Question 1

Suppose ABC Corp.is a firm producing newsprint in a perfectly competitive industry.We have the following information about the firm's production: - output (Q) = 1500 tonnes per month
- average total cost (ATC) = $627 per tonne
- average variable cost (AVC) = $614 per tonne
- marginal revenue (MR) = $620 per tonne
- marginal cost (MC) = $620 per tonne In the short run,this firm should

Accepted Answer

A)  maintain production at the current level.
B)  shut down because the firm is incurring economic losses.
C)  increase output because MR is greater than AVC.
D)  reduce output because the price per tonne is less than ATC.
E)  Not possible to determine because the price of the product is not known.F) C) and D)
G) All of the above

Question 2

Assume the following total cost schedule for a perfectly competitive firm.   Output  TVC ($)  TFC ($) 001001401002701003120100418010052501006330100\begin{array} { | c | c | c | } \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} 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)  $70
B)  $220
C)  $40
D)  $430
E)  $145 F) B) and D)
G) C) and D)

Question 3

The short- run supply curve for a perfectly competitive firm is

Accepted Answer

A)  its marginal- cost curve above the average- variable- cost curve.
B)  its entire marginal- cost curve.
C)  its average- revenue curve.
D)  the industry supply curve.
E)  its rising portion of the average- variable- cost curve.F) All of the above
G) A) and C)

Question 4

Assume the following total cost schedule for a perfectly competitive firm.   Output  TVC ($)  TFC ($) 001001401002701003120100418010052501006330100\begin{array} { | c | c | c | } \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} 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)  $140; $40
B)  $50; $50
C)  $85; $35
D)  $100; $70
E)  $70; $35 F) C) and D)
G) C) and E)

Question 5

On a graph showing a firm's TC and TR curves,the profit- maximizing level of output is found where

Accepted Answer

A)  TR and TC intersect.
B)  TR is at a maximum
C)  TR becomes vertical.
D)  TC intersects the vertical axis.
E)  TR lies above TC by the greatest amount.F) B) and E)
G) A) and D) E

Question 6

If a perfectly competitive market is in a short- run equilibrium and each firm has P > SRATC,then

Accepted Answer

A)  new firms will enter the market because existing firms are earning economic profits.
B)  price will fall in the short run as it is too high and firms are making economic profits.
C)  individual firms in the industry will increase their output.
D)  the market supply curve will become less elastic.
E)  existing firms will continue to earn economic profits in the long run.F) B) and D)
G) A) and C)

Question 7

595959 
-Which of the following is NOT a determinant of market structure?

Accepted Answer

A)  The capital- labour ratio of the firm.
B)  The ease of entering the industry.
C)  The number of sellers.
D)  The market share of the sellers.
E)  The nature of the product. F) C) and E)
G) A) and B)

Question 8

If firms in a competitive industry are earning positive economic profits,in the long run we expect

Accepted Answer

A)  the supply curve for the product will shift to the right as new firms enter the industry,causing industry output to increase and price to fall.
B)  the individual firms will lower their price to discourage new firms from entering the industry.
C)  the demand curve for the product will shift to the left,so that the price of the product will fall.
D)  there would be no change in the industry as long as P = MC for the individual firms.
E)  the government would intervene and force the firms to lower prices.F) C) and D)
G) A) and B)

Question 9

Consider a perfectly competitive firm when its industry is in long- run equilibrium.Which of the following statements is correct?

Accepted Answer

A)  The firm has successfully established barriers to entry.
B)  The firm has no ability to affect its product's price.
C)  The firm is earning positive economic profits.
D)  The firm has a strong profit incentive to expand capacity.
E)  The firm has successfully differentiated its product.F) A) and C)
G) C) and D)

Question 10

Consider a perfectly competitive firm that is producing a level of output such that price equals average total cost and average total cost is less than marginal cost.In order to maximize its profits,the firm should

Accepted Answer

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

Question 11

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

Accepted Answer

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

Question 12

Long- run equilibrium in a perfectly competitive industry is characterized by

Accepted Answer

A)  an output level at which firms' SRATC curves are tangent to the downward sloping portion of their LRAC curves.
B)  internal economies of scale.
C)  falling costs.
D)  rising costs.
E)  each firm producing at the minimum point on its LRAC curve.F) D) and E)
G) A) and B)

Question 13

Consider the following cost curves for Firm X,a perfectly competitive firm.
  FIGURE 9- 5
-Refer to Figure 9- 5.At output Q2 and price P2,which of the following is FALSE?

Accepted Answer

A)  There are economic profits to attract new entrants.
B)  There are no unexploited internal economies of scale.
C)  P = MC = SRATC = LRAC.
D)  The firm producing Q2 is at its long- run profit- maximizing position.
E)  Firm X is producing at its minimum efficient scale.F) B) and C)
G) A) and C)

Question 14

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)  not change its output.
B)  reduce its output.
C)  increase the market price.
D)  shut down.
E)  expand its output.F) C) and E)
G) None of the above

Question 15

A price- taking firm in the short run should not produce any level of output unless

Accepted Answer

A)  average revenue equals or exceeds average variable cost.
B)  marginal revenue equals average total cost.
C)  it is earning positive profits.
D)  marginal revenue exceeds marginal cost.
E)  average revenue equals or exceeds average total cost.F) B) and C)
G) C) and E)

Question 16

Which of the following assumptions about perfectly competitive markets is primarily responsible for the horizontal demand curve facing the individual firm?

