Quiz 12: Firms in Perfectly Competitive Markets

Assume the market for organic produce sold at farmers' markets is perfectly competitive.All else equal,as more farmers choose to produce and sell organic produce at farmers' markets,what is likely to happen to the equilibrium price of the produce and profits of the organic farmers in the long run? A) The equilibrium price is likely to increase and profits are likely to remain unchanged. B) The equilibrium price is likely to remain unchanged and profits are likely to increase. C) The equilibrium price is likely to decrease and profits are likely to decrease. D) The equilibrium price is likely to increase and profits are likely to increase.

Assume the market for organically-grown produce is perfectly competitive.All else equal,as farmers find it less profitable to produce and sell organic produce in this market, A) the demand curve will shift to the left and the equilibrium price will decrease. B) the supply curve will shift to the left and the equilibrium price will increase. C) the supply curve will shift to the right, the demand curve will shift to the left, and the equilibrium price will decrease. D) the supply curve will shift to the left, the demand curve will shift to the left, and the equilibrium price will increase.

Which of the following is not a characteristic of a perfectly competitive market structure? A) There are a very large number of firms that are small compared to the market. B) All firms sell identical products. C) There are no restrictions to entry by new firms. D) There are restrictions on exit of firms.

Which of the following is not a characteristic of a monopolistically competitive market structure? A) There is a large number of independently acting small sellers. B) All sellers sell products that are differentiated. C) There are low barriers to entry of new firms. D) Each firm must react to actions of other firms.

Which of the following is a characteristic of an oligopolistic market structure? A) There are few dominant sellers. B) Each firm sells a unique product. C) It is easy for new firms to enter the industry. D) Each firm need not react to the actions of rivals.

Which of the following is a characteristic of a monopoly? A) It is easy for new firms to enter the market. B) There is only one seller in the market. C) The product is not unique. D) The firm has no control over price.

Perfect competition is characterized by all of the following except A) heavy advertising by individual sellers. B) homogeneous products. C) sellers are price takers. D) a horizontal demand curve for individual sellers.

A very large number of small sellers who sell identical products imply A) a multitude of vastly different selling prices. B) a downward sloping demand for each seller's product. C) the inability of one seller to influence price. D) chaos in the market.

Which of the following is the best example of a perfectly competitive industry? A) wheat production B) steel production C) electricity production D) airplane production

The price of a seller's product in perfect competition is determined by A) the individual seller. B) a few of the sellers. C) market demand and market supply. D) the individual demander.

Both individual buyers and sellers in perfect competition A) can influence the market price by their own individual actions. B) can influence the market price by joining with a few of their competitors. C) have to take the market price as a given. D) have the market price dictated to them by government.

Both buyers and sellers are price takers in a perfectly competitive market because A) the price is determined by government intervention and dictated to buyers and sellers. B) each buyer and seller knows it is illegal to conspire to affect price. C) both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. D) each buyer and seller is too small relative to others to independently affect the market price.

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21.Which of the following will happen? A) The firm's profits will increase. B) The firm's revenue will increase. C) The firm will not sell any output. D) The firm will sell more output than its competitors.

The demand curve for each seller's product in perfect competition is horizontal at the market price because A) each seller is too small to affect market price. B) the price is set by the government. C) all the sellers get together and set the price. D) all the demanders get together and set the price.

An individual seller in perfect competition will not sell at a price lower than the market price because A) demand for the product will exceed supply. B) the seller would start a price war. C) the seller can sell any quantity she wants at the prevailing market price. D) demand is perfectly inelastic.

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.

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.

In perfect competition A) the market demand curve and the individual's demand are identical. B) the market demand curve is perfectly inelastic while demand for an individual seller's product is perfectly elastic. C) the market demand curve is perfectly elastic while demand for an individual seller's product is perfectly inelastic. D) the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.

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

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

Why are individual buyers and sellers in perfect competition called price takers?

