Chapter 28
In the above figure, what is the price the firm receives if the output is 8?
$10
In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm total revenue is
$100.
Refer to the above table. The table represents information on the costs for Ajax Corporation. Ajax operates in a perfectly competitive market and the price of the product is $7. What will be the value of total revenue when quantity sold equals 2?
$14
Refer to the above table. The table represents information on the costs for Ajax Corporation. Ajax operates in a perfectly competitive market and the price of the product is $9. What does profit equal when quantity equals 3?
$6
Refer to the above table. The table represents information on the costs for Ajax Corporation. Ajax operates in a perfectly competitive market and the price of the product is $9. What does profit equal when quantity equals 4?
$6
In the above figure, at the profit-maximizing rate of production for the perfectly competitive firm average total cost is
$7
Refer to the above table. The table represents information on the costs for Ajax Corporation. Ajax operates in a perfectly competitive market and the price of the product is $7. What does profit equal when quantity equals 2?
-$2
In the above figure, what is the profit-maximizing output and price?
10, $10
In the above figure, if the firm is facing demand curve d2, then to maximize profits it will produce at output level
B.
Using the above figure, the price facing the perfectly competitive firm in the long run will be
P3.
What is always true about the short-run equilibrium position for a firm in perfect competition?
MR = MC = P = AR
If a firm is earning short-run economic profits shown in the above figure, in the long run
firms enter the industry, the market supply curve shifts rightward, and the market price falls.
Under perfect competition, the firm must decide
the best rate of output it should produce.
Marginal revenue equals
the change in total revenue from selling one more unit
Perfectly competitive markets are efficient because
the cost to society for producing the goods is exactly equal to the value that society places on the good.
If an industry's long-run per-unit costs are constant as its output increases then
the firm is most likely a constant-cost industry
If an industry's long-run per-unit costs increase as its output increases then
the firm is most likely an increasing-cost industry.
If a perfectly competitive firm is producing at an output at which marginal cost exceeds marginal revenue,
the firm should reduce production.
A perfectly competitive industry's market or "going" price is established by
the forces of supply and demand
Under perfect competition, the demand curve facing the firm is determined by
the intersection of the industry demand and supply curves.
The short-run industry supply curve slopes up because
the law of diminishing marginal product applies in the short run.
When price equals marginal cost
the marginal benefits of consuming an extra unit of the good exactly equals the marginal cost to society of producing the good.
Which of the following is closest to a perfectly competitive market?
the market for broccoli
The perfectly competitive seller's short-run supply curve is
the part of its marginal cost curve above the average variable cost curve.
Which of the following is the best example of a decreasing-cost industry?
the personal computer industry
The rate of production at which marginal revenue equals marginal cost is
the point where profits are maximized
The short-run break-even price is
the price at which a firm's total revenues equal its total costs.
A firm earning economic losses should operate in the short run as long as
the price per unit sold is greater than the average variable cost per unit produced.
Competitive pricing is efficient because
the price that consumers pay reflects the opportunity cost to society of producing the good.
A firm in a perfectly competitive market maximizes profits when it finds
the quantity at which total revenue minus total cost is the greatest
In a perfectly competitive market, the average revenue curve of a firm is
the same as its demand curve.
In the short run, the price at which a firm's total revenues equal its total costs is
the short-run break-even point.
A perfectly competitive firm will not earn an economic profit in the long run, because
there are no barriers to entry into the industry.
Malfeasance at Enron, a Houston-based energy firm, led to overstatement of revenues by almost $92 billion. As Enron closed its operations, U.S. energy prices remained stable. This may have been evidence that
there is a competitive market in energy distribution in the United States.
A company finds that at its present level of production, MC = AVC at $15, MC = ATC at $20, and MC = MR at $17. Your advice to the firm regarding its short-run operations is
to continue production at a loss.
A situation in which the price charged is greater than society's opportunity cost would lead to
too little being produced
In a perfectly competitive market, if P > MC, then
too little output is being produced.
In a perfectly competitive market, if P < MC, then
too much output is being produced
A firm that shuts down in the short run experiences losses equal to
total fixed costs.
