Question 1

If a typical firm in a perfectly competitive industry is incurring losses,then

Accepted Answer

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.

Question 2

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."

Question 3

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?

Accepted Answer

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.

Question 4

Figure 9-9
  Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.If the firm chose to produce at price P₁,the firm would

Accepted Answer

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.

Question 5

Table 9-4
   Quantity  Average  Fixed Cost  Average  Variable Cost  Marginal  Cost 20$40$18$18402014106013.1162080102240100830621206.614090\begin{array}{|c|c|c|c|}\hline 	ext { Quantity } & \begin{array}{c}	ext { Average } \	ext { Fixed Cost }\end{array} & \begin{array}{c}	ext { Average } \	ext { Variable Cost }\end{array} & \begin{array}{c}	ext { Marginal } \	ext { Cost }\end{array} \\hline 20 & \$ 40 & \$ 18 & \$ 18 \\hline 40 & 20 & 14 & 10 \\hline 60 & 13.1 & 16 & 20 \\hline 80 & 10 & 22 & 40 \\hline 100 & 8 & 30 & 62 \\hline 120 & 6.61 & 40 & 90 \\hline\end{array} Quantity 20406080100120​ Average  Fixed Cost ​$402013.11086.61​ Average  Variable Cost ​$181416223040​ Marginal  Cost ​$181020406290​​  Table 9-4 shows the short-run cost data of a perfectly competitive firm. Assume that output can only be increased in batches of 20 units.
-Refer to Table 9-4.If the market price is $45,the firm

Accepted Answer

A)   earn a profit of $3,600.
B)   will suffer a loss of $200.
C)   will break even.
D)   will earn profit of $1,040.

Question 6

Which of the following arguments could be made as evidence that the market for cage-free eggs is perfectly competitive?

Accepted Answer

A)   The U.S. Department of Agriculture has established standards for the labeling of cage-free eggs.
B)   Sales of cage-free eggs have increased at a rate of 20 percent per year.
C)   As more farmers began selling cage-free eggs, the increase in supply has driven down prices to the point where they just cover the cost of production.
D)   The profits earned by farmers who sell cage-free eggs have continued to grow, despite the increasing number of farmers entering this market.

Question 7

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Accepted Answer

A) True 
 B)False

Question 8

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.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Assume that the market for cage-free eggs is perfectly competitive.All else equal,as more farmers choose to produce and sell cage-free eggs,what is likely to happen to the equilibrium price of the eggs and profits of these farmers in the long run?

Accepted Answer

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.

Question 11

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

Accepted Answer

Long-run competitive equilibri...

Question 12

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.

Question 13

If firms do not earn economic profits in a competitive equilibrium,then why would the firms choose to stay in business?

Accepted Answer

When firms earn no economic profit but e...

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

Assume that the 4K and OLED 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?

Accepted Answer

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 economic profits temporarily, but in the long run its economic profits will be eliminated as other firms copy the innovation.

Question 16

Table 9-2
   Apples  (pounds)   MarketPrice  per Pound  Total  Revenue ( TR)   Average  Revenue  (AR)   Marginal  Revenue  (MIR)  0$3$0⋯⋯100150200250300350400\begin{array}{|c|c|c|c|c|}\hline\begin{array}{c}\text { Apples } \\text { (pounds)  }\end{array} & \begin{array}{c}\text { MarketPrice } \\text { per Pound }\end{array} & \begin{array}{c}\text { Total } \\text { Revenue } \(\text { TR)  }\end{array} & \begin{array}{c}\text { Average } \\text { Revenue } \\text { (AR)  }\end{array} & \begin{array}{c}\text { Marginal } \\text { Revenue } \\text { (MIR)  }\end{array} \\hline 0 & \$ 3 & \$ 0 & \cdots& \cdots  \\hline 100 & & & & \\hline 150 & & & & \\hline 200 & & & & \\hline 250 & & & & \\hline 300 & & & & \\hline 350 & & & & \\hline 400 & & & & \\hline\end{array} Apples  (pounds)  ​0100150200250300350400​ MarketPrice  per Pound ​$3​ Total  Revenue ( TR)  ​$0​ Average  Revenue  (AR)  ​⋯​ Marginal  Revenue  (MIR)  ​⋯​​  Table 9-2 lists the various pounds (lbs.)  of apples that Margie Stattler can sell. Assume that Margie operates in a perfectly competitive market.
-Refer to Table 9-2.What is Margie's total revenue if she sells 250 pounds of apples?

Accepted Answer

A)   $250
B)   $500
C)   $750
D)   There is not enough information in the table to determine Margie's total revenue.

Question 17

If a perfectly competitive firm's total revenue is less than its total variable cost,the firm

Accepted Answer

A)   should raise its price above its average variable cost.
B)   should continue to produce and increase its demand.
C)   should stop production by shutting down temporarily.
D)   should adopt new technology in order to lower its costs of production.

Exam 9: Firms in Perfectly Competitive Markets

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

Correct Answer
verified
Long-run competitive equilibri...
View Answer

If a perfectly competitive firm's total revenue is less than its total variable cost,the firm

Correct Answer
verified

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.If the firm chose to produce at price P₁,the firm would

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Assume that the market for cage-free eggs is perfectly competitive.All else equal,as more farmers choose to produce and sell cage-free eggs,what is likely to happen to the equilibrium price of the eggs and profits of these farmers in the long run?

Correct Answer
verified

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?

Correct Answer
verified

If total revenue exceeds fixed cost,a firm

Correct Answer
verified

If a typical firm in a perfectly competitive industry is incurring losses,then

Correct Answer
verified

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Correct Answer
verified

Assume that the 4K and OLED 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?

Correct Answer
verified

Correct Answer
verified

If firms do not earn economic profits in a competitive equilibrium,then why would the firms choose to stay in business?

Correct Answer
verified
When firms earn no economic profit but e...
View Answer

Correct Answer
verified

Correct Answer
verified

Which of the following arguments could be made as evidence that the market for cage-free eggs is perfectly competitive?

Correct Answer
verified

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.

Correct Answer
verified

Exam 9: Firms in Perfectly Competitive Markets

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

Correct AnswerverifiedLong-run competitive equilibri...View AnswerShow Answer

If a perfectly competitive firm's total revenue is less than its total variable cost,the firm

Correct AnswerverifiedShow Answer

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.If the firm chose to produce at price P₁,the firm would

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Assume that the market for cage-free eggs is perfectly competitive.All else equal,as more farmers choose to produce and sell cage-free eggs,what is likely to happen to the equilibrium price of the eggs and profits of these farmers in the long run?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

If total revenue exceeds fixed cost,a firm

Correct AnswerverifiedShow Answer

If a typical firm in a perfectly competitive industry is incurring losses,then

Correct AnswerverifiedShow Answer

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Correct AnswerverifiedShow Answer

Assume that the 4K and OLED 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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If firms do not earn economic profits in a competitive equilibrium,then why would the firms choose to stay in business?

Correct AnswerverifiedWhen firms earn no economic profit but e...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following arguments could be made as evidence that the market for cage-free eggs is perfectly competitive?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Correct Answer
verified
Long-run competitive equilibri...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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When firms earn no economic profit but e...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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