Consider the market for wheat which is a perfectly competitive market.Is the market demand curve the same as the demand curve facing an individual producer? If not,explain how and why they are different? Illustrate your answer graphically.

If the market price is $25,the average revenue of selling five units is A) $5. B) $12.50. C) $25. D) $125.

If the market price is $25 in a perfectly competitive market,the marginal revenue from selling the fifth unit is A) $5. B) $12.50. C) $25. D) $125.

Which of the following is not true for a firm in perfect competition? A) Profit equals total revenue minus total cost. B) Price equals average revenue. C) Average revenue is greater than marginal revenue. D) Marginal revenue equals the change in total revenue from selling one more unit.

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 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.If the market price of each camera case is $8,what is the profit-maximizing quantity? A) 300 units B) 400 units C) 500 units D) 600 units

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.If the market price of each camera case is $8,what is the firm's total revenue? A) $2,400 B) $3,200 C) $4000 D) $4,800

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.If the market price of each camera case is $8 and the firm maximizes profit,what is the amount of the firm's profit or loss? A) $0 (it breaks even) B) loss of $1,000 C) profit of $440 D) loss of $440

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.Suppose the fixed cost of production rises by $500 and the price per unit is still $8.What happens to the firm's profit-maximizing output level? A) It must fall. B) It must rise to offset the increased cost. C) It will remain the same. D) The firm will shut down.

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.The firm will not produce in the short run if the output price falls below A) $8. B) $4. C) $3.20. D) $2.80.

Figure 12-1 -Refer to Figure 12-1.If the firm is producing 700 units, A) it is making a profit. B) it is making a loss. C) it should cut back its output to maximize profit. D) it should increase its output to maximize profit.

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.

Figure 12-1 -Refer to Figure 12-1.If the firm is producing 200 units, A) it breaks even. B) it is making a loss. C) it should cut back its output to maximize profit. D) it should increase its output to maximize profit.

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The price of each good is $10.Calculate the firm's short-run profit or loss. A) loss of $6,000 B) profit of $6,000 C) profit of $30,000 D) There is insufficient information to answer the question.

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

If,for a perfectly competitive firm,price exceeds the marginal cost of production,the firm should A) increase its output. B) reduce its output. C) keep output constant and enjoy the above normal profit. D) lower the price.

Figure 12-2 -Refer to Figure 12-2.What is the amount of profit if the firm produces Q2 units? A) It is equal to the vertical distance c to g. B) It is equal to the vertical distance c to Q2. C) It is equal to the vertical distance g to Q2. D) It is equal to the vertical distance c to g multiplied by Q2 units.

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? 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.

Figure 12-2 -Refer to Figure 12-2.The firm breaks even at an output level of A) Q1 units. B) Q2 units. C) Q3 units. D) Q4 units.

Figure 12-2 -Refer to Figure 12-2.What happens if the firm produces more than Q4 units? A) Its profit increases. B) It makes a loss. C) Its total revenue is increasing faster than its total cost. D) It could make a profit or a loss depending on what happens to demand.

Figure 12-2 -Refer to Figure 12-2.Why is the total revenue curve a ray from the origin? A) because revenue increases at an increasing rate B) because revenue increases at a decreasing rate C) because the firm can sell its product at a constant price D) because the firm must lower its price to sell more

In a graph with output on the horizontal axis and total revenue on the vertical axis,what is the shape of the total revenue curve for a perfectly competitive seller? A) U-shaped B) inverted U-shaped C) a horizontal line D) a ray from the origin

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.

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54,then to maximize profits the firm should A) continue producing at the current output. B) produce a larger level of output. C) produce a smaller level of output. D) There is not enough information given to answer the question.

An increase in a firm's fixed cost will not change the firm's profit-maximizing output in the short run.

A perfectly competitive firm's marginal revenue curve is downward sloping.

