Question 1

Exhibit 22-4
​
 1 in the short run? A) at the horizontal line running to  ATC  B) at the horizontal line running to  AVC  C) P1 D) $0" class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 22-4. Where can you find the lowest price that will motivate the firm to produce Q1 in the short run?

Accepted Answer

A)  at the horizontal line running to "ATC"
B)  at the horizontal line running to "AVC"
C)  P1
D)  $0

Question 2

Which of the following statements is true?

Accepted Answer

A)  A perfectly competitive firm that seeks to maximize profits will not be resource-allocative efficient.
B)  If the demand curve and the marginal revenue curve weren't the same curve for a perfectly competitive firm, then the firm would not be resource-allocative efficient.
C)  Resource allocative efficiency exists when a firm produces its output at the lowest possible per unit cost (lowest AT
C)  .
D)  Productive efficiency exists when firms produce the quantity of output at which price equals marginal cost.
E)  c and d

Question 3

A perfectly-competitive firm produces 2,000 units of a good during some period of time. For the 2,000th unit, marginal cost is equal to marginal revenue. The difference between marginal revenue and marginal cost is greater for the first unit the firm produces than the second, and greater for the second than the third, and so on. Furthermore, marginal revenue is greater than marginal cost for every unit from the first to the 1,999th. It follows that the

Accepted Answer

A)  marginal cost curve for the firm has a downward-sloping portion and an upward-sloping portion.
B)  marginal cost curve for the firm is downward-sloping.
C)  marginal cost curve for the firm is upward-sloping.
D)  marginal revenue curve is downward-sloping.
E)  c and d

Question 4

A perfectly competitive firm that maximizes profit exhibits resource allocative efficiency because it produces where price

Accepted Answer

A)  equals minimum average total cost.
B)  equals marginal revenue.
C)  equals marginal cost.
D)  is greater than minimum average variable cost.

Question 5

What is the shape of the demand curve faced by the perfectly competitive firm? Why does it have this shape?

Accepted Answer

In perfect competition, the seller faces...

Question 6

In the theory of perfect competition,

Accepted Answer

A)  the market demand curve is horizontal.
B)  the single firm faces a horizontal demand curve.
C)  the single firm faces a downward-sloping demand curve.
D)  the market demand curve is downward sloping.
E)  b and d

Question 7

Explain the difference between resource allocative efficiency and productive efficiency.

Accepted Answer

A firm that produces the quantity of out...

Question 8

Which of the following statements about a perfectly competitive firm is necessarily false?

Accepted Answer

A)  There are few substitutes for the firm's product.
B)  There are few complements to the firm's product.
C)  The firm produces the quantity at which marginal revenue equals marginal cost.
D)  The firm sells a product that is identical in the eyes of buyers to any other product sold in the industry.

Question 9

Exhibit 22-10
  ​
-Refer to Exhibit 22-10. What quantity of output should the profit-maximizing firm produce?

Accepted Answer

A)  0
B)  4
C)  6
D)  7
E)  8

Question 10

Exhibit 22-8
​
 
-Refer to Exhibit 22-8. What is the profit (loss)  of firm A at the profit-maximizing (or loss-minimizing)  level of production?

Accepted Answer

A)  $300
B)  $270
C)  $600
D)  $400
E)  -$300

Question 11

Consider the following data: equilibrium price = $40, quantity of output produced = 100 units, average total cost = $47, and average variable cost = $37. What should the firm do and why?

Accepted Answer

A)  Shut down in the short run, because it is taking a loss of $700.
B)  Continue to produce in the short run, because price is greater than average variable cost.
C)  Shut down in the short run, because average variable cost is less than average total cost.
D)  Continue to produce in the short run, because firms are always stuck with having to produce in the short run.

Question 12

In a perfectly competitive market, the market demand curve is perfectly elastic.

Accepted Answer

A) True 
 B)False

Question 13

In order for a firm to earn economic profits, price must exceed average total cost.

Accepted Answer

A) True 
 B)False

Question 14

If an industry advertises, then it

Accepted Answer

A)  is definitely not a perfectly competitive industry.
B)  must be a perfectly competitive industry.
C)  may or may not be a perfectly competitive industry.
D)  is not using its resources wisely.
E)  will surely be able to increase its sales.

Question 15

Resource allocative efficiency exists for a perfectly competitive firm because

Accepted Answer

A)  price equals marginal revenue and the firm equates marginal revenue and marginal cost to maximize profits.
B)  price equals average total cost and the firm equates marginal revenue and average total cost to maximize profits.
C)  price is greater than marginal revenue and the firm equates marginal revenue with average total cost to maximize profits.
D)  price is less than marginal revenue and the firm equates marginal cost and marginal revenue to maximize profits.
E)  none of the above

Question 16

If a seller is a price taker it means that the seller sells his product at the price

Accepted Answer

A)  he chooses.
B)  determined in the market.
C)  determined by the biggest firm in the market.
D)  determined by the largest consumer in the market.
E)  none of the above

Question 17

A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. As a result, existing firms in the market begin to __________. By the time all adjustments have been made, profits will __________.

Accepted Answer

A)  earn positive economic profit, rise even higher
B)  earn positive economic profit; be back at zero
C)  produce more output; be less than zero
D)  produce less output; rise
E)  earn positive economic profit; turn into losses

Question 18

In long-run competitive equilibrium SRATC = LRATC, because if SRATC > LRATC (at the quantity of output at which MR = MC)  firms would

Accepted Answer

A)  have an incentive to change their plant size to produce their current output.
B)  not be covering their total fixed costs.
C)  not be covering their total variable costs.
D)  a and b
E)  b and c

Question 19

When a perfectly competitive firm incurs losses, it follows that price

Accepted Answer

A)  must be below average total cost.
B)  must be below average variable cost.
C)  is less than marginal cost.
D)  is less than marginal revenue.

