CHAPTER 23 - MYLAB STUDY PLAN
The campus barber faces stiff competition from the large number of shops that surround the campus area, and for all practical purposes the market is perfectly competitive. He charges $8 for a haircut and cuts hair for 20 people a day. His shop is open 3 days a week. Calculate his weekly total revenue:
$480
The campus barber faces stiff competition from the large number of shops that surround the campus area, and for all practical purposes the market is perfectly competitive. He charges $8 for a haircut and cuts hair for 20 people a day. His shop is open 3 days a week. Calculate his average revenue per haircut:
$8
The campus barber faces stiff competition from the large number of shops that surround the campus area, and for all practical purposes the market is perfectly competitive. He charges $8 for a haircut and cuts hair for 20 people a day. His shop is open 3 days a week. Calculate his marginal revenue per haircut:
$8
Suppose that a perfectly competitive firm faces a market price of $5 per unit, and at this price the upward-sloping portion of the firm's marginal cost curve crosses its marginal revenue curve at an output level of 1 comma 1,500 units. If the firm produces 1 comma 1,500 units, its average variable costs equal $5.50 per unit, and its average fixed costs equal $0.50 per unit. What is the amount of its economic profits (or losses) at this output level:
- $1,500
Suppose that a perfectly competitive firm faces a market price of $5 per unit, and at this price the upward-sloping portion of the firm's marginal cost curve crosses its marginal revenue curve at an output level of 1 comma 1,500 units. If the firm produces 1 comma 1,500 units, its average variable costs equal $5.50 per unit, and its average fixed costs equal $0.50 per unit. What is the firm's profit-maximizing (or loss-minimizing) output level:
1,500
A firm will continue to operate in the short run, even at an economic loss, as long as: A) P is greater than minimum AVC. B) ATC > P. C) MR = MC. D) MC = P.
A
A perfectly competitive firm's short-run supply curve is: A) its marginal cost curve at and above the intersection with the AVC curve. B) the same as its ATC curve. C) a combination of the ATC and AVC curves. D) nonexistent.
A
All of the following are characteristics of perfect competition except: A) the products sold by the firms in the industry are differentiated. B) there are a large number of buyers and sellers. C) both buyers and sellers have access to all relevant information. D) firms can enter or leave the industry without serious impediments.
A
Anything that affects the marginal cost curves of the firms in a perfectly competitive industry will influence the industry supply curve: A) True B) False
A
Firms in perfectly competitive industries will eventually have no customers if they set their prices above the competitive price: A) True B) False
A
Identify which statement is NOT characteristic of a perfectly competitive industry: A) One firm produces a large portion of the industry's total output. B) There are many firms in the industry. C) Their products are indistinguishable. D) Firms can easily exit and enter the industry.
A
If, at the profit-maximizing level of output, average costs are less than average revenue, a perfectly competitive firm will be ________ and we would expect supply to eventually shift ________: A) making economic profits; outward B) incurring economic losses; inward C) incurring economic losses; outward D) making economic profits; inward
A
In a competitive market, positive economic profits act to: A) attract new entrants into the industry. B) signal resource owners elsewhere not to invest their capital in this industry. C) prevent reinvestment on the part of firms within the industry. D) drive potential competitors away from the industry.
A
The market clearing price in a perfectly competitive industry is found at the intersection of the industry's demand curve and short-run supply curve: A) True B) False
A
The supply curve of the perfectly competitive firm in the short run is equal to: A) the marginal cost curve above minimum AVC. B) the AVC curve above minimum AVC. C) the ATC curve above minimum AVC. D) None of the above.
A
Which of the following is NOT one of the assumptions of a perfectly competitive market: A) Better information for producers than consumers. B) Homogeneous product. C) Free entry and exit. D) Large number of buyers and sellers.
A
Zero economic profits means: A) the firm is covering all of its opportunity costs and will stay in business. B) a firm will go out of business in the long run. C) the firm needs to increase its advertising expenditures. D) the firm needs to lower its price.
A
A perfectly competitive firm is charging $77 and selling 1475 units a month. The firm lowers its price by a nickel below the market price. Its profit: A) will not change. B) will decrease. C) will increase. D) will go to zero.
B
Accounting profits are the same as economic profits: A) True B) False
B
In a perfectly competitive market, if P > ATC in the short run, there is apt to be : A) an inward shift in the industry supply curve. B) entry of new firms into the market. C) an upward pressure on price. D) an accounting loss for existing firms.
B
The ATC curve measures the ________ and the price measures the ________: A) loss per unit; profit per unit B) cost per unit; revenue per unit C) total cost; total revenue D) profit per unit; total profit
B
The decision making process for the perfectly competitive firm boils down to: A) deciding what price to charge. B) deciding how much to produce. C) deciding when to change the price. D) deciding for whom to produce.