Assume that price is greater than average variable cost.If a perfectly competitive firm is producing at an output where price is $114 and the marginal cost is $102,then the firm is probably producing more than its profit-maximizing quantity.

How are market price,average revenue,and marginal revenue related for a perfectly competitive firm and why?

Assuming a market price of $4,fill in the columns in the following table.What is the profit-maximizing level of production? What are the two ways to determine the profit-maximizing level of production?

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.

If a perfectly competitive firm's price is above its average total cost,the firm A) is earning a profit. B) should shut down. C) is incurring a loss. D) is breaking even.

Figure 12-3 -Refer to Figure 12-3.Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity.Identify the area that represents the loss. A) P2 deP1 B) P3cbP1 C) P3caP0 D) 0P1 bQ1

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost,the firm A) is earning a profit. B) should shut down. C) is incurring a loss. D) is breaking even.

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

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 and if the firm is producing output,what is the amount of its total variable cost? A) $7,200 B) $6,480 C) $5,400 D) $3,960

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.What is the amount of its total fixed cost? A) $1,080 B) $1,440 C) $2,520 D) It cannot be determined.

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 and the firm is producing output,what is the amount of the firm's profit or loss? A) loss of $1,080 B) profit of $1,440 C) loss of $2,520 D) profit of $1,300

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,should the firm represented in the diagram continue to stay in business? A) No, it should shut down because it is making a loss. B) No, it should shut down because it cannot cover its variable cost. C) Yes, because it is covering part of its fixed cost. D) Yes, because it is making a profit.

A perfectly competitive firm earns a profit when price is 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.

All of the following can be used to compute average profit except A) marginal profit minus marginal cost. B) total profit divided by quantity. C) average revenue minus average total cost D) price minus average total cost.

An increase in demand for U.S.farm exports will ________ the market prices for these exports and ________ economic profit in these markets. A) increase; decrease B) increase; decrease C) increase; increase D) decrease; decrease

Assume that after a banner year in U.S.farm exports in 2011,farmers are expected to break even in 2012.This means that at the quantity being produced in 2012, A) MC =AVC. B) MR =MC. C) MR =ATC. D) AVC =ATC.

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.If the market price is $20,what is the firm's profit-maximizing output? A) 750 units B) 1,100 units C) 1,350 units D) 1,800 units

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.If the market price is $20,what is the amount of the firm's profit? A) $5,400 B) $6,750 C) $8,100 D) $16,200

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.If the market price is $20,what is the average profit at the profit-maximizing quantity? A) $5 B) $6 C) $9 D) $20

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.The firm's manager suggests that the firm's goal should be to maximize average profit.In that case,what is the output level and what is the average profit that will achieve the manager's goal? A) Q = 1,350 units, average profit =$5 B) Q = 1,100 units, average profit =$6 C) Q = 1,350 units, average profit =$9 D) Q = 1,800 units, average profit =$20

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.The firm's manager suggests that the firm's goal should be to maximize average profit.If the firm does this,what is the amount of profit that it will earn? A) $6,600 B) $6,750 C) $12,150 D) $36,000

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.What is the amount of the firm's fixed cost of production? A) $5,400 B) $6,750 C) $8,100 D) It cannot be determined.

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.If the firm's fixed cost increases by $1,000 due to a new environmental regulation,what happens in the diagram above? 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.

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.The figure shows the cost structure of a firm in a perfectly competitive market.If the firm's fixed cost increases by $1,000 due to a new environmental regulation,what happens to its profit-maximizing output level? A) It increases. B) It decreases. C) It remains the same. D) It could increase, decrease or remain constant, depending on whether the firm is able to cut costs somewhere else.

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.What is the minimum price the firm requires to produce output? A) $20 B) $14 C) $5 D) It cannot be determined

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

Maximizing average profit is equivalent to maximizing total profit.

In the short run,if price falls below a firm's minimum average total cost,the firm should shut down.

