Question 1

Which following statement does NOT apply to a perfectly competitive market?

Accepted Answer

A)   Consumers prefer certain brands over others.
B)   Consumers can shop for the lowest available price.
C)   All firms in the industry are price takers.
D)   There is freedom of entry and exit of firms in the industry.
E)   All firms have realized the possible economies of scale.F) C) and D)
G) A) and E)

Question 2

When a firm is referred to as a "price taker",

Accepted Answer

A)   the firm can alter its rate of production and sales without affecting the market price of the product.
B)   the firm initially takes price as given and tries to influence it through advertising.
C)   the demand curve that the firm faces is perfectly inelastic.
D)   the firm can alter the market price as it changes its rate of production.
E)   the firm will be willing to sell an infinite quantity at the market price.F) B) and D)
G) B) and E)

Question 3

Any firm's average revenue is defined as

Accepted Answer

A)   the total amount received by the seller from the sale of a product.
B)   the change in total revenue resulting from the sale of an additional unit of the product.
C)   price times quantity of the product sold.
D)   the change in price resulting from the sale of an additional unit of the product.
E)   total revenue divided by the number of units sold.F) B) and D)
G) None of the above

Question 4

Average revenue (AR)  for an individual firm in a perfectly competitive market equals

Accepted Answer

A)   Oq/Op.
B)   (p × q) /q.
C)   Op × Oq.
D)   p × q.
E)   O(p × q) /Oq.F) A) and B)
G) A) and C)

Question 5

Suppose that in a perfectly competitive industry, the market price for the product is $130. A firm is producing the output level at which average total cost equals marginal cost, both of which are $138. Average variable cost is $132. To maximize profits in the short run, the firm should

Accepted Answer

A)   expand its output.
B)   shut down.
C)   reduce its output.
D)   change the price of the product.
E)   leave its output unchanged.F) B) and D)
G) A) and B)

Question 6

Consider the price and quantity data below for a perfectly competitive firm producing mousetraps.   Price ($)  Quantity 5100051250515005175052000 TABLE 9- 1\begin{array}{l}\begin{array} { | l | l | } \hline 	ext { Price } ( \$ )  & 	ext { Quantity } \\hline 5 & 1000 \\hline 5 & 1250 \\hline 5 & 1500 \\hline 5 & 1750 \\hline 5 & 2000 \\hline\end{array}\	ext { TABLE 9- } 1\end{array} Price ($) 55555​ Quantity 10001250150017502000​​ TABLE 9- 1​ 
-Refer to Table 9- 1. Suppose this firm is producing 1500 mousetraps and its average total cost is
$5.10 per unit. The firm will be

Accepted Answer

A)   suffering losses of $7650.
B)   suffering losses of $150.
C)   breaking even.
D)   earning profits of $150.
E)   earning profits of $7650. F) A) and E)
G) A) and D)

Question 7

Assume the following total cost schedule for a perfectly competitive firm.   Output  TVC  TFC 001001401002701003120100418010052501006330100 TABLE 9- 2\begin{array}{l}\begin{array} { | l | l | l | } \hline 	ext { Output } & 	ext { TVC } & 	ext { TFC } \\hline 0 & 0 & 100 \\hline 1 & 40 & 100 \\hline 2 & 70 & 100 \\hline 3 & 120 & 100 \\hline 4 & 180 & 100 \\hline 5 & 250 & 100 \\hline 6 & 330 & 100 \\hline\end{array}\	ext { TABLE 9- } 2\end{array} Output 0123456​ TVC 04070120180250330​ TFC 100100100100100100100​​ TABLE 9- 2​ 
-Refer to Table 9- 2. At what price would a profit- maximizing firm earn zero economic profits?

Accepted Answer

A)   $40.
B)   $70.
C)   $145.
D)   $220.
E)   $430. F) A) and C)
G) C) and D)

Question 8

The demand curve facing a perfectly competitive firm

Accepted Answer

A)   is the same as the industry or market demand curve.
B)   depends on the firm's technology.
C)   depends on the firm's costs of production.
D)   is almost perfectly elastic at the market price.
E)   depends on the firm's output.F) All of the above
G) A) and B)

Question 9

Consider the following cost curves for two perfectly competitive firms, A and B.  FIGURE 9- 4
-Refer to Figure 9- 4. If Firm B is producing at output level q2, and selling its output at p0, then Firm B should

Accepted Answer

A)   shut down because at this price and output level the firm is suffering losses.
B)   expand output to q0 so that profits will be maximized.
C)   remain at this output level because profits are maximized when SRAVC is at its minimum.
D)   expand output to q1 because profits are maximized when SRATC is at its minimum.E) A) and D)
F) B) and D)

Question 10

In a perfectly competitive market, smaller- than- efficient sized firms can exist in

Accepted Answer

A)   both the short run and the long run, but they must reduce plant size to remain competitive.
B)   both the short and long run.
C)   the long run, and they will make positive economic profits.
D)   the short run.
E)   the long run.F) B) and C)
G) D) and E)

Question 11

Consider the following short- run cost curves for a perfectly competitive firm.  FIGURE 9- 1
-Refer to Figure 9- 1. The diagram shows cost curves for a perfectly competitive firm. The firm would incur economic profit at all market prices above

Accepted Answer

A)   P1.
B)   P2.
C)   P3.
D)   P4.
E)   P5.F) B) and C)
G) A) and E)

Question 12

Suppose a paper mill in Quebec is shut down by its owner, even though the plant and equipment are in excellent shape and the paper is of top quality. What could explain this?

