Question 1

Comparing the short-run and long-run profit-maximizing positions of a perfectly competitive firm, which statement is true?

Accepted Answer

A)   Price will equal marginal cost in the short run, but not necessarily in the long run.
B)   Economic profit may exist in the short run and in the long run.
C)   The firm will produce at minimum average cost in both the short and long run.
D)   Price should equal average cost in the long run, but not necessarily in the short run.
E)   The firm may have unexploited economies of scale in both the short run and the long run.

Question 2

Consider the price and quantity data below for a perfectly competitive firm producing mousetraps.  TABLE 9-1
-Refer to Table 9-1. Suppose this firm is currently selling 1750 mousetraps at the market price of $5. If the firm raises its price to $6, its total revenue will be

Accepted Answer

A)   $0.
B)   greater than or equal to $1750.
C)   greater than or equal to $6250.
D)   $10 500.
E)   greater than $10 500.

Question 3

For a given market price, a perfectly competitive firmʹs total-revenue curve

Accepted Answer

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

Question 4

Suppose ABC Corp. is a firm producing newsprint in a perfectly competitive industry. We have the following information about the firmʹs production:
- output Q)  = 1500 tonnes per month
- average total cost ATC)  = $627 per tonne
- average variable cost AVC)  = $614 per tonne
- marginal revenue MR)  = $620 per tonne
- marginal cost MC)  = $620 per tonne In the short run, this firm should

Accepted Answer

A)   reduce output because the price per tonne is less than ATC.
B)   shut down because the firm is incurring economic losses.
C)   maintain production at the current level.
D)   increase output because MR is greater than AVC.
E)   Not possible to determine because the price of the product is not known.

Question 5

Average revenue AR)  for an individual firm in a perfectly competitive market equals

Accepted Answer

A)   p × q.
B)   p × q) /q.
C)   △p × △q.
D)   △q/△p.
E)   p × q) /△q.

Question 6

Assume the following total cost schedule for a perfectly competitive firm.  TABLE 9-2
-Refer to Table 9-2. In order to maximize its profits, the firm should continue to produce in the short run even if the market price is less than its ATC as long as the price is greater than or equal to

Accepted Answer

A)   AVC.
B)   MC.
C)   AFC.
D)   TVC.
E)   TC.

Question 7

In a perfectly competitive market, smaller-than-efficient sized firms can exist in

Accepted Answer

A)   the short run.
B)   the long run.
C)   both the short and long run.
D)   the long run, and they will make positive economic profits.
E)   both the short run and the long run, but they must reduce plant size to remain competitive.

Question 8

Consider the total cost and revenue curves shown below, for two perfectly competitive firms, Firm A and Firm B.
  FIGURE 9-4
-The short-run supply curve for a perfectly competitive firm is

Accepted Answer

A)   its entire marginal-cost curve.
B)   its rising portion of the average-variable-cost curve.
C)   its average-revenue curve.
D)   its marginal-cost curve above the average-variable-cost curve.
E)   the industry supply curve.

Question 9

Farmer Anna is producing tomatoes in a perfectly competitive market. In Year 1 she sells 4000 bushels of tomatoes at a price of $12.00 each. In Year 2 she sells 4800 bushels at $13.00 each. In Year 2, her average revenue is and her marginal revenue is .

Accepted Answer

A)   $13.00; $1.00
B)   $12.50; $12.50
C)   $13.00; $13.00
D)   $12.00; $12.00
E)   $12.00; $1.00

Question 10

Consider the following total cost schedule for a perfectly competitive firm producing ball-point pens.  TABLE 9-3
-Refer to Table 9-3. Suppose the prevailing market price for this firmʹs product is $0.14 and the firm is currently producing 20 units of output. This competitive firm wishing to maximize profits would

Accepted Answer

A)   increase output because marginal revenue is greater than marginal cost.
B)   decrease output because marginal revenue is less than marginal cost.
C)   increase output because marginal revenue is less than marginal cost.
D)   decrease output because marginal revenue is greater than marginal cost.
E)   produce zero output because price is less than the minimum average variable cost.

Question 11

If firms in a competitive industry are suffering economic losses, then one would expect that in the long run

Accepted Answer

A)   the demand curve for the product will shift to the left, causing equilibrium output and price to decline.
B)   there would be no change in the number of firms in the industry as long as firms are covering their average variable costs.
C)   the supply curve for the product will shift to the left as firms leave the industry, causing industry output to fall and price to rise.
D)   the supply curve for the product will shift to the right as individual firms lower their prices to increase their sales.
E)   each firm would raise its price until it was breaking even.