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows: Suppose the current equilibrium price in the teapot market is $20.To maximize profit,how many teapots will Veronica produce,what price will she charge,and how much profit (or loss)will she make? Draw a graph to illustrate your answer.Your graph should include Veronica's demand,ATC,AVC,MC,and MR curves,the price she is charging,the quantity she is producing,and the area representing her profit (or loss).

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows: Suppose the current equilibrium price in the teapot market is $15.To maximize profit,how many teapots will Veronica produce,what price will she charge,and how much profit (or loss)will she make? Draw a graph to illustrate your answer.Your graph should include Veronica's demand,ATC,AVC,MC,and MR curves,the price she is charging,the quantity she is producing,and the area representing her profit (or loss).

If,for a given output level,a perfectly competitive firm's price is less than its average variable cost,the firm A) is earning a profit. B) should shut down. C) should increase output. D) should increase price.

A perfectly competitive firm's supply curve is its A) marginal cost curve. B) marginal cost curve above its minimum average total cost. C) marginal cost curve above its minimum average variable cost. D) marginal cost curve above its minimum average fixed cost.

When a perfectly competitive firm finds that its market price is below its minimum average variable cost,it will sell A) the output where marginal revenue equals marginal cost. B) any positive output the entrepreneur decides upon because all of it can be sold. C) nothing at all; the firm shuts down. D) the output where average total cost equals price.

Max Shreck,an accountant,quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner,Sylvia Sidney.The lease has five years remaining and requires a monthly payment of $4,000.The lease A) is a fixed cost of operating the tattoo parlor. B) is a variable cost of operating the tattoo parlor. C) is an implicit cost of operating the tattoo parlor. D) is part of the marginal cost of operating the tattoo parlor.

Max Shreck,an accountant,quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner,Sylvia Sidney.The lease has five years remaining and requires a monthly payment of $4,000.Max's explicit cost amounts to $3,000 per month more than his revenue.Should Max continue operating his business? A) Max's explicit cost exceeds his total revenue. He should shut down his tattoo parlor. B) Max should continue to run the tattoo parlor until his lease runs out. C) If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business. D) This cannot be determined without information on his revenue.

Figure 12-6 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-6.At price P1,the firm would produce A) Q1 units B) Q3 units. C) Q5 units. D) zero units.

Figure 12-6 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-6.At price P1,the firm would A) lose an amount equal to its fixed cost. B) lose an amount more than fixed cost. C) lose an amount less than fixed cost. D) break even.

Figure 12-6 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-6.At price P2,the firm would produce A) Q2 units. B) Q3 units. C) Q4 units. D) zero units.

Figure 12-6 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-6.At price P2,the firm would A) lose an amount equal to its fixed cost. B) lose an amount more than fixed cost. C) lose an amount less than fixed cost. D) break even.

Figure 12-6 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-6.At price P3,the firm would produce A) Q2 units B) Q3 units. C) Q4 units. D) Q5 units.

Figure 12-6 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-6.At price P3,the firm would A) lose an amount equal to its fixed cost. B) lose an amount more than fixed cost. C) lose an amount less than fixed cost. D) break even.

Figure 12-6 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-6.At price P4,the firm would produce A) Q3 units. B) Q4 units. C) Q5 units. D) Q6 units.

Figure 12-6 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-6.At price P4,the firm would A) lose an amount equal to its fixed cost. B) make a profit. C) lose an amount less than fixed cost. D) make a normal profit.

Figure 12-6 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-6.Identify the short-run shut down point for the firm. A) a B) b C) c D) d

Figure 12-6 Figure 12-6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-6.Identify the firm's short-run supply curve. A) the marginal cost curve B) the marginal cost curve from a and above C) the marginal cost curve from b and above D) the marginal cost curve from d and above

Market supply is found by A) vertically summing the relevant part of each individual producer's marginal cost curve. B) horizontally summing the relevant part of each individual producer's marginal cost curve. C) vertically summing each individual producer's average total cost curve. D) horizontally summing each individual producer's average total cost curve.