Question 20

Equilibrium price is $19 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 120 units of output. At 120 units, ATC is $11, and AVC is $8. The best policy for this firm is to __________ in the short run. Also, this firm earns __________ of __________ if it produces and sells 120 units. Finally, the difference between total revenue and total fixed cost for this firm is __________.

Accepted Answer

A)  continue to produce; profits; $960; $1,920
B)  continue to produce; losses; $960; $1,000
C)  shut down; losses; $1,200; $2,300
D)  continue to produce; profits; $1,920; $1,960
E)  none of the above

Exam 22: Perfect Competition

In the theory of perfect competition,

Correct Answer
verified

Consider the following data: equilibrium price = $40, quantity of output produced = 100 units, average total cost = $47, and average variable cost = $37. What should the firm do and why?

Correct Answer
verified

A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. As a result, existing firms in the market begin to . By the time all adjustments have been made, profits will .

Correct Answer
verified

If an industry advertises, then it

Correct Answer
verified

When a perfectly competitive firm incurs losses, it follows that price

Correct Answer
verified

In a perfectly competitive market, the market demand curve is perfectly elastic.

Correct Answer
verified

Explain the difference between resource allocative efficiency and productive efficiency.

Correct Answer
verified
A firm that produces the quantity of out...
View Answer

In long-run competitive equilibrium SRATC = LRATC, because if SRATC > LRATC (at the quantity of output at which MR = MC) firms would

Correct Answer
verified

Resource allocative efficiency exists for a perfectly competitive firm because

Correct Answer
verified

What is the shape of the demand curve faced by the perfectly competitive firm? Why does it have this shape?

Correct Answer
verified
In perfect competition, the seller faces...
View Answer

Exhibit 22-10 -Refer to Exhibit 22-10. What quantity of output should the profit-maximizing firm produce?

Correct Answer
verified

Exhibit 22-8 -Refer to Exhibit 22-8. What is the profit (loss) of firm A at the profit-maximizing (or loss-minimizing) level of production?

Correct Answer
verified

Which of the following statements is true?

Correct Answer
verified

A perfectly competitive firm that maximizes profit exhibits resource allocative efficiency because it produces where price

Correct Answer
verified

In order for a firm to earn economic profits, price must exceed average total cost.

Correct Answer
verified

Which of the following statements about a perfectly competitive firm is necessarily false?

Correct Answer
verified

Exhibit 22-4 -Refer to Exhibit 22-4. Where can you find the lowest price that will motivate the firm to produce Q₁ in the short run?

Correct Answer
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Correct Answer
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Correct Answer
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If a seller is a price taker it means that the seller sells his product at the price

Correct Answer
verified

Exam 22: Perfect Competition

In the theory of perfect competition,

Correct AnswerverifiedShow Answer

Consider the following data: equilibrium price = $40, quantity of output produced = 100 units, average total cost = $47, and average variable cost = $37. What should the firm do and why?

Correct AnswerverifiedShow Answer

A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. As a result, existing firms in the market begin to __________. By the time all adjustments have been made, profits will __________.

Correct AnswerverifiedShow Answer

If an industry advertises, then it

Correct AnswerverifiedShow Answer

When a perfectly competitive firm incurs losses, it follows that price

Correct AnswerverifiedShow Answer

In a perfectly competitive market, the market demand curve is perfectly elastic.

Correct AnswerverifiedShow Answer

Explain the difference between resource allocative efficiency and productive efficiency.

Correct AnswerverifiedA firm that produces the quantity of out...View AnswerShow Answer

In long-run competitive equilibrium SRATC = LRATC, because if SRATC > LRATC (at the quantity of output at which MR = MC) firms would

Correct AnswerverifiedShow Answer

Resource allocative efficiency exists for a perfectly competitive firm because

Correct AnswerverifiedShow Answer

What is the shape of the demand curve faced by the perfectly competitive firm? Why does it have this shape?

Correct AnswerverifiedIn perfect competition, the seller faces...View AnswerShow Answer

Exhibit 22-10 ​ -Refer to Exhibit 22-10. What quantity of output should the profit-maximizing firm produce?

Correct AnswerverifiedShow Answer

Exhibit 22-8 ​ -Refer to Exhibit 22-8. What is the profit (loss) of firm A at the profit-maximizing (or loss-minimizing) level of production?

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

A perfectly competitive firm that maximizes profit exhibits resource allocative efficiency because it produces where price

Correct AnswerverifiedShow Answer

In order for a firm to earn economic profits, price must exceed average total cost.

Correct AnswerverifiedShow Answer

Which of the following statements about a perfectly competitive firm is necessarily false?

Correct AnswerverifiedShow Answer

Exhibit 22-4 ​ -Refer to Exhibit 22-4. Where can you find the lowest price that will motivate the firm to produce Q1 in the short run?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a seller is a price taker it means that the seller sells his product at the price

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. As a result, existing firms in the market begin to . By the time all adjustments have been made, profits will .

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified
A firm that produces the quantity of out...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified
In perfect competition, the seller faces...
View Answer

Exhibit 22-10 -Refer to Exhibit 22-10. What quantity of output should the profit-maximizing firm produce?

Correct Answer
verified

Exhibit 22-8 -Refer to Exhibit 22-8. What is the profit (loss) of firm A at the profit-maximizing (or loss-minimizing) level of production?

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Exhibit 22-4 -Refer to Exhibit 22-4. Where can you find the lowest price that will motivate the firm to produce Q₁ in the short run?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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