Question 1

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.E) B) and C)
F) A) and D)

Question 2

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

Accepted Answer

A) True 
 B)False

Question 3

Firms in perfect competition are price takers because

Accepted Answer

A)  one firm determines the price that all other firms in the industry will charge.
B)  consumers have enough market power to set prices.
C)  firms accept the price determined by the government.
D)  each firm is too small relative to the market to be able to influence price.E) All of the above
F) A) and B)

Question 4

In a decreasing-cost industry,the entry of new firms lowers average cost at each level of output.

Accepted Answer

A) True 
 B)False

Question 5

Writing in the New York Times on the technology boom of the late 1990s,Michael Lewis argues,"The sad truth,for investors,seems to be that most of the benefits of new technologies are passed right through to consumers free of charge." What does Lewis means by the benefits of new technology being "passed right through to consumers free of charge"?

Accepted Answer

A)  Firms in perfect competition are price takers.Since they cannot influence price, they cannot dictate who benefits from new technologies, even if the benefits of new technology are being "passed right through to consumers free of charge."
B)  In perfect competition, price equals marginal cost of production.In this sense, consumers receive the new technology "free of charge."
C)  In the long run, price equals the lowest possible average cost of production.In this sense, consumers receive the new technology "free of charge."
D)  In perfect competition, consumers place a value on the good equal to its marginal cost of production and since they are willing to pay the marginal valuation of the good, they are essentially receiving the new technology "free of charge."E) A) and B)
F) C) and D)

Question 6

If total revenue exceeds fixed cost,a firm

Accepted Answer

A)  should produce in the short run.
B)  has covered its variable cost.
C)  is making short-run profits.
D)  may or may not produce in the short run, depending on whether total revenue covers variable cost.E) C) and D)
F) B) and C)

Question 7

A perfectly competitive firm earns a profit when price is

Accepted Answer

A)  equal to minimum average total cost.
B)  above minimum average total cost.
C)  equal to minimum average variable cost.
D)  equal to minimum average fixed cost.E) B) and C)
F) C) and D)

Question 8

Of the following industries,which are perfectly competitive? For those that are not perfectly competitive,explain why.
a.Restaurants
b.Corn
c.College education
d.Local radio and television

Accepted Answer

a. Restaurants are not perfectly competi...

Question 9

Figure 9-5
  
Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 9-5.If the firm's fixed cost increases by $1,000 due to a new environmental regulation,what happens in the diagram above?

Accepted Answer

A)  All the cost curves shift upward.
B)  Only the average variable cost and average total cost curves shift upward; marginal cost is not affected.
C)  Only the average total cost curve shifts upward; the marginal cost and average variable cost curves are not affected.
D)  None of the curves shifts; only the fixed cost curve, which is not shown here, is affected.E) All of the above
F) A) and B)

Question 10

A perfectly competitive market is in long-run equilibrium.At present there are 100 identical firms each producing 5,000 units of output.The prevailing market price is $20.Assume that each firm faces increasing marginal cost.Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $24.Which of the following describes the effect of this increase in demand on a typical firm in the industry?

Accepted Answer

A)  In the short run, the typical firm increases its output and makes an above normal profit.
B)  In the short run, the typical firm's output remains the same but because of the higher price, its profit increases.
C)  In the short run, the typical firm increases its output but its total cost also rises, resulting in no change in profit.
D)  In the short run, the typical firm increases its output but its total cost also rises.Hence, the effect on the firm's profit cannot be determined without more information.E) B) and C)
F) C) and D)

Question 11

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 priceE) A) and B)
F) B) and D)

Question 12

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.E) A) and B)
F) A) and D)

Question 13

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

Accepted Answer

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

Question 14

At the profit-maximizing level of output for a perfectly competitive firm,price equals marginal cost.Which of the following is also true?

Accepted Answer

A)  The difference between total revenue and total cost is the greatest.
B)  Total revenue equals total cost.
C)  Average revenue equals average total cost.
D)  Marginal profit equals marginal cost.E) A) and B)
F) A) and C)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

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.E) A) and B)
F) None of the above

Question 17

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.E) A) and C)
F) A) and D)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

The perfectly competitive market structure benefits consumers because

Accepted Answer

A)  firms do not produce goods at the lowest possible price in the long run.
B)  firms are forced by competitive pressure to be as efficient as possible.
C)  firms add a much smaller markup over average cost than firms in any other type of market structure.
D)  firms produce high quality goods at low prices.E) A) and B)
F) A) and C)

Question 20

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?

Accepted Answer

A)  The market demand curve is a horizontal line; the firm's demand curve is downward-sloping.
B)  The market demand curve is downward-sloping; the firm's demand curve is a vertical line.
C)  The market demand curve can not have a constant slope; the firm's demand curve has a slope equal to zero.
D)  The market demand curve is downward-sloping; the firm's demand curve is a horizontal line.E) A) and D)
F) A) and C)

Exam 9: Firms in Perfectly Competitive Markets

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

Correct Answer
verified

Of the following industries,which are perfectly competitive? For those that are not perfectly competitive,explain why. a.Restaurants b.Corn c.College education d.Local radio and television

Correct Answer
verified
a. Restaurants are not perfectly competi...
View Answer

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

In a decreasing-cost industry,the entry of new firms lowers average cost at each level of output.

Correct Answer
verified

Firms in perfect competition are price takers because

Correct Answer
verified

Correct Answer
verified

A perfectly competitive firm earns a profit when price is

Correct Answer
verified

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

Correct Answer
verified

The perfectly competitive market structure benefits consumers because

Correct Answer
verified

If total revenue exceeds fixed cost,a firm

Correct Answer
verified

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

Correct Answer
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At the profit-maximizing level of output for a perfectly competitive firm,price equals marginal cost.Which of the following is also true?

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

Correct Answer
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Figure 9-5 Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 9-5.If the firm's fixed cost increases by $1,000 due to a new environmental regulation,what happens in the diagram above?

Correct Answer
verified

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

Correct Answer
verified

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

Correct Answer
verified

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?

Correct Answer
verified

Exam 9: Firms in Perfectly Competitive Markets

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

Correct AnswerverifiedShow Answer

Of the following industries,which are perfectly competitive? For those that are not perfectly competitive,explain why. a.Restaurants b.Corn c.College education d.Local radio and television

Correct Answerverifieda. Restaurants are not perfectly competi...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In a decreasing-cost industry,the entry of new firms lowers average cost at each level of output.

Correct AnswerverifiedShow Answer

Firms in perfect competition are price takers because

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A perfectly competitive firm earns a profit when price is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The perfectly competitive market structure benefits consumers because

Correct AnswerverifiedShow Answer

If total revenue exceeds fixed cost,a firm

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

At the profit-maximizing level of output for a perfectly competitive firm,price equals marginal cost.Which of the following is also true?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 9-5 Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 9-5.If the firm's fixed cost increases by $1,000 due to a new environmental regulation,what happens in the diagram above?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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a. Restaurants are not perfectly competi...
View Answer

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