Question 1

Exhibit 12-2  Refer to Exhibit 12-2.When the market price equals $54,the firm:

Accepted Answer

A)   should shut down.
B)   should continue operating temporarily despite an economic loss because the firm is able to cover all of its variable costs.
C)   should continue operating temporarily despite an economic loss because the firm is able to cover a portion of its fixed costs.
D)   should continue operating because the firm is making a profit.

Question 2

If a perfectly competitive industry is neither expanding nor contracting,we would typically expect that:

Accepted Answer

A)   accounting profits to be zero.
B)   economic profits to be zero.
C)   the price of the good will be stable
D)   both (b)  and (c)  would be true.

Question 3

If the market price was $9.50,how many units should the perfectly competitive firm depicted below produce in order to maximize profits?

Accepted Answer

A)   10
B)   11
C)   12
D)   13
E)   14

Question 4

A perfectly competitive firm faces a perfectly elastic demand curve.

Accepted Answer

A) True 
 B)False

Question 5

Suppose that a firm in an industry subject to diminishing returns to scale is initially in long run equilibrium.Which of the following will not be part of the industry adjustment process to a permanent increase in demand?

Accepted Answer

A)   Some firms will temporarily make economic profits.
B)   Some new firms will enter.
C)   The long run equilibrium price will be higher than the initial equilibrium price.
D)   All of the above will be consequences.

Question 6

Exhibit 12-8 The long-run total cost schedule of a perfectly competitive firm that produces walnuts is as follows:
 Refer to Exhibit 12-8.The average total cost of producing 6,000 pounds of walnuts in the long run is:

Accepted Answer

A)   $2.00
B)   $2.20.
C)   $2.50.
D)   $2.75.

Question 7

The market demand curve in a perfectly competitive industry is downward sloping,while the demand curve faced by an individual perfectly competitive firm is horizontal.

Accepted Answer

A) True 
 B)False

Question 8

The short-run supply curve of a perfectly competitive firm is:

Accepted Answer

A)   the average variable cost curve.
B)   the average total cost curve.
C)   the same as the demand curve.
D)   marginal cost above average variable cost.

Question 9

Assuming a price was $2.00,how many units should this perfectly competitive firm produce and sell in order to maximize profits?

Accepted Answer

A)   24
B)   25
C)   26
D)   27

Question 10

Economic losses caused several firms to leave the car wash business in Portland,Oregon.Though prices have risen,firms are still leaving the industry.Apparently:

Accepted Answer

A)   economic profits exist but they are not as high as in other industries.
B)   economic profits are zero and firms won't stay in the industry if they are not earning an economic profit.
C)   firms are still generating economic losses.
D)   economic profits have decreased because of the exit of existing firms.

Question 11

When the marginal cost of a price-taking firm is less than the market price of its product,the firm should:

Accepted Answer

A)   expand output (provided that price is not less than average variable cost) .
B)   reduce output (provided that price is not less than average variable cost) .
C)   maintain output (provided that price is not less than average variable cost) .
D)   charge more than the market price.

Question 12

Perfect competition is the term used to describe:

Accepted Answer

A)   an industry in which a few price-taking firms produce identical products.
B)   an industry in which numerous price-taking firms produce identical products.
C)   an industry in which firms are price takers and compete for market share by varying the qualitative characteristics of products.
D)   an industry in which numerous firms are price makers and produce identical products.

Question 13

A firm sells grapefruit in a perfectly competitive market at a price of $1.50 per pound.The firm's marginal revenue:

Accepted Answer

A)   equals $1.50.
B)   is less than $1.50.
C)   is greater than $1.50.
D)   cannot be determined from the information provided.

Question 14

If input prices for perfectly competitive firms increase as the output of its industry expands:

Accepted Answer

A)   their short run average cost curves will shift up as the industry expands.
B)   after a permanent increase in demand, the long run equilibrium price will be higher than the original price.
C)   after a permanent increase in demand, the short run equilibrium price will be higher than the eventual long run equilibrium price.
D)   all of the above will be true.

Question 15

Which of the following is false of perfectly competitive firms?