If total variable cost exceeds total revenue at all output levels,a perfectly competitive firm A) should produce in the short run. B) is making short-run profits. C) should shut down in the short run. D) has covered its fixed cost.

If total revenue exceeds fixed cost,a firm 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.

If a firm shuts down in the short run, A) its loss equals zero. B) its loss equals its fixed cost. C) is makes zero economic profit. D) its total revenue is not large enough to cover its fixed cost.

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The fixed cost of production is $20,000.The price of each good is $10.Should the firm continue to produce in the short run? A) No, it should shut down because it is making a loss. B) Yes, it should continue to produce because its price exceeds its average fixed cost. C) Yes, it should continue to produce because it is minimizing its loss. D) There is insufficient information to answer the question.

In the short run,a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

In the short run,if a firm shuts down it avoids its variable cost but not its fixed cost.

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

The minimum point on the average variable cost curve is called the loss-minimizing point.

If a firm's fixed cost exceeds its total revenue,the firm should stop production by shutting down temporarily.

Under what conditions should a competitive firm shut down in the short run?

Use a graph to show the demand,AVC,ATC,MC,and MR curves of a firm that should temporarily shut down in the short run.Identify the shutdown point on the graph.

Which of the following statements is correct? A) Economic profit takes into account all costs involved in producing a product. B) Accounting profit is not relevant in preparing the firm's financial statement. C) Economic profit always exceeds accounting profit. D) Accounting profit is the same as economic profit.

Figure 12-7 -Refer to Figure 12-7.Suppose the prevailing price is $20 and the firm is currently producing 1,350 units.In the long-run equilibrium,the firm represented in the diagram A) will continue to produce the same quantity. B) will reduce its output to 1,100 units. C) will reduce its output to 750 units. D) will cease to exist.

Figure 12-7 -Refer to Figure 12-7.Suppose the prevailing price is $20 and the firm is currently producing 1,350 units.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.

Figure 12-7 -Refer to Figure 12-7.If this is a constant-cost industry,what is the market price in the long-run equilibrium? A) $5 B) $14 C) $15 D) $20

If a typical firm in a perfectly competitive industry is earning profits,then A) all firms will continue to earn profits. B) new firms will enter in the long run causing market supply to decrease, market price to rise and profits to increase. C) new firms will enter in the long run causing market supply to increase, market price to fall and profits to decrease. D) the number of firms in the industry will remain constant in the long run.

Figure 12-8 -Refer to Figure 12-8.Consider a typical firm in a perfectly competitive industry that makes short-run profits.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium? A) Panel A B) Panel B C) Panel C D) Panel D

If,in a perfectly competitive industry,the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost,then A) firms are breaking even. B) new firms are attracted to the industry. C) existing firms will exit the industry. D) market supply will remain constant.

Figure 12-9 -Refer to Figure 12-9.Suppose the prevailing price is P1 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.

Figure 12-9 -Refer to Figure 12-9.Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity.If the firm represented in the diagram continues to stay in business,in the long-run equilibrium, A) it will reduce its output to Q0 and face a price of P0. B) it will continue to produce Q1 but faces the higher price of P2. C) it will expand its output to Q2 and face a price of P2. D) it will expand its output to Q3 and face a price of P1.

If a typical firm in a perfectly competitive industry is incurring losses,then A) all firms will continue to lose money. B) some firms will exit in the long run, causing market supply to decrease and market price to rise increasing profits for the remaining firms. C) some firms will exit in the long run, causing market supply to decrease and market price to fall increasing losses for the remaining firms. D) some firms will enter in the long run, causing market supply to increase and market price to rise increasing profit for all firms.

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? 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.

