Chapter 12

29) In the long run, the economic profit of a firm in a perfectly competitive market

A) will equal zero.

31) Homer's Holesome Donuts has determined that its profit-maximizing quantity is 10,000 donuts per year. Homer's earns $12,000 in revenue from the sale of those donuts. Homer's has two costs. First he pays $16,000 in annual rental payments for its five-year lease on its store. Second Homer incurs an additional cost of $5,000 for ingredients. Should Homer's exit the market in the long run?

A) yes, because he is incurring an economic loss

30) In the long-run equilibrium in a perfectly competitive market, the economic profit of the firms is

A) zero

27) In the long run, perfectly competitive firms earn just enough revenue to

C) pay all opportunity costs.

37) In a perfectly competitive market, a permanent increase in demand initially brings a higher price, economic

C) profit, and entry into the market.

1) A perfectly competitive firm has a total revenue curve that is

A) upward sloping with a constant slope.

23) Giuseppe's Pizza is a perfectly competitive firm. The firm's costs are shown in the table above. If the market price is $15, how much economic profit does the firm make?

A) $0

17) The figure above shows the marginal revenue and costs of a perfectly competitive firm. The marginal cost of the last unit produced is

A) $16 per unit.

35) The figure above shows a typical perfectly competitive corn farm, whose marginal cost curve is MC and average total cost curve is ATC. The market is initially in a long-run equilibrium, where the price is $3.00 per bushel. Then, the market demand for corn decreases and, in the short run, the price falls to $2.50 per bushel. In the new short-run equilibrium, the farm produces ________ bushels of corn and sells corn at ________ per bushel.

A) 250,000; $2.50

47) The figure above shows the marginal revenue and long-run cost curves for a perfectly competitive firm. Which of the following statements is TRUE?

A) The firm is producing at minimum long-run average cost.

41) In the long-run equilibrium, perfectly competitive firms produce where

A) average total cost is minimized.

13) For a perfectly competitive firm, as its output increases its marginal revenue ________ and its marginal cost ________.

A) does not change; changes

2) The goal of a perfectly competitive firm is to maximize its

A) economic profit.

44) If the donut industry is perfectly competitive and is in long-run equilibrium, then the price of a donut

A) equals long-run average cost.

19) The figure above shows a perfectly competitive firm. The firm is operating; that is, the firm has not shut down. The firm is

A) incurring a economic loss of $200.

8) The economic profit of a perfectly competitive firm

A) is less than its total revenue.

33) The industry that produces zangs is in long-run equilibrium. Then the demand for zangs increases permanently. As a result, firms in the industry will ________. Some firms will ________ the industry, and the industry supply curve will shift ________.

A) make economic an profit; enter; rightward

4) The market demand for wheat is ________ and the demand for wheat produced by an individual farm is ________.

A) not perfectly elastic; perfectly elastic

43) Consumer surplus ________.

A) plus producer surplus is maximized when resources are used efficiently

26) In the long-run equilibrium, perfectly competitive firms make zero economic profit because of

A) the ability of firms to enter and exit.

7) Marginal revenue is defined as

A) the change in total revenue that results from a one-unit increase in the quantity sold.

22) The figure above shows the marginal revenue and costs of a perfectly competitive firm. The firm's profit is maximized when the firm produces

B) 170 units of output

18) The figure illustrates the short-run costs of Paul's Picture Frames Inc. The picture frame market is perfectly competitive and the market price is $30 a frame. Paul produces ________ frames each week, makes ________ of total revenue, and makes zero ________ profit.

B) 300; $9,000; economic

12) The donut market is perfectly competitive. The figure shows the costs of a typical donut producer. In the short run, the donut producer's supply curve is the curve running from point ________ to point E.

B) B

40) In a perfectly competitive market that is in long-run equilibrium, which of the following will NOT occur?

B) Entrepreneurs want to enter this industry.

3) Which of the following is NOT an assumption of perfect competition?

B) Firms compete by making their product different from products produced by other firms

11) If the price exceeds the average variable cost, by producing the level of output such that marginal revenue equals marginal cost, the firm ensures that it will

B) earn the largest profit possible.

6) If Steve's Apple Orchard, Inc. is a perfectly competitive firm, the demand for Steve's apples has

B) infinite elasticity.

48) In the long-run equilibrium in a perfectly competitive market, the firms produce at the ________ possible average total cost and the price equals the ________ possible average total cost.

B) lowest; lowest

10) Bob's Lawn Care Services is a perfectly competitive firm that currently mows 22 lawns a week. Bob's marginal cost exceeds the price he charges. Bob can increase his profit if he

B) mows fewer than 22 lawns a week.

20) The figure above shows a perfectly competitive firm. The firm is operating; that is, it has not shut down. The firm produces

C) 10 units of output and incurs an economic loss

24) The above table shows the per day total cost for Kiley's Baseball Glove Company. Each glove is priced at $50 and Kiley's Baseball Glove Company is a perfectly competitive firm. At which of the following amounts of output is the economic profit maximized for Kiley's Baseball Glove Company?

C) 5

39) In the long run, perfectly competitive firms make zero economic profit (their owners earn a normal profit) because

C) any economic profit would attract newcomers to the industry.

9) Given the total cost and total revenue curves in the above figure, what are the output levels at which the perfect competitor will incur economic losses?

C) below 30,000 bushels and over 80,000 bushels

25) Fast Copy is a perfectly competitive firm. The figure above shows Fast Copy's cost curves. If the market price is 4 cents per page, what is Fast Copy's economic profit?

C) between $0.51 and $1.00 per hour

21) In the short run, an increase in demand for a good that is sold in a perfectly competitive market

C) increases the economic profits of existing firms in the market

38) In a perfectly competitive market that is in long-run equilibrium, a permanent leftward shift in the market demand curve

C) lowers the price at first but then raises it as firms leave the market.

32) The above figure shows the cost curves for a perfectly competitive firm. If all firms in the market have the same cost curves and the price equals $16 per unit

C) over time, the price will fall as new firms enter the market.

14) In the above figure, if the price is $8 per unit, how many units will a profit maximizing perfectly competitive firm produce?

D) 20

34) Suppose a perfectly competitive market is in long-run equilibrium. If there is a permanent increase in demand

D) All of the above answers are correct.

46) In the long-run equilibrium for a perfectly competitive market

D) All of the above are correct.

42) In the long-run equilibrium, perfectly competitive firms produce the level of output such that

D) Both answers B and C are correct.

45) The figure above shows the marginal revenue and long-run cost curves for a perfectly competitive firm. All other firms in the industry have identical curves. Which of the following statements is TRUE?

D) None of the above is true.

15) For a perfectly competitive firm, the shutdown point is the

D) amount of output at which price equals minimum average variable cost.

28) In the long-run, if firms in a perfectly competitive market are incurring persistent economic losses, some firms will

D) exit and the price will rise.

36) In a perfectly competitive market that is in long-run equilibrium, a rightward shift in the market demand curve results in

D) none of the events listed above.

16) As long as it does not shut down, a profit-maximizing perfectly competitive firm will

D) produce so that marginal revenue equals marginal cost.

5) A market is perfectly competitive if

D) there are many firms in it, each selling an identical product.