Question 1

A perfectly competitive firm in a constant-cost industry produces 1,000 units of a good at a total cost of $50,000. If the prevailing market price is $48, the number of firms and the industry's output will decrease in the long run.

Accepted Answer

A) True 
 B)False

Question 2

If in a perfectly competitive market, firms are facing a price below their average total cost but above average variable cost at the profit maximizing output, then

Accepted Answer

A)   the industry supply will not change.
B)   new firms are attracted to the industry.
C)   some existing firms will exit the industry.
D)   firms are breaking even.

Question 3

Figure 12-9 4, the firm would produce A)  Q3 units. B)  Q4 units. C)  Q5 units. D)  Q6 units." class="answers-bank-image d-inline" rel="preload" > Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 12-9. At price P4, the firm would produce

Accepted Answer

A)   Q3 units.
B)   Q4 units.
C)   Q5 units.
D)   Q6 units.

Question 4

The minimum point on the average variable cost curve is called

Accepted Answer

A)   the shutdown point.
B)   the break-even point.
C)   the loss-minimizing point.
D)   the point of diminishing returns.

Question 5

Figure 12-2 2 units. What happens if it expands output to Q3 units? A)  Its profit increases by the size of the vertical distance df. B)  It makes less profit. C)  It incurs a loss. D)  It will be moving toward its profit maximizing output." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-2. Suppose the firm is currently producing Q2 units. What happens if it expands output to Q3 units?

Accepted Answer

A)   Its profit increases by the size of the vertical distance df.
B)   It makes less profit.
C)   It incurs a loss.
D)   It will be moving toward its profit maximizing output.

Question 6

The long-run supply curve for a perfectly competitive, constant-cost industry

Accepted Answer

A)   is upward-sloping.
B)   is horizontal.
C)   is downward-sloping.
D)   is found by adding up the marginal cost curves for all firms in the industry.

Question 7

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit. This condition is referred to as

Accepted Answer

A)   productive efficiency.
B)   constant returns to scale.
C)   allocative efficiency.
D)   perfectly competitive efficiency.

Question 8

If firms do not earn economic profits in a competitive equilibrium, then why would the firms choose to stay in business?

Accepted Answer

When firms earn no economic profit but e...

Question 9

Figure 12-2 1 units. B)  Q2 units. C)  Q3 units. D)  Q4 units." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-2. The firm breaks even at an output level of

Accepted Answer

A)   Q1 units.
B)   Q2 units.
C)   Q3 units.
D)   Q4 units.

Question 10

Figure 12-4  Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 12-4. If the market price is $30, the firm's profit-maximizing output level is

Accepted Answer

A)   0.
B)   130.
C)   180.
D)   240.

Question 11

A firm would decide to shut down if its production resulted in

Accepted Answer

A)   MR 
B)   ATC > AVC.
C)   AFC > AVC.
D)   MR < AVC.

Question 12

If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should

Accepted Answer

A)   increase its output.
B)   reduce its output.
C)   keep output constant and enjoy the above normal profit.
D)   lower the price.

Question 13

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

Accepted Answer

A)   Allocative efficiency is achieved only in the long run. Productive efficiency is achieved only in the short run.
B)   Allocative efficiency is achieved only in the long run. Productive efficiency is achieved in the short run and the long run.
C)   Allocative efficiency is achieved only in the short run. Productive efficiency is achieved only in the long run.
D)   Allocative efficiency is achieved in the short run and the long run. Productive efficiency is achieved only in the long run.

Question 14

In long-run competitive equilibrium, the perfectly competitive firm produces where price equals minimum average total cost.
a. What is this efficiency criterion called?
b. How does it benefit consumers?

Accepted Answer

a. Productive efficiency
b. Productive e...

Question 15

If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing it, the firm

Accepted Answer

A)   added more to total costs than it added to total revenue.
B)   added more to total revenue than it added to total cost.
C)   is maximizing marginal profit.
D)   has minimized its losses.

Question 16

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

Accepted Answer

A)   shutting down
B)   reducing production
C)   reducing the use of variable factors
D)   raising the price

Question 17

Figure 12-13 1 and the firm is currently producing its loss-minimizing quantity. In the long-run equilibrium A)  there will be fewer firms in the industry and total industry output decreases. B)  there will be more firms in the industry and total industry output increases. C)  there will be fewer firms in the industry but total industry output increases. D)  there will be more firms in the industry and total industry output remains constant." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-13. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. In the long-run equilibrium

Accepted Answer

A)   there will be fewer firms in the industry and total industry output decreases.
B)   there will be more firms in the industry and total industry output increases.
C)   there will be fewer firms in the industry but total industry output increases.
D)   there will be more firms in the industry and total industry output remains constant.

Question 18

If a firm in a perfectly competitive industry experiences persistent losses, in the long run it should

Accepted Answer

A)   shut down temporarily and wait for market conditions to change.
B)   exit the industry.
C)   raise its price to cover average total cost.
D)   continue to operate if it can raise the demand for its product through advertising and quality improvements.

Question 19

An industry's long-run supply curve shows

Accepted Answer

A)   the relationship in the long run between market price and quantity supplied.
B)   how the government determines the price of the product.
C)   how average productivity is changing.
D)   greater than normal profit.

Question 20

After an increase in demand in a constant-cost industry, firms will find themselves with higher average cost curves.

Accepted Answer

A) True 
 B)False

Exam 12: Firms in Perfectly Competitive Markets

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit. This condition is referred to as

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A firm would decide to shut down if its production resulted in

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In long-run competitive equilibrium, the perfectly competitive firm produces where price equals minimum average total cost. a. What is this efficiency criterion called? b. How does it benefit consumers?

Correct Answerverifieda. Productive efficiencyb. Productive e...View AnswerShow Answer

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 P4, the firm would produce

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The minimum point on the average variable cost curve is called

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If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should

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After an increase in demand in a constant-cost industry, firms will find themselves with higher average cost curves.

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The long-run supply curve for a perfectly competitive, constant-cost industry

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If firms do not earn economic profits in a competitive equilibrium, then why would the firms choose to stay in business?

Correct AnswerverifiedWhen firms earn no economic profit but e...View AnswerShow Answer

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

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Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

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If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing it, the firm

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Figure 12-2 -Refer to Figure 12-2. Suppose the firm is currently producing Q2 units. What happens if it expands output to Q3 units?

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Figure 12-2 -Refer to Figure 12-2. The firm breaks even at an output level of

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A perfectly competitive firm in a constant-cost industry produces 1,000 units of a good at a total cost of $50,000. If the prevailing market price is $48, the number of firms and the industry's output will decrease in the long run.

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If a firm in a perfectly competitive industry experiences persistent losses, in the long run it should

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Figure 12-4 Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 12-4. If the market price is $30, the firm's profit-maximizing output level is

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An industry's long-run supply curve shows

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Figure 12-13 -Refer to Figure 12-13. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. In the long-run equilibrium

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If in a perfectly competitive market, firms are facing a price below their average total cost but above average variable cost at the profit maximizing output, then

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a. Productive efficiency
b. Productive e...
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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 P₄, the firm would produce

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When firms earn no economic profit but e...
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Figure 12-2 -Refer to Figure 12-2. Suppose the firm is currently producing Q₂units. What happens if it expands output to Q₃units?

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Figure 12-13 -Refer to Figure 12-13. Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity. In the long-run equilibrium

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