In long-run perfectly competitive equilibrium,which of the following is false? A) There is efficient, low-cost production at the minimum efficient scale. B) Economic surplus is maximized. C) Firms earn economic profit. D) Economies of scale are exhausted.

Figure 12-10 -Refer to Figure 12-10.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium? A) Panel A B) Panel B C) Panel C D) Panel D

If in a perfectly competitive industry,the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue 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.

Figure 12-11 -Refer to Figure 12-11.Assume that the medical screening industry is perfectly competitive and that some firms are making short-run losses.Suppose the medical screening industry runs an effective advertising campaign which convinces a large number of people that yearly CT scans are critical for good health.Which of the diagrams in the figure best describes what happens in the industry? A) Panel A B) Panel B C) Panel C D) Panel D

Figure 12-11 -Refer to Figure 12-11.Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run.Which of the diagrams in the figure depicts what happens to in the industry as it transitions to along run equilibrium? A) Panel A B) Panel B C) Panel C D) Panel D

Assume that the medical screening industry is perfectly competitive.Consider a typical firm that is making short-run losses.Suppose the medical screening industry runs an effective advertising campaign which convinces a large number of people that yearly CT scans are critical for good health.How will this affect a typical firm that remains in the industry? A) The firm's supply curve shifts right and its marginal revenue curve shifts upwards as the market price rises and ultimately the firm starts making profits. B) The firm's marginal revenue curve and average cost curve shift upwards in response to the increase in market price and advertising expenditure. The firm increases output until it starts breaking even. C) The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production and eventually starts making profits. D) The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production until it breaks even.

An industry's long-run supply curve shows 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.

In the long run,a perfectly competitive market will A) produce only the quantity of output that yields a long-run profit for the typical firm. B) supply whatever amount consumers will buy at a price which earns the market an economic profit. C) supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve. D) generate a long-run equilibrium where the typical firm operates at a loss.

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000.The prevailing market price is $15.What will happen to the market price of wheat in the long run? A) The price remains constant at $15. B) The price falls to $12. C) The price rises above $15. D) There is insufficient information to answer the question.

A perfectly competitive wheat farmer in a constant-cost industry produces 1,000 bushels of wheat at a total cost of $50,000.The prevailing market price is $48.What will happen to the market price of wheat in the long run? A) The price remains constant at $48. B) The price falls below $48. C) The price rises above $48. D) There is insufficient information to answer the question.

In August 2008,Ethan Nicholas developed the iShoot application for the apple iPhone 3G,and within five months had earned $800,000 from this program.By May 2009,Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market, A) earning an economic profit in the long run is extremely easy. B) earning an economic profit in the long run is extremely difficult. C) it is impossible to earn an economic profit in either the short run or the long run. D) economic profits are only earned in the long run.

Apple introduced its iPhone 3G in July 2008 and within a month sales had topped 3 million units.By April 2009,more than 25,000 apps for the iPhone 3G were available in the iTunes store,an indication that in a competitive market A) the ease at which a new firm can enter a competitive market is low. B) the ease at which a new firm can enter a competitive market is high. C) entry into the market is blocked. D) entry into the market is restricted in the short run, but becomes easier in the long run.

Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterizes the industry if,as demand for tuna increases,fishing boats have to go farther into the ocean to harvest tuna? A) a constant-cost industry B) an increasing-cost industry C) a decreasing-cost industry D) a fixed-cost industry

If in the long run a firm makes zero profit,it should exit the industry.

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.

Suppose there are economies of scale in the production of a specialized memory chip that is used in manufacturing microwaves.This suggests that the microwave industry is a decreasing-cost industry.

In an increasing-cost industry the long-run supply curve is upward sloping.

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

What is a long-run supply curve? What does a long-run supply curve look like on a perfectly competitive market graph?