Accepted Answer

A)   The price the firm is receiving for the paper is less than its average variable cost.
B)   The owner is minimizing its production costs.
C)   The price the firm is receiving is less than the average total cost.
D)   The price the firm is receiving for the paper is greater than its marginal cost.
E)   The paper mill must not have been operating at its profit- maximizing level of output.F) C) and D)
G) A) and D)

Question 13

Consider the following short- run cost curves for a perfectly competitive firm.  FIGURE 9- 1
-Refer to Figure 9- 1. The diagram shows cost curves for a perfectly competitive firm. The firm's short- run supply curve starts at output and rises along the marginal cost (MC)  curve.

Accepted Answer

A)   D
B)   E
C)   F
D)   G
E)   HF) All of the above
G) C) and D)

Question 14

Which of the following terms would best describe the price elasticity of demand facing a perfectly competitive firm?

Accepted Answer

A)   perfectly inelastic
B)   inelastic
C)   elastic
D)   perfectly elastic
E)   unitF) B) and D)
G) A) and B)

Question 15

Suppose your trucking firm in a perfectly competitive industry is making zero economic profits in the short run. The federal government imposes a new safety regulation that affects all firms, thus shifting the marginal cost curve upward. As a result your firm's profit maximizing short- run output will

Accepted Answer

A)   increase as price rises in the long run.
B)   decrease because the new MC curve will intersect the horizontal demand curve at a lower rate of output.
C)   remain the same because you will pass on the extra costs to the consumers.
D)   increase as firms will leave the industry at the higher costs, thus driving up the market price.
E)   remain the same since the new regulation does not affect ATC.F) B) and E)
G) None of the above

Question 16

If a firm in a perfectly competitive market were to raise its price, its

Accepted Answer

A)   revenue would decrease if market demand were elastic.
B)   profits would increase as long as costs remained constant.
C)   revenue would increase if market demand were inelastic.
D)   total costs would increase.
E)   revenue would fall to zero.F) B) and C)
G) C) and E)

Question 17

Assume the following total cost schedule for a perfectly competitive firm.   Output  TVC  TFC 001001401002701003120100418010052501006330100 TABLE 9- 2\begin{array}{l}\begin{array} { | l | l | l | } \hline 	ext { Output } & 	ext { TVC } & 	ext { TFC } \\hline 0 & 0 & 100 \\hline 1 & 40 & 100 \\hline 2 & 70 & 100 \\hline 3 & 120 & 100 \\hline 4 & 180 & 100 \\hline 5 & 250 & 100 \\hline 6 & 330 & 100 \\hline\end{array}\	ext { TABLE 9- } 2\end{array} Output 0123456​ TVC 04070120180250330​ TFC 100100100100100100100​​ TABLE 9- 2​ 
-Refer to Table 9- 2. If the firm is producing at an output level of 2 units, the ATC is _ and the AVC is _ .

Accepted Answer

A)   $85; $35
B)   $100; $70
C)   $70; $35
D)   $50; $50
E)   $140; $40 F) A) and E)
G) C) and D)

Question 18

Consider the following short- run cost curves for a perfectly competitive firm.  FIGURE 9- 2
-Refer to Figure 9- 2. If the price is $6 and the firm is producing at its profit- maximizing output, then total costs for the firm are

Accepted Answer

A)   $100.
B)   $300.
C)   $1600.
D)   $2400.
E)   $3500.F) None of the above
G) A) and B)

Question 19

Consider a perfectly competitive firm in the following position: output = 4000 units, market price =
$1, fixed costs = $2000, variable costs = $2000, and marginal cost = $1. To maximize profits the firm should

Accepted Answer

A)   shut down.
B)   not change its output.
C)   expand its output.
D)   increase the market price.
E)   reduce its output.F) A) and E)
G) C) and D)

Question 20

Consider the following cost curves for Firm X, a perfectly competitive firm.  FIGURE 9- 3
-Refer to Figure 9- 3. If Firm X is producing output Q1 and the market price is P1,

Accepted Answer

A)   there is no lower- cost scale of plant which could be built by Firm X.
B)   new firms have a profit incentive to enter the industry, building larger plants.
C)   there are profits to induce increases in output by Firm X, using its existing plant.
D)   Firm X is at its long- run profit- maximizing position.
E)   Firm X is producing at its minimum efficient scale.F) All of the above
G) A) and E)