Accepted Answer

A)  freedom of entry and exit in the industry
B)  strategic behaviour
C)  differentiated product
D)  each firm is small relative to the size of the industry
E)  consumers are aware of all firms' pricesF) A) and E)
G) A) and D)

Question 17

Consider the price and quantity data below for a perfectly competitive firm producing mousetraps.   Price ($)  Quantity 5100051250515005175052000\begin{array} { | c | c | } \hline 	ext { Price } ( \$ )  & 	ext { Quantity } \\hline 5 & 1000 \\hline 5 & 1250 \\hline 5 & 1500 \\hline 5 & 1750 \\hline 5 & 2000 \\hline\end{array} Price ($) 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)  earning profits of $150.
B)  earning profits of $7650.
C)  breaking even.
D)  suffering losses of $7650.
E)  suffering losses of $150. F) B) and D)
G) A) and C)

Question 18

Consider a competitive industry in which firms are facing a continual decrease in demand for their product.In the long run

Accepted Answer

A)  new firms will enter the industry and earn normal profits.
B)  firms will begin advertising in order to increase demand for their product.
C)  capacity in the industry will gradually shrink as plant and equipment is not replaced.
D)  existing firms will modernize plant and equipment in order to increase efficiency.
E)  existing firms will expand output as a means of recovering losses.F) A) and B)
G) A) and C)

Question 19

Which of the following statements about a firm in a perfectly competitive industry is true?

Accepted Answer

A)  The firm will not produce at all if P 
B)  The firm maximizes its profit by producing where P = ATC.
C)  The firm maximizes its profit by producing where P = AVC.
D)  The firm can improve its competitive position and sell more output by advertising its product.
E)  The firm will not produce at all if P < the minimum of AVC.F) B) and C)
G) A) and E) E

Question 20

An example of a product that could most closely satisfy the homogeneous product assumption of perfect competition is

Accepted Answer

A)  barley.
B)  cars.
C)  personal computers.
D)  pizza.
E)  shampoo.F) None of the above
G) C) and E) A

Exam 9: Competitive Markets

Correct Answer
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Correct Answer
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The short- run supply curve for a perfectly competitive firm is

Correct Answer
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Correct Answer
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On a graph showing a firm's TC and TR curves,the profit- maximizing level of output is found where

Correct Answer
verified
E

If a perfectly competitive market is in a short- run equilibrium and each firm has P > SRATC,then

Correct Answer
verified

$59$ -Which of the following is NOT a determinant of market structure?

Correct Answer
verified

If firms in a competitive industry are earning positive economic profits,in the long run we expect

Correct Answer
verified

Consider a perfectly competitive firm when its industry is in long- run equilibrium.Which of the following statements is correct?

Correct Answer
verified

Consider a perfectly competitive firm that is producing a level of output such that price equals average total cost and average total cost is less than marginal cost.In order to maximize its profits,the firm should

Correct Answer
verified

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

Correct Answer
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Long- run equilibrium in a perfectly competitive industry is characterized by

Correct Answer
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Consider the following cost curves for Firm X,a perfectly competitive firm. FIGURE 9- 5 -Refer to Figure 9- 5.At output Q2 and price P2,which of the following is FALSE?

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

A price- taking firm in the short run should not produce any level of output unless

Correct Answer
verified

Which of the following assumptions about perfectly competitive markets is primarily responsible for the horizontal demand curve facing the individual firm?

Correct Answer
verified

Correct Answer
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Consider a competitive industry in which firms are facing a continual decrease in demand for their product.In the long run

Correct Answer
verified

Which of the following statements about a firm in a perfectly competitive industry is true?

Correct Answer
verified
E

An example of a product that could most closely satisfy the homogeneous product assumption of perfect competition is

Correct Answer
verified
A

Exam 9: Competitive Markets

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The short- run supply curve for a perfectly competitive firm is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

On a graph showing a firm's TC and TR curves,the profit- maximizing level of output is found where

Correct AnswerverifiedE

If a perfectly competitive market is in a short- run equilibrium and each firm has P > SRATC,then

Correct AnswerverifiedShow Answer

595959 -Which of the following is NOT a determinant of market structure?

Correct AnswerverifiedShow Answer

If firms in a competitive industry are earning positive economic profits,in the long run we expect

Correct AnswerverifiedShow Answer

Consider a perfectly competitive firm when its industry is in long- run equilibrium.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Consider a perfectly competitive firm that is producing a level of output such that price equals average total cost and average total cost is less than marginal cost.In order to maximize its profits,the firm should

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Long- run equilibrium in a perfectly competitive industry is characterized by

Correct AnswerverifiedShow Answer

Consider the following cost curves for Firm X,a perfectly competitive firm. FIGURE 9- 5 -Refer to Figure 9- 5.At output Q2 and price P2,which of the following is FALSE?

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

A price- taking firm in the short run should not produce any level of output unless

Correct AnswerverifiedShow Answer

Which of the following assumptions about perfectly competitive markets is primarily responsible for the horizontal demand curve facing the individual firm?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Consider a competitive industry in which firms are facing a continual decrease in demand for their product.In the long run

Correct AnswerverifiedShow Answer

Which of the following statements about a firm in a perfectly competitive industry is true?

Correct AnswerverifiedE

An example of a product that could most closely satisfy the homogeneous product assumption of perfect competition is

Correct AnswerverifiedA

Correct Answer
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E

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$59$ -Which of the following is NOT a determinant of market structure?

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Correct Answer
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E

Correct Answer
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A