Question 12

Consider the following total cost schedule for a perfectly competitive firm producing ball-point pens.  TABLE 9-3
-Refer to Table 9-3. This firm would produce no output in the short run if the market price of its output

Accepted Answer

A)   dropped below $0.15.
B)   dropped below $0.20.
C)   dropped below $0.30.
D)   dropped below $2.00.
E)   dropped below $3.00.

Question 13

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry.
  FIGURE 9-2
-A perfectly competitive firm facing a price of $4.00 is currently producing an output level where average variable cost is $2.00, average total cost is $4.00, and marginal cost is $3.00. In order to maximize profits, this firm should

Accepted Answer

A)   shut down.
B)   decrease output.
C)   increase output.
D)   increase the market price.
E)   not change output. This firm is at its profit-maximizing position.

Question 14

Which of the following conditions is true of a perfectly competitive industry when it is in long -run equilibrium?

Accepted Answer

A)   Firms are entering the industry.
B)   Firms are exiting the industry.
C)   Price equals minimum short-run average total cost for all firms.
D)   Accounting profits for all firms are zero.
E)   Firms are experiencing increasing returns to scale.

Question 15

Given the usual assumptions about perfect competition, a perfectly competitive firm

Accepted Answer

A)   can set the price it charges.
B)   can sell as much of its product as it wishes at the market price.
C)   can affect the market conditions in a significant way.
D)   is aware of its competitorsʹ costs.
E)   competes actively with other sellers in the industry.

Question 16

Suppose that in a perfectly competitive industry, the market price of the product is $27. A firm is producing the output level at which average total cost equals marginal cost, both of which are $25. Average variable cost is $23. To maximize profits in the short run, the firm should

Accepted Answer

A)   reduce its output.
B)   increase its output.
C)   leave its output unchanged.
D)   shut down.
E)   change the price of the product.

Question 17

Consider a perfectly competitive industry in the short-run. When a firm in this industry is at its profit-maximizing level of output, it

Accepted Answer

A)   is doing as well as it can and is making a profit.
B)   may be making a profit or incurring a loss.
C)   is producing where P = AVC.
D)   is producing where MC = AC.
E)   is producing where price exceeds marginal cost.

Question 18

Suppose ABC Corp. is a firm producing newsprint in a perfectly competitive industry. We have the following information about the firmʹs production:
- output Q)  = 1500 tonnes per month
- average total cost ATC)  = $627 per tonne
- average variable cost AVC)  = $614 per tonne
- marginal revenue MR)  = $620 per tonne
- marginal cost MC)  = $620 per tonne
At the current level of output, this firm is profit and is earning economic profit of per month.

Accepted Answer

A)   maximizing; $10 500
B)   maximizing; -$10 500
C)   not maximizing; -$10 500
D)   not maximizing; -$9000
E)   maximizing; $9000

Question 19

The conditions for a perfectly competitive market include which one of the following?

Accepted Answer

A)   Firms behave as price takers.
B)   Profits are zero in the short run.
C)   New entrants cannot threaten the position of existing firms.
D)   Firms can control prices.
E)   Firms must employ the newest technologies as soon as they are developed.

Question 20

FIGURE 9-1
-Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. The price at which the firm earns zero economic profits is

Accepted Answer

A)   P1.
B)   P2.
C)   P3.
D)   P4.
E)   P5.

Exam 9: Competitive Markets

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Consider the total cost and revenue curves shown below, for two perfectly competitive firms, Firm A and Firm B. FIGURE 9-4 -The short-run supply curve for a perfectly competitive firm is

Correct Answer
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Which of the following conditions is true of a perfectly competitive industry when it is in long -run equilibrium?

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Assume the following total cost schedule for a perfectly competitive firm. TABLE 9-2 -Refer to Table 9-2. In order to maximize its profits, the firm should continue to produce in the short run even if the market price is less than its ATC as long as the price is greater than or equal to

Correct Answer
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Suppose that in a perfectly competitive industry, the market price of the product is $27. A firm is producing the output level at which average total cost equals marginal cost, both of which are $25. Average variable cost is $23. To maximize profits in the short run, the firm should

Correct Answer
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In a perfectly competitive market, smaller-than-efficient sized firms can exist in

Correct Answer
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Farmer Anna is producing tomatoes in a perfectly competitive market. In Year 1 she sells 4000 bushels of tomatoes at a price of $12.00 each. In Year 2 she sells 4800 bushels at $13.00 each. In Year 2, her average revenue is and her marginal revenue is .