Exam 9: Competitive Markets

When a firm is referred to as a "price taker",

Correct Answer
verified

The demand curve facing a perfectly competitive firm

Correct Answer
verified

Suppose that in a perfectly competitive industry, the market price for the product is $130. A firm is producing the output level at which average total cost equals marginal cost, both of which are $138. Average variable cost is $132. To maximize profits in the short run, the firm should

Correct Answer
verified

Consider the following cost curves for Firm X, a perfectly competitive firm. FIGURE 9- 3 -Refer to Figure 9- 3. If Firm X is producing output Q1 and the market price is P1,

Correct Answer
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Consider the following short- run cost curves for a perfectly competitive firm. FIGURE 9- 1 -Refer to Figure 9- 1. The diagram shows cost curves for a perfectly competitive firm. The firm's short- run supply curve starts at output and rises along the marginal cost (MC) curve.

Correct Answer
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Which of the following terms would best describe the price elasticity of demand facing a perfectly competitive firm?

Correct Answer
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Correct Answer
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If a firm in a perfectly competitive market were to raise its price, its

Correct Answer
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In a perfectly competitive market, smaller- than- efficient sized firms can exist in

Correct Answer
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Correct Answer
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Correct Answer
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Consider a perfectly competitive firm in the following position: output = 4000 units, market price = $1, fixed costs = $2000, variable costs = $2000, and marginal cost = $1. To maximize profits the firm should

Correct Answer
verified

Average revenue (AR) for an individual firm in a perfectly competitive market equals

Correct Answer
verified

Consider the following cost curves for two perfectly competitive firms, A and B. FIGURE 9- 4 -Refer to Figure 9- 4. If Firm B is producing at output level q2, and selling its output at p0, then Firm B should

Correct Answer
verified

Which following statement does NOT apply to a perfectly competitive market?

Correct Answer
verified

Suppose a paper mill in Quebec is shut down by its owner, even though the plant and equipment are in excellent shape and the paper is of top quality. What could explain this?

Correct Answer
verified

Consider the following short- run cost curves for a perfectly competitive firm. FIGURE 9- 2 -Refer to Figure 9- 2. If the price is $6 and the firm is producing at its profit- maximizing output, then total costs for the firm are

Correct Answer
verified

Correct Answer
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Any firm's average revenue is defined as

Correct Answer
verified

Consider the following short- run cost curves for a perfectly competitive firm. FIGURE 9- 1 -Refer to Figure 9- 1. The diagram shows cost curves for a perfectly competitive firm. The firm would incur economic profit at all market prices above

Correct Answer
verified

Exam 9: Competitive Markets

When a firm is referred to as a "price taker",

Correct AnswerverifiedShow Answer

The demand curve facing a perfectly competitive firm

Correct AnswerverifiedShow Answer

Suppose that in a perfectly competitive industry, the market price for the product is $130. A firm is producing the output level at which average total cost equals marginal cost, both of which are $138. Average variable cost is $132. To maximize profits in the short run, the firm should

Correct AnswerverifiedShow Answer

Consider the following cost curves for Firm X, a perfectly competitive firm. FIGURE 9- 3 -Refer to Figure 9- 3. If Firm X is producing output Q1 and the market price is P1,

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Consider the following short- run cost curves for a perfectly competitive firm. FIGURE 9- 1 -Refer to Figure 9- 1. The diagram shows cost curves for a perfectly competitive firm. The firm's short- run supply curve starts at output and rises along the marginal cost (MC) curve.

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Which of the following terms would best describe the price elasticity of demand facing a perfectly competitive firm?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a firm in a perfectly competitive market were to raise its price, its

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In a perfectly competitive market, smaller- than- efficient sized firms can exist in

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Consider a perfectly competitive firm in the following position: output = 4000 units, market price = $1, fixed costs = $2000, variable costs = $2000, and marginal cost = $1. To maximize profits the firm should

Correct AnswerverifiedShow Answer

Average revenue (AR) for an individual firm in a perfectly competitive market equals

Correct AnswerverifiedShow Answer

Consider the following cost curves for two perfectly competitive firms, A and B. FIGURE 9- 4 -Refer to Figure 9- 4. If Firm B is producing at output level q2, and selling its output at p0, then Firm B should

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Which following statement does NOT apply to a perfectly competitive market?

Correct AnswerverifiedShow Answer

Suppose a paper mill in Quebec is shut down by its owner, even though the plant and equipment are in excellent shape and the paper is of top quality. What could explain this?

Correct AnswerverifiedShow Answer

Consider the following short- run cost curves for a perfectly competitive firm. FIGURE 9- 2 -Refer to Figure 9- 2. If the price is $6 and the firm is producing at its profit- maximizing output, then total costs for the firm are

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Any firm's average revenue is defined as

Correct AnswerverifiedShow Answer

Consider the following short- run cost curves for a perfectly competitive firm. FIGURE 9- 1 -Refer to Figure 9- 1. The diagram shows cost curves for a perfectly competitive firm. The firm would incur economic profit at all market prices above

Correct AnswerverifiedShow Answer

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