B
The industry supply curve is the vertical summation of all firms' average total cost curves: A) True B) False
B
The lowest profit a firm should ever make in the short run is: A) zero economic profits. B) the losses associated with the fixed costs of the firm. C) zero accounting profits. D) a normal return.
B
The perfect competitor should produce the quantity where: A) marginal cost is minimized. B) marginal revenue equals marginal cost. C) marginal cost is zero. D) marginal revenue is maximized.
B
The short-run break-even price for the perfectly competitive firm occurs where price equals: A) AFC. B) ATC. C) MR. D) AVC
B
When the perfect competitor earns less than normal profits in the long run, the firm will: A) set a new price. B) exit the industry. C) decrease production. D) increase production.
B
A perfectly competitive firm wants higher profits and has decided to raise the price of its product. As an economic consultant you would advise them to: A) do this since higher price increases total revenue, other things remaining equal. B) do not do this since competitors will match the increase in price and the firm will be no better off. C) not do this since they would lose all of their sales to competitors. D) do this, but also to lower ATC to make larger profits.
C
For a perfectly competitive firm, price: A) equals marginal revenue only. B) equals average revenue only. C) equals both average revenue and marginal revenue. D) equals average revenue, marginal revenue, and average total costs.
C
Identify which statement is NOT characteristic of a perfectly competitive industry: A) There are many buyers and sellers in the industry. B) Consumers have equal information about the prices of firms' products. C) The products differ slightly in quality from firm to firm. D) Many diners compete in a city.
C
If a firm is making zero economic profits it should: A) shut down. B) raise price. C) continue operating. D) None of the above.
C
The demand curve for the perfect competitor is horizontal because: A) the firm is a price maker. B) demand is perfectly inelastic. C) the market dictates each firm's price. D) None of the above.
C
The demand curve for the perfectly competitive firm is: A) elastic at lower output levels, then unit elastic, and then inelastic at higher output levels. B) unit elastic. C) perfectly elastic. D) perfectly inelastic.
C
The perfect competitor should produce the quantity where: A) total revenues are maximized. B) total costs are minimized. C) profits are maximized. D) All of the above.
C
The perfectly competitive firm is said to be a: A) price participant long dash— it decides the price together with other firms. B) price leader long dash— it changes its price and other firms follow. C) price taker long dash— it takes the price given by the market. D) price maker long dash— it sets market prices.
C
Identify which statement is NOT characteristic of a perfectly competitive industry: A) Many taxicabs compete in a city. B) The city's government requires all taxicabs to provide identical service. C) Taxicabs are virtually identical, and all drivers must wear a designated uniform. D) The government also limits the number of taxicab companies that can operate within the city's boundaries.
D
If a perfectly competitive firm sells the product for a profit-maximizing price of $4.76 and has average total cost per unit of $5.16, in the short run: A) this firm must hope the market price rises soon or exit the industry. B) this firm should shut down if $4.76 is less than minimum AVC. C) this firm is losing money. D) All of the above.
D
In a perfectly competitive market, if P = ATC in the long run, the firm will: A) suffer losses. B) leave the industry. C) make economic profits. D) None of the above.
D
Profits are maximized for the perfectly competitive firm when the firm produces the quantity where: A) MC = MR. B) total revenue exceeds total cost by the greatest amount. C) P = MC. D) All of the above.
D
The demand curve for the perfectly competitive industry is: A) vertical. B) horizontal. C) indeterminate without more information. D) downward sloping.
D
The short-run break-even price is the price at which: A) a firm's total revenues equal its total costs. B) marginal cost and average total cost both equal the price. C) short-run economic profits are zero. D) All of the above.
D
Suppose that a firm in a perfectly competitive industry finds that at its current output rate, marginal revenue exceeds the minimum average total cost of producing any feasible rate of output. Furthermore, the firm is producing an output rate at which marginal cost is less than the average total cost at that rate of output. Is the firm maximizing its economic profits: A) No, the marginal cost is less than the average cost, so the average cost must be declining at the output level where the firm is producing. B) Yes, marginal revenue exceeds the minimum average total cost of producing any feasible rate of output. C) It is impossible to draw a conclusion from the given information. D) No, the firm is producing where average total cost are a minimum. E) No, if the firm was maximizing its economic profits the marginal cost would not be less than the average total cost at that rate of output.
E
The demand curve for a perfect competitor is perfectly elastic at the going market price. The demand curve is also the perfect competitor's ________ revenue curve because ________ revenue is defined as the change in total revenue due to a one-unit change in output:
MARGINAL MARGINAL
A perfectly competitive firm is a price taker. It has ________ control over price and consequently has to take price as a given, but it can sell ________ that it wants at the going market price:
NO ALL