Correct Answer
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Consider a perfectly competitive industry in the short-run. When a firm in this industry is at its profit-maximizing level of output, it

Correct Answer
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Average revenue AR) for an individual firm in a perfectly competitive market equals

Correct Answer
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Consider the price and quantity data below for a perfectly competitive firm producing mousetraps. TABLE 9-1 -Refer to Table 9-1. Suppose this firm is currently selling 1750 mousetraps at the market price of $5. If the firm raises its price to $6, its total revenue will be

Correct Answer
verified

If firms in a competitive industry are suffering economic losses, then one would expect that in the long run

Correct Answer
verified

Given the usual assumptions about perfect competition, a perfectly competitive firm

Correct Answer
verified

Correct Answer
verified

FIGURE 9-1 -Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. The price at which the firm earns zero economic profits is

Correct Answer
verified

The conditions for a perfectly competitive market include which one of the following?

Correct Answer
verified

Correct Answer
verified

For a given market price, a perfectly competitive firmʹs total-revenue curve

Correct Answer
verified

Comparing the short-run and long-run profit-maximizing positions of a perfectly competitive firm, which statement is true?

Correct Answer
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Consider the following total cost schedule for a perfectly competitive firm producing ball-point pens. TABLE 9-3 -Refer to Table 9-3. This firm would produce no output in the short run if the market price of its output

Correct Answer
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Exam 9: Competitive Markets

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Consider the total cost and revenue curves shown below, for two perfectly competitive firms, Firm A and Firm B. FIGURE 9-4 -The short-run supply curve for a perfectly competitive firm is

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Which of the following conditions is true of a perfectly competitive industry when it is in long -run equilibrium?

Correct AnswerverifiedShow Answer

Assume the following total cost schedule for a perfectly competitive firm. TABLE 9-2 -Refer to Table 9-2. In order to maximize its profits, the firm should continue to produce in the short run even if the market price is less than its ATC as long as the price is greater than or equal to

Correct AnswerverifiedShow Answer

Suppose that in a perfectly competitive industry, the market price of the product is $27. A firm is producing the output level at which average total cost equals marginal cost, both of which are $25. Average variable cost is $23. To maximize profits in the short run, the firm should

Correct AnswerverifiedShow Answer

In a perfectly competitive market, smaller-than-efficient sized firms can exist in

Correct AnswerverifiedShow Answer

Farmer Anna is producing tomatoes in a perfectly competitive market. In Year 1 she sells 4000 bushels of tomatoes at a price of $12.00 each. In Year 2 she sells 4800 bushels at $13.00 each. In Year 2, her average revenue is and her marginal revenue is .

Correct AnswerverifiedShow Answer

Consider a perfectly competitive industry in the short-run. When a firm in this industry is at its profit-maximizing level of output, it

Correct AnswerverifiedShow Answer

Average revenue AR) for an individual firm in a perfectly competitive market equals

Correct AnswerverifiedShow Answer

Consider the price and quantity data below for a perfectly competitive firm producing mousetraps. TABLE 9-1 -Refer to Table 9-1. Suppose this firm is currently selling 1750 mousetraps at the market price of $5. If the firm raises its price to $6, its total revenue will be

Correct AnswerverifiedShow Answer

If firms in a competitive industry are suffering economic losses, then one would expect that in the long run

Correct AnswerverifiedShow Answer

Given the usual assumptions about perfect competition, a perfectly competitive firm

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

FIGURE 9-1 -Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. The price at which the firm earns zero economic profits is

Correct AnswerverifiedShow Answer

The conditions for a perfectly competitive market include which one of the following?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For a given market price, a perfectly competitive firmʹs total-revenue curve

Correct AnswerverifiedShow Answer

Comparing the short-run and long-run profit-maximizing positions of a perfectly competitive firm, which statement is true?

Correct AnswerverifiedShow Answer

Consider the following total cost schedule for a perfectly competitive firm producing ball-point pens. TABLE 9-3 -Refer to Table 9-3. This firm would produce no output in the short run if the market price of its output

Correct AnswerverifiedShow Answer

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