Question 1

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

Accepted Answer

Allocative efficiency refers to a state ...

Question 2

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. What is the minimum price the firm requires to produce output?

Accepted Answer

A)   $20
B)   $14
C)   $5
D)   It cannot be determined

Question 3

Figure 12-18 
-Refer to Figure 12-18. Use the figure above to answer the following questions.
a. How can you determine that the figure represents a graph of a perfectly competitive firm? Be specific; indicate which curve gives you the information and how you use this information to arrive at your conclusion.
b. What is the market price?
c. What is the profit-maximizing output?
d. What is total revenue at the profit-maximizing output?
e. What is the total cost at the profit-maximizing output?
f. What is the profit or loss at the profit-maximizing output?
g. What is the firm's total fixed cost?
h. What is the total variable cost?
i. Identify the firm's short-run supply curve.
j. Is the industry in a long-run equilibrium?
k. If it is not in long-run equilibrium, what will happen in this industry to restore long-run equilibrium?
l. In long-run equilibrium, what is the firm's profit maximizing quantity?

Accepted Answer

a. The perfectly competitive firm is a p...

Question 4

For a perfectly competitive firm, at profit maximization

Accepted Answer

A)   market price exceeds marginal cost.
B)   total revenue is maximized.
C)   marginal revenue equals marginal cost.
D)   production must occur where average cost is minimized.

Question 5

Maximizing average profit is equivalent to maximizing total profit.

Accepted Answer

A) True 
 B)False

Question 6

Firms in perfect competition are price takers because

Accepted Answer

A)   one firm determines the price that all other firms in the industry will charge.
B)   consumers have enough market power to set prices.
C)   firms accept the price determined by the government.
D)   each firm is too small relative to the market to be able to influence the price.

Question 7

Table 12-3
  Arnie sells basketballs in a perfectly competitive market. Table 12-3 summarizes Arnie's output per day (Q) , total cost (TC) , average total cost (ATC)  and marginal cost (MC) .
-Refer to Table 12-3. What price (P)  will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?

Accepted Answer

A)   Price and profit cannot be determined from the information given.
B)   P = $12.50; profit = $52.50
C)   P = $12.50; profit = $22.50
D)   P = $20; profit = $75.00.

Question 8

Table 12-1
  Table 12-1 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 12-1. If the market price of each camera case is $8 and the firm maximizes profit, what is the amount of the firm's profit or loss?

Accepted Answer

A)   $0 (it breaks even) 
B)   loss of $1,000
C)   profit of $440
D)   loss of $440

Question 9

The delivery of first-class mail by the U.S. Postal Service is an example of

Accepted Answer

A)   a monopoly.
B)   perfect competition because consumers have access to other methods of written communication; for example, email and text messaging.
C)   monopolistic competition, because mail delivery is a differentiated product provided by many firms.
D)   an oligopoly because a few other firms provide delivery of letters and packages.

Question 10

A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000. The price of each bushel is $50. Calculate the firm's short-run profit or loss.

Accepted Answer

A)   loss of $14,000
B)   profit of $14,000
C)   profit of $50,000
D)   There is insufficient information to answer the question.

Question 11

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

Accepted Answer

A)   productive efficiency
B)   allocative efficiency
C)   marginal efficiency
D)   profit maximization

Question 12

If a perfectly competitive firm's total revenue is less than its total variable cost, the firm

Accepted Answer

A)   should raise its price above its average variable cost.
B)   should continue to produce and increase its demand.
C)   should stop production by shutting down temporarily.
D)   should adopt new technology in order to lower its costs of production.

Question 13

In long-run perfectly competitive equilibrium, which of the following is false?

Accepted Answer

A)   There is efficient, low-cost production at the minimum efficient scale.
B)   Economic surplus is maximized.
C)   Firms earn economic profit.
D)   Economies of scale are exhausted.

Question 14

Some markets have many buyers and sellers but fall into the category of monopolistic competition rather than perfect competition. The most common reason for this is

Accepted Answer

A)   there are high barriers to entering these markets.
B)   firms in these markets sell identical products.
C)   firms in these markets make high profits.
D)   firms in these markets do not sell identical products.

Question 15

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 average profit at the profit-maximizing quantity?