Accepted Answer

A)   A perfectly competitive market is approximated in highly organized markets for securities and agricultural commodities.
B)   The perfectly competitive model does not require any knowledge on the part of individual buyers and sellers about market demand and supply curves.
C)   Because perfectly competitive firms are price takers, each firm's demand curve remains unchanged even when the market price changes.
D)   In a perfectly competitive market, marginal revenue is constant and equal to the market price.

Question 16

If the gadget industry is a constant cost industry,one would expect that the long run result of an increase in demand for gadget to include ____ firms and a(n) ____ in price.

Accepted Answer

A)   more; increase.
B)   more; no change.
C)   more; decrease.
D)   fewer; increase.

Question 17

If a profit-maximizing firm finds that price exceeds average variable cost and marginal cost is greater than marginal revenue,it should:

Accepted Answer

A)   reduce output, but continue producing in the short run.
B)   increase output.
C)   shut down.
D)   not alter its production level since it is earning a profit.

Question 18

Which of the following is most likely to be a price taker?

Accepted Answer

A)   a respected heart surgeon
B)   an ice cream shop owner located in Atlanta, Georgia
C)   a beachside tourist resort
D)   a Kansas wheat farmer

Question 19

Exhibit 12-5  Refer to Exhibit 12-5.At a market price of $30,total revenue is sufficient to pay:

Accepted Answer

A)   all variable costs.
B)   all variable costs and a portion of fixed costs.
C)   all costs, fixed and variable.
D)   only a portion of the variable costs.

Question 20

Complete the chart below for a firm that is operating under conditions of perfect competition where the market price is $22.What level of output maximizes the firm's profits?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> The firm maximizes ...

Exam 12: Firms in Perfectly Competitive Markets

The short-run supply curve of a perfectly competitive firm is:

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Which of the following is false of perfectly competitive firms?

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Exhibit 12-2 Refer to Exhibit 12-2.When the market price equals $54,the firm:

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Exhibit 12-8 The long-run total cost schedule of a perfectly competitive firm that produces walnuts is as follows: Refer to Exhibit 12-8.The average total cost of producing 6,000 pounds of walnuts in the long run is:

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Assuming a price was $2.00,how many units should this perfectly competitive firm produce and sell in order to maximize profits?

Correct AnswerverifiedShow Answer

When the marginal cost of a price-taking firm is less than the market price of its product,the firm should:

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Suppose that a firm in an industry subject to diminishing returns to scale is initially in long run equilibrium.Which of the following will not be part of the industry adjustment process to a permanent increase in demand?

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A firm sells grapefruit in a perfectly competitive market at a price of $1.50 per pound.The firm's marginal revenue:

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Complete the chart below for a firm that is operating under conditions of perfect competition where the market price is $22.What level of output maximizes the firm's profits?

Correct Answerverified The firm maximizes ...View AnswerShow Answer

If a perfectly competitive industry is neither expanding nor contracting,we would typically expect that:

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Which of the following is most likely to be a price taker?

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A perfectly competitive firm faces a perfectly elastic demand curve.

Correct AnswerverifiedShow Answer

If input prices for perfectly competitive firms increase as the output of its industry expands:

Correct AnswerverifiedShow Answer

If the gadget industry is a constant cost industry,one would expect that the long run result of an increase in demand for gadget to include ____ firms and a(n) ____ in price.

Correct AnswerverifiedShow Answer

Exhibit 12-5 Refer to Exhibit 12-5.At a market price of $30,total revenue is sufficient to pay:

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If the market price was $9.50,how many units should the perfectly competitive firm depicted below produce in order to maximize profits?

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If a profit-maximizing firm finds that price exceeds average variable cost and marginal cost is greater than marginal revenue,it should:

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Perfect competition is the term used to describe:

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Economic losses caused several firms to leave the car wash business in Portland,Oregon.Though prices have risen,firms are still leaving the industry.Apparently:

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The market demand curve in a perfectly competitive industry is downward sloping,while the demand curve faced by an individual perfectly competitive firm is horizontal.

Correct AnswerverifiedShow Answer

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The firm maximizes ...
View Answer

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If the gadget industry is a constant cost industry,one would expect that the long run result of an increase in demand for gadget to include firms and a(n) in price.

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