Figure 12-12 -Use the figure above to answer the following questions. a.How can you determine that the figure represents a graph of a perfectly competitive firm? Be specific; indicate which curve gives you the information and how you use this information to arrive at your conclusion. b.What is the market price? c.What is the profit-maximizing output? d.What is total revenue at the profit-maximizing output? e.What is the total cost at the profit-maximizing output? f.What is the profit or loss at the profit-maximizing output? g.What is the firm's total fixed cost? h.What is the total variable cost? i.Identify the firm's short-run supply curve. j.Is the industry in a long-run equilibrium? k.If it is not in long-run equilibrium,what will happen in this industry to restore long-run equilibrium? l.In long-run equilibrium,what is the firm's profit maximizing quantity?

Which of the following describes a situation in which a good or service is produced at the lowest possible cost? A) productive efficiency B) allocative efficiency C) marginal efficiency D) profit maximization

What is productive efficiency? A) a situation in which resources are allocated to their highest profit use B) a situation in which resources are allocated such that goods can be produced at their lowest possible average cost C) a situation in which resources are allocated such the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it D) a situation in which firms produce as much as possible

The perfectly competitive market structure benefits consumers because 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.

If the long-run average cost curve is U-shaped,the optimal scale of production from society's viewpoint is A) the minimum efficient scale. B) where maximum economic profit is earned by producers. C) where firm profit is large enough to finance research and development. D) one which guarantees economic profit.

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it? A) productive efficiency B) allocative efficiency C) marginal efficiency D) profit maximization

What is allocative efficiency? A) It refers to a situation in which resources are allocated to their highest profit use. B) It refers to a situation in which resources are allocated such that goods can be produced at their lowest possible average cost. C) It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it. D) It refers to a situation in which resources are allocated fairly to all consumers in a society.

A perfectly competitive industry achieves allocative efficiency because A) goods and services are produced at the lowest possible cost. B) goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. C) it produces where market price equals marginal production cost. D) firms carry production surpluses.

Figure 12-13 -Refer to Figure 12-13.If the market price is P1,what is the allocatively efficient output level? A) Q0 B) Q1 C) Q2 D) There is no allocatively efficient output level because the firm is making a loss.

Assume that the LCD and plasma television sets industry is perfectly competitive.Suppose a producer develops a successful innovation that enables it to lower its cost of production.What happens in the short run and in the long run? A) Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short run profits because other firms would also innovate. B) The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits. C) This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation. D) The firm will be able to increase its profits temporarily, but in the long run its profits will be eliminated as other firms copy the innovation.

In early 2007,Pioneer and JVC,two Japanese electronics firms,each announced that their profits were going to be lower than expected because they both had to cut prices for LCD and plasma television sets.Which of the following could explain why these firms did not simply raise their prices and increase their profits? A) The move to cut prices is probably just a temporary one to gain market share. In the long run the firms will raise prices and be able to increase their profits. B) Most likely, intense competition between these two major producers probably pushed prices down. Thereafter, each feared that it would lose its customers to the other if it raised its prices. C) In perfect competition, prices are determined by the market and firms will keep lowering prices until there are no profits to be earned. D) The firms are still making profits, just not as high as expected so there is room to lower prices until one can force the other out of business.

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"? 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."

Without government subsidization,the conversion of farmland in the United Kingdom from conventional to organic production will generally cause a farmer's A) marginal cost and average total cost to decrease. B) marginal cost and average total cost to increase. C) average total cost to increase and marginal cost to decrease. D) marginal cost to increase and average total cost to remain unchanged.

A decrease in demand for organic products will ________ a firm's economic profit,and the increase in costs to produce organic produce will ________ a firm's economic profit. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product,the firm will be able to earn economic profits in the long run.

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

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

What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?

Using two graphs,illustrate how a positive technological change in the market for notebook computers could eliminate short-run economic profit for a firm in that market.On the first graph,use a supply and demand graph to illustrate the positive technological change.On the second graph,use demand,ATC,MC and MR curves to illustrate the elimination of economic profit resulting from the positive technological change.Explain what is taking place in each graph.