Question 1

Consider a firm in a perfectly competitive industry. The shut-down point is the price at which the firm can just cover its

Accepted Answer

A)   marginal costs.
B)   non-economic costs.
C)   fixed costs.
D)   unstated costs.
E)   variable costs.F) A) and D)
G) A) and C)

Question 2

The price elasticity of demand faced by an individual wheat farmer would come closest to which following value?

Accepted Answer

A)   0.00007
B)   0.7
C)   1.0
D)   71.0
E)   71 000F) A) and B)
G) A) and C)

Question 3

Consider a perfectly competitive firm in the following position: output = 4000 units, market price = $1, fixed costs = $2000, variable costs = $1000, and marginal cost = $1.10. To maximize profits the firm should

Accepted Answer

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

Question 4

A perfectly competitive firmʹs demand curve coincides with

Accepted Answer

A)   its average-revenue curve and total-revenue curve.
B)   its total-revenue curve.
C)   both its marginal and average-revenue curves.
D)   both its marginal and total-revenue curves.
E)   the market demand curve.F) A) and D)
G) A) and E)

Question 5

If a perfectly competitive firm is faced with average revenue below average variable cost it will produce zero output so as to reduce its

Accepted Answer

A)   costs to below its revenue.
B)   costs to zero.
C)   losses to the amount of its fixed costs.
D)   losses to the amount of its variable costs.
E)   losses to the amount of its marginal costs.F) A) and B)
G) C) and E)

Question 6

Total revenue TR)  for an individual firm in a perfectly competitive market equals

Accepted Answer

A)   p × q.
B)   p × q) /q.
C)   △p × △q.
D)   △q/△p.
E)   △p × q) /△q.F) A) and D)
G) B) and E)

Question 7

Consider the following cost curves for Firm X, a perfectly competitive firm.
  FIGURE 9-5
-Refer to Figure 9-5. If Firm X is producing output Q1 and the market price is P1,

Accepted Answer

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

Question 8

Consider the price and quantity data below for a perfectly competitive firm producing mousetraps.  TABLE 9-1
-Refer to Table 9-1. Suppose this firm is currently selling 1750 mousetraps at the market price of $5. If the firm raises its price to $6, itʹs average revenue will be

Accepted Answer

A)   $0.
B)   $5.
C)   $6.
D)   between $5 and $6.
E)   greater than $6.F) A) and C)
G) A) and B)

Question 9

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

Accepted Answer

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

Question 10

Under perfect competition, the demand curve facing an individual firm is

Accepted Answer

A)   the same as the industryʹs demand curve.
B)   downward sloping.
C)   upward sloping.
D)   infinitely price elastic.
E)   a rectangular hyperbola.F) B) and C)
G) A) and E)

Question 11

Which of the following statements does NOT apply to a perfectly competitive market?

Accepted Answer

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

Question 12

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)   shampoo.
D)   personal computers.
E)   pizza.F) A) and D)
G) B) and D)

Question 13

FIGURE 9-1
-Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. The short-run shut down price for the firm is

Accepted Answer

A)   P1.
B)   P2.
C)   P3.
D)   P4.
E)   P5.F) All of the above
G) A) and E)

Question 14

If the demand curve faced by a firm is downward sloping, we can reasonably believe that the

Accepted Answer

A)   firm can influence the price of the product it sells.
B)   firm will have no effect on the price of the product it sells.
C)   firm must lower prices if it hopes to increase its profits.
D)   firmʹs contributions to total output of the product is insignificant.
E)   firm has no control over the price of the product it sells but can vary the output.F) B) and E)
G) B) and D)

Question 15

FIGURE 9-1
-Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P1, the profit-maximizing firm in the short run should

Accepted Answer

A)   produce output A.
B)   produce output B.
C)   produce output C.
D)   produce output D or shut down as it doesnʹt really matter which.
E)   definitely shut down.F) A) and E)
G) A) and D)

Question 16

Consider the textile industry, which we assume to be a competitive industry, and which experiences continuous cost-reducing technological change. Which of the following statements best describes this industry?

Accepted Answer

A)   High-cost textile mills will co-exist with low-cost mills as long as the revenue for the high-cost mills is covering their variable costs.
B)   The price of the product is determined by the minimum ATC of the lowest -cost plants.
C)   All textile mills in the industry will be earning zero economic profits or losses.
D)   Both A and B
E)   Both B and CF) None of the above
G) B) and E)

Question 17

A firm in a perfectly competitive market

Accepted Answer

A)   has no power to influence the market price.
B)   is limited in the amount of product it can sell without affecting the price.
C)   is dependant upon the behaviour of its competitors.
D)   is aware of its competitorsʹ costs.
E)   competes actively with other sellers in the industry.F) A) and D)
G) B) and D)

Question 18

If a perfectly competitive firm produces at an output level where marginal cost equals marginal revenue, then

Accepted Answer

A)   the last unit produced adds the same amount to costs as it does to revenue.
B)   the firm is maximizing its revenue.
C)   there is no reason to reduce or expand output, as long as AVC is greater than or equal to price.
D)   the difference between TR and TC is zero.
E)   the firm should shut down.F) C) and D)
G) C) and E)

Question 19

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

Accepted Answer

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

Question 20

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

Accepted Answer

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

Exam 9: Competitive Markets

Consider a perfectly competitive firm in the following position: output = 4000 units, market price = $1, fixed costs = $2000, variable costs = $1000, and marginal cost = $1.10. To maximize profits the firm should

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FIGURE 9-1 -Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. The short-run shut down price for the firm is

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Consider the textile industry, which we assume to be a competitive industry, and which experiences continuous cost-reducing technological change. Which of the following statements best describes this industry?

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The price elasticity of demand faced by an individual wheat farmer would come closest to which following value?

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Consider a firm in a perfectly competitive industry. The shut-down point is the price at which the firm can just cover its

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FIGURE 9-1 -Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P1, the profit-maximizing firm in the short run should

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If a perfectly competitive firm produces at an output level where marginal cost equals marginal revenue, then

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A firm in a perfectly competitive market

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Under perfect competition, the demand curve facing an individual firm is

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Total revenue TR) for an individual firm in a perfectly competitive market equals

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If the demand curve faced by a firm is downward sloping, we can reasonably believe that the

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

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

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Consider the following cost curves for Firm X, a perfectly competitive firm. FIGURE 9-5 -Refer to Figure 9-5. If Firm X is producing output Q1 and the market price is P1,

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A perfectly competitive firmʹs demand curve coincides with

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

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If a perfectly competitive firm is faced with average revenue below average variable cost it will produce zero output so as to reduce its

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Consider the price and quantity data below for a perfectly competitive firm producing mousetraps. TABLE 9-1 -Refer to Table 9-1. Suppose this firm is currently selling 1750 mousetraps at the market price of $5. If the firm raises its price to $6, itʹs average revenue will be

Correct AnswerverifiedShow Answer

Which of the following statements does NOT apply to a perfectly competitive market?

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

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