual firm is

Correct Answer
verified

If a perfectly competitive firm is producing where its MR=MC, but is operating to the left of the minimum point of its LRAC curve,

Correct Answer
verified

If a competitive firm is producing to the left of the minimum point of its long- run average cost curve, then

Correct Answer
verified

In economics, perfect competition refers to a market structure where

Correct Answer
verified

When economists say that a firm is a price taker they mean that

Correct Answer
verified

Exam 9: Competitive Markets

Correct AnswerverifiedShow Answer

Suppose a typical competitive firm has the following data in the short run: price = $10; output = 100 units; ATC = $8; AVC = $7. What will likely happen?

Correct AnswerverifiedShow Answer

In the long run it is not possible for a perfectly competitive firm to

Correct AnswerverifiedShow Answer

Consider the following cost curves for Firm X, a perfectly competitive firm. FIGURE 9- 3 -Refer to Figure 9- 3. At output Q2 and price P2, which of the following is FALSE?

Correct AnswerverifiedShow Answer

If a perfectly competitive firm is faced with average revenue below average variable cost it will shut down so as to reduce its

Correct AnswerverifiedShow Answer

In the short run, a profit- maximizing firm will expand output

Correct AnswerverifiedShow Answer

Why will a perfectly competitive firm not sell its product below the prevailing market price?

Correct AnswerverifiedShow Answer

For a given market price, a competitive firm's marginal- revenue curve

Correct AnswerverifiedShow Answer

The demand curve facing a perfectly competitive firm depends on

Correct AnswerverifiedShow Answer

Consider the following short- run cost curves for a perfectly competitive firm. FIGURE 9- 1 -Refer to Figure 9- 1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P4, the profit- maximizing firm in the short run should produce output

Correct AnswerverifiedShow Answer

For any firm operating in any market structure, marginal revenue is defined as

Correct AnswerverifiedShow Answer

Consider a perfectly competitive firm in the following position: output = 4000 units, market price = $1, fixed costs = $2000, variable costs = $1000, and marginal cost = $1.10. To maximize profits the firm should

Correct AnswerverifiedShow Answer

Consider the following short- run cost curves for a perfectly competitive firm. FIGURE 9- 1 -Refer to Figure 9- 1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P3, the profit- maximizing firm in the short run should

Correct AnswerverifiedShow Answer

If a perfectly competitive market is in a short- run equilibrium and each firm has P > SRATC, then

Correct AnswerverifiedShow Answer

Consider the following cost curves for Firm X, a perfectly competitive firm. FIGURE 9- 3 -Refer to Figure 9- 3. In this industry, which one of the following is FALSE?

Correct AnswerverifiedShow Answer

Under perfect competition, the demand curve facing an individual firm is

Correct AnswerverifiedShow Answer

If a perfectly competitive firm is producing where its MR=MC, but is operating to the left of the minimum point of its LRAC curve,

Correct AnswerverifiedShow Answer

If a competitive firm is producing to the left of the minimum point of its long- run average cost curve, then

Correct AnswerverifiedShow Answer

In economics, perfect competition refers to a market structure where

Correct AnswerverifiedShow Answer

When economists say that a firm is a price taker they mean that

Correct AnswerverifiedShow Answer

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