Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

How are sunk costs and fixed costs related?

Accepted Answer

A)   They are not related in any way.
B)   Sunk costs cannot be recovered and fixed costs can be avoided by shutting down.
C)   In the short run they are equal to each other.
D)   In the long run they are equal to each other.

Question 3

A perfectly competitive firm's supply curve is its

Accepted Answer

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.

Question 4

-Refer to Table 8-3. What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Accepted Answer

A)   Q = 1; profit = -$10.
B)   Q = 3; profit = -$7.50
C)   Q = 0; profit = -$10.00
D)   Price and profit cannot be determined from the information given.

Question 5

-Refer to Figure 8-5. What is the amount of the firm's fixed cost of production?

Accepted Answer

A)   $5400
B)   $6750
C)   $8100
D)   It cannot be determined.

Question 6

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,

Accepted Answer

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.

Question 7

-Refer to Figure 8-1. If the firm is producing 200 units,

Accepted Answer

A)   it breaks even.
B)   it is incurring a loss.
C)   it should cut back its output to maximise profit.
D)   it should increase its output to maximise profit.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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 maximise profits the firm should

Accepted Answer

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.

Question 10

In a perfectly competitive market, the term 'price taker' applies to

Accepted Answer

A)   sellers and buyers.
B)   firms but not buyers.
C)   buyers but not sellers.
D)   only the smallest sellers and buyers.

Question 11

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 12

-Refer to Table 8-4. If the market price is $45, the firm

Accepted Answer

A)   will earn a profit of $3600.
B)   will suffer a loss of $200.
C)   will break even.
D)   will earn profit of $1040.

Question 13

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.

Question 14

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.

Question 15

In a graph that illustrates a perfectly competitive firm, marginal revenue is

Accepted Answer

A)   a diagonal line that lies below the firm's demand curve.
B)   a line that intersects the firm's demand curve from below at its lowest point.
C)   a line that intersects the firm's average total cost curve from below at its lowest point.
D)   the same as the firm's demand curve.

Question 16

-Refer to Figure 8-6. Suppose the firm produces 4000 units. What does the shaded area labeled A represent?

Accepted Answer

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

Question 17

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.

Accepted Answer

On the first graph, supply shifts to the...

Question 18

Perfect competition is characterised by all of the following except

Accepted Answer

A)   heavy advertising by individual sellers.
B)   homogeneous products.
C)   sellers are price takers.
D)   a horizontal demand curve for individual sellers.

Question 19

Being a price-taker, a perfectly competitive firm cannot receive a producer surplus in the short run.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 8: Firms in Perfectly Compitive Markets

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 maximise profits the firm should

Correct Answer
verified

Being a price-taker, a perfectly competitive firm cannot receive a producer surplus in the short run.

Correct Answer
verified

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

Correct Answer
verified

-Refer to Figure 8-5. What is the amount of the firm's fixed cost of production?

Correct Answer
verified

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

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

Correct Answer
verified

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

Correct Answer
verified

In a graph that illustrates a perfectly competitive firm, marginal revenue is

Correct Answer
verified

A perfectly competitive firm's supply curve is its

Correct Answer
verified

-Refer to Table 8-4. If the market price is $45, the firm

Correct Answer
verified

Perfect competition is characterised by all of the following except

Correct Answer
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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,

Correct Answer
verified

Correct Answer
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On the first graph, supply shifts to the...
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-Refer to Table 8-3. What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Correct Answer
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A perfectly competitive firm earns a profit when price is

Correct Answer
verified

How are sunk costs and fixed costs related?

Correct Answer
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In a perfectly competitive market, the term 'price taker' applies to

Correct Answer
verified

-Refer to Figure 8-6. Suppose the firm produces 4000 units. What does the shaded area labeled A represent?

Correct Answer
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Firms in perfect competition are price takers because

Correct Answer
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-Refer to Figure 8-1. If the firm is producing 200 units,

Correct Answer
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Exam 8: Firms in Perfectly Compitive Markets

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 maximise profits the firm should

Correct AnswerverifiedShow Answer

Being a price-taker, a perfectly competitive firm cannot receive a producer surplus in the short run.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

-Refer to Figure 8-5. What is the amount of the firm's fixed cost of production?

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In a graph that illustrates a perfectly competitive firm, marginal revenue is

Correct AnswerverifiedShow Answer

A perfectly competitive firm's supply curve is its

Correct AnswerverifiedShow Answer

-Refer to Table 8-4. If the market price is $45, the firm

Correct AnswerverifiedShow Answer

Perfect competition is characterised by all of the following except

Correct AnswerverifiedShow Answer

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,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedOn the first graph, supply shifts to the...View AnswerShow Answer

-Refer to Table 8-3. What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Correct AnswerverifiedShow Answer

A perfectly competitive firm earns a profit when price is

Correct AnswerverifiedShow Answer

How are sunk costs and fixed costs related?

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In a perfectly competitive market, the term 'price taker' applies to

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-Refer to Figure 8-6. Suppose the firm produces 4000 units. What does the shaded area labeled A represent?

Correct AnswerverifiedShow Answer

Firms in perfect competition are price takers because

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-Refer to Figure 8-1. If the firm is producing 200 units,

Correct AnswerverifiedShow Answer

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On the first graph, supply shifts to the...
View Answer

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