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A perfectly competitive firm breaks even at a price equal to its minimum average total cost.

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Figure 12-10 Figure 12-10 -In the short run, if a firm shuts down, its maximum loss equals the amount of its fixed cost. -In the short run, if a firm shuts down, its maximum loss equals the amount of its fixed cost.

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A firm's total profit can be calculated as all of the following except


A) total revenue minus total cost.
B) average profit per unit times quantity sold.
C) (price minus average total cost) times quantity sold.
D) marginal profit times quantity sold.

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Fill in the columns in the following table and use the values in the table to determine the profit-maximizing level of output. Fill in the columns in the following table and use the values in the table to determine the profit-maximizing level of output.

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blured image The profit-maximizi...

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Which of the following characteristics of a farmers' market make it a good example of a perfectly competitive market?


A) Selling product at a farmers' market was very profitable for farmers in the early 2000s. As result, many farmers sold their farms to larger firms.
B) Farmers who sell product at a farmers' market are similar to other entrepreneurs who introduce products that earn short-run profits but invite competition that drives down prices and profits in the long run.
C) Farmers who sell product at a farmers' market are similar to other business owners who take advantage of the willingness of some consumers to pay high prices for new and different products.
D) Farmers selling product at a farmers' market provide a product that is a necessity, rather than a luxury.

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What is meant by the term "long-run competitive equilibrium"?

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Long-run competitive equilibri...

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Table 12-1 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. What is the fixed cost of production? A) $0 B) $500 C) $1,000 D) It cannot be determined. 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. What is the fixed cost of production?


A) $0
B) $500
C) $1,000
D) It cannot be determined.

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In a perfectly competitive industry, in the long-run equilibrium,


A) the typical firm is producing at the output where its long-run average total cost is not minimized.
B) the typical firm is earning an accounting profit greater than its implicit costs.
C) the typical firm earns zero profit.
D) the typical firm is maximizing its revenue.

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Jason, a high-school student, mows lawns for families in his neighborhood. The going rate is $12 for each lawn-mowing service. Jason would like to charge $20 because he believes he has more experience mowing lawns than the many other teenagers who also offer the same service. If the market for lawn mowing services is perfectly competitive, what would happen if Jason raised his price?


A) He would lose some but not all his customers.
B) Initially, his customers might complain but over time they will come to accept the new rate.
C) If Jason raises his price, he would lose all his customers.
D) If Jason raises his price, then all others supplying the same service will also raise their prices.

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Figure 12-8 Figure 12-8 -Refer to Figure 12-8. Suppose the market price is $120. Which of the following is true? A) The firm earns a profit equal to the area A. B) The firm earns a profit equal to the area A + B. C) The firm suffers a loss equal to the area A. D) The firm will break even. -Refer to Figure 12-8. Suppose the market price is $120. Which of the following is true?


A) The firm earns a profit equal to the area A.
B) The firm earns a profit equal to the area A + B.
C) The firm suffers a loss equal to the area A.
D) The firm will break even.

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Figure 12-1 Figure 12-1 -Refer to Figure 12-1. If the firm is producing 700 units, what is the amount of its profit or loss? A) loss of $280 B) loss equivalent to the area A C) profit equivalent to the area A D) There is insufficient information to answer the question. -Refer to Figure 12-1. If the firm is producing 700 units, what is the amount of its profit or loss?


A) loss of $280
B) loss equivalent to the area A
C) profit equivalent to the area A
D) There is insufficient information to answer the question.

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New York Times writer Michael Lewis wrote that "The sad truth, for investors, seems to be that most of the benefits... are passed through to consumers free of charge." To which of the following did Lewis refer?


A) apple farming in New York state
B) the Enron accounting scandal
C) the medical screening industry
D) new technologies developed in the 1990s

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Figure 12-8 Figure 12-8 -Refer to Figure 12-8. Suppose the firm produces 4,000 units. What does the shaded area labeled A represent? A) total variable cost B) profit C) total fixed cost D) total revenue -Refer to Figure 12-8. Suppose the firm produces 4,000 units. What does the shaded area labeled A represent?


A) total variable cost
B) profit
C) total fixed cost
D) total revenue

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If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold, what should the farm do to maximize its profit?


A) determine what the total revenue and total cost of production are
B) increase output
C) decrease output
D) lower its price to sell more

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Figure 12-6 Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6. Jason is currently producing 20 thousand pounds of apples. To maximize his profit Jason should A) keep production at 20 thousand pounds. B) increase production to the output rate indicated by point d. C) increase production to the output rate indicated by point e. D) decrease production to the output rate indicated by point a. Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6. Jason is currently producing 20 thousand pounds of apples. To maximize his profit Jason should


A) keep production at 20 thousand pounds.
B) increase production to the output rate indicated by point d.
C) increase production to the output rate indicated by point e.
D) decrease production to the output rate indicated by point a.

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If a firm shuts down in the short run, it will


A) break even.
B) declare bankruptcy.
C) suffer a loss equal to its variable costs.
D) suffer a loss equal to its fixed costs.

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Ben's Peanut Shoppe suffers a short-run loss. Ben will not choose to shut down if


A) his Shoppe's total revenue exceeds his fixed cost.
B) his Shoppe's total revenue exceeds his variable cost.
C) his Shoppe's total revenue exceeds his implicit costs.
D) his Shoppe's total revenue exceeds his capital costs.

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The demand curve for an individual seller's product in perfect competition is


A) the same as market demand.
B) downward sloping.
C) vertical.
D) horizontal.

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A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.

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For a perfectly competitive firm, which of the following is not true at profit maximization?


A) Market price is greater than marginal cost.
B) Marginal revenue equals marginal cost.
C) Total revenue minus total cost is maximized.
D) Price equals marginal cost.

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