Accepted Answer

A)   $5
B)   $6
C)   $9
D)   $20

Question 16

In the short run, if price falls below a firm's minimum average total cost, then the firm should shut down.

Accepted Answer

A) True 
 B)False

Question 17

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, then the firm

Accepted Answer

A)   is earning a profit.
B)   should shut down.
C)   should increase output.
D)   should increase price.

Question 18

Perfectly competitive industries tend to produce low-priced, low-technology products.

Accepted Answer

A) True 
 B)False

Question 19

A constant-cost industry is an industry in which

Accepted Answer

A)   average costs fall as the industry expands output.
B)   average costs rise as the industry expands output.
C)   average costs remain constant as the industry expands output.
D)   input prices rise at a constant rate as firms in the industry use more inputs.

Question 20

Figure 12-16 
-Refer to Figure 12-16. Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

Accepted Answer

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

Exam 12: Firms in Perfectly Competitive Markets

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

Correct Answer
verified
Allocative efficiency refers to a state ...
View Answer

A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000. The price of each bushel is $50. Calculate the firm's short-run profit or loss.

Correct Answer
verified

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 average profit at the profit-maximizing quantity?

Correct Answer
verified

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, then the firm

Correct Answer
verified

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

Correct Answer
verified

Correct Answer
verified
a. The perfectly competitive firm is a p...
View Answer

The delivery of first-class mail by the U.S. Postal Service is an example of

Correct Answer
verified

For a perfectly competitive firm, at profit maximization

Correct Answer
verified

Correct Answer
verified

Firms in perfect competition are price takers because

Correct Answer
verified

A constant-cost industry is an industry in which

Correct Answer
verified

In long-run perfectly competitive equilibrium, which of the following is false?

Correct Answer
verified

Perfectly competitive industries tend to produce low-priced, low-technology products.

Correct Answer
verified

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. What is the minimum price the firm requires to produce output?

Correct Answer
verified

If a perfectly competitive firm's total revenue is less than its total variable cost, the firm

Correct Answer
verified

Correct Answer
verified

Some markets have many buyers and sellers but fall into the category of monopolistic competition rather than perfect competition. The most common reason for this is

Correct Answer
verified

Maximizing average profit is equivalent to maximizing total profit.

Correct Answer
verified

Figure 12-16 -Refer to Figure 12-16. Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

Correct Answer
verified

In the short run, if price falls below a firm's minimum average total cost, then the firm should shut down.

Correct Answer
verified

Exam 12: Firms in Perfectly Competitive Markets

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

A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000. The price of each bushel is $50. Calculate the firm's short-run profit or loss.

Correct AnswerverifiedShow 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 average profit at the profit-maximizing quantity?

Correct AnswerverifiedShow Answer

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, then the firm

Correct AnswerverifiedShow Answer

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

Correct AnswerverifiedShow Answer

Correct Answerverifieda. The perfectly competitive firm is a p...View AnswerShow Answer

The delivery of first-class mail by the U.S. Postal Service is an example of

Correct AnswerverifiedShow Answer

For a perfectly competitive firm, at profit maximization

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Firms in perfect competition are price takers because

Correct AnswerverifiedShow Answer

A constant-cost industry is an industry in which

Correct AnswerverifiedShow Answer

In long-run perfectly competitive equilibrium, which of the following is false?

Correct AnswerverifiedShow Answer

Perfectly competitive industries tend to produce low-priced, low-technology products.

Correct AnswerverifiedShow 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. What is the minimum price the firm requires to produce output?

Correct AnswerverifiedShow Answer

If a perfectly competitive firm's total revenue is less than its total variable cost, the firm

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Some markets have many buyers and sellers but fall into the category of monopolistic competition rather than perfect competition. The most common reason for this is

Correct AnswerverifiedShow Answer

Maximizing average profit is equivalent to maximizing total profit.

Correct AnswerverifiedShow Answer

Figure 12-16 -Refer to Figure 12-16. Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

Correct AnswerverifiedShow Answer

In the short run, if price falls below a firm's minimum average total cost, then the firm should shut down.

Correct AnswerverifiedShow Answer

Correct Answer
verified
Allocative efficiency refers to a state ...
View 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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Correct Answer
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a. The perfectly competitive firm is a p...
View Answer

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Correct Answer
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Correct Answer
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