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Exam 12: Firms in Perfectly Competitive Markets

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Question 101

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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?

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

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Question 102

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Which of the following statements is correct?

A) Economic profit takes into account all costs involved in producing a product.
B) Accounting profit is not relevant in preparing the firm's financial statement.
C) Economic profit always exceeds accounting profit.
D) Accounting profit is the same as economic profit.

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Question 103

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What assumptions are necessary for a market to be perfectly competitive? Explain why each of these assumptions is important.

All of the following can be used to compute average profit except

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9. At price P₃, the firm would

Apple introduced its iPhone 3G in July 2008 and within a month sales had topped 3 million units. By April 2009, more than 25,000 apps for the iPhone 3G were available in the iTunes store, an indication that in a competitive market,

To maximize profit, a firm will produce the level of output where MR = MC. If a firm actually makes a profit depends on the relationship of price to average total cost. What are the three possible relationships between price and average total cost that determine if a firm will make a profit, experience a loss, or break even?

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

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7. If the market price is P₁

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

In August 2008, Ethan Nicholas developed the iShoot app for the Apple iPhone 3G, and within five months had earned $800,000 from this program. By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales. This example indicates that in a competitive market,

Table 12-4 Table 12-4 shows the short-run cost data of a perfectly competitive firm. Assume that output can only be increased in batches of 20 units. -Refer to Table 12-4. If the market price is $45 the firm will produce

Figure 12-19 -Refer to Figure 12-19. The figure above shows the cost curves of a perfectly competitive firm in the coffee market. Use the graph in Figure 12-19 to answer the following questions. Assume the market price is $3 per pound. a. What is the lowest price at which the coffee grower will supply output in the short run? b. In the diagram draw the firm's demand curve (label this "MR" for marginal revenue). c. What is the firm's profit-maximizing output? d. Is the firm earning a profit or a loss? Identify the area in the graph that represents the firm's profit or loss. e. Explain how entry or exit will occur in the market to ensure that firms will break even in the long run.

Figure 12-10 -Refer to Figure 12-10. The firm's short-run supply curve is its

If a firm's total variable cost exceeds its total revenue, the firm should stop production by shutting down temporarily.

The price a perfectly competitive firm receives for its output

Competition has driven the economic profits in the video rental business to zero. Surya Bacha, who owns a video rental business, would be better off leaving the industry for another alternative.

The marginal revenue curve for a perfectly competitive firm

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. The firm's manager suggests that the firm's goal should be to maximize average profit. If the firm does this, what is the amount of profit that it will earn?