A firm that shuts down in the short run experiences losses equal to its
total fixed costs.
Refer to the above figure. Line C in Panel B does not represent
total revenue
The total amount received from the sale of output is
total revenue.
Factors that cause the short-run supply curve to change are factors that affect
variable costs.
Refer to the above figure. Profits will be negative
when the price is below $2.
If markets are perfectly competitive, then the production of goods
will use the least costly combination of resources.
If price is below average variable costs at all rates of output, the quantity supplied by a perfectly competitive firm will equal
zero
A perfectly competitive firm faces a market clearing price of $150 per unit. Average total costs are at the minimum value of $200 per unit at an output rate of 100 units. Average variable costs are at the minimum value of $100 per unit at an output rate of 50 units. Marginal cost equals $150 per unit at an output rate of 75 units. It can be concluded that the short-run profit-maximizing output rate is
75 units, at which the firm earns negative economic profits per unit sold.
Which of the following could generate economic profits for perfectly competitive firms in the short run, if they initially earn zero economic profits?
A decrease in input prices
In the above figure, the firm will shut down if quantity falls below
A.
The break-even price for a perfectly competitive firm is the price that is equal to
ATC.
The short-run shutdown price occurs where price equals
AVC at the minimum point.
The perfectly competitive firm's total revenue curve
All of these
Which of the following is true in perfect competition at long-run equilibrium?
All of these
The firm in the above figure breaks even when quantity is
C.
Refer to the above figure. If the market price is equal to A, which statement can be made about economic profits?
Economic profits are positive and equal to ABCG.
Which of the following is NOT a characteristic of a perfectly competitive long-run equilibrium?
Firms are producing on the downward sloping portions of their short-run average cost curves.
In reference to the long-run firm competitive equilibrium diagram, which of the following statements is INCORRECT?
In the long run, this firm must be part of a constant-cost industry, because its marginal revenue curve is perfectly elastic
In reference to the long-run firm competitive equilibrium diagram, which of the following statements is INCORRECT?
In the long run, this firm must be part of a constant-cost industry, because its marginal revenue curve is perfectly elastic.
Which of the following is NOT a characteristic of a perfectly competitive market?
It is difficult for a firm to enter or leave the market
Firms in a perfectly competitive industry are producing goods efficiently in the long run if each is producing at the minimum point of the
LAC curve.
Which of the following is NOT correct for a perfectly competitive firm in long-run equilibrium?
MC = MR > LAC
The short-run supply curve for a perfectly competitive firm is the portion of its
MC curve above its AVC curve.
The short-run supply curve for the perfectly competitive firm is the portion of its
MC curve above the AVC curve.
Assuming fixed factor prices, the short-run industry supply curve for a perfectly competitive industry is equal to the sum of the
MC curves above minimum AVC
In the above figure, assuming Firm 1 and Firm 2 are the sole producers in the industry, the industry quantity supplied at price P2 is equal to
Q1 + Q3.
A firm is currently producing at the point where MC = MR. The situation for the firm at this point is P = $5, Q = 100, ATC = $6, AVC = $5.50. What do you recommend this firm do?
Shut down, because AVC > P.
Which of the following statements is not true for a perfectly competitive firm
The firm can influence its demand curve by advertising its product
Which of the following statements is not true for a perfectly competitive firm?
The firm can influence its demand curve by advertising its product
Suppose that at the current level of output, price = $10, MC = $14, AVC = $7, and ATC = $9. Which of the following is true?
The firm should decrease output.
Suppose that at the current level of output, price = $10, MC = $4, AVC = $7, and ATC = $11. Which of the following is true?
The firm should increase output.
Suppose that at the current level of output, price = $10, MC = $10, AVC = $7, and ATC = $9. Which of the following is true?
The firm should maintain the current level of output.
Which of the following statements is correct?
The market demand curve of the perfectly competitive industry is downward sloping while the demand curve of an individual firm is horizontal with a height equal to the product price
Which of the following is NOT true for a perfectly competitive firm in the long run?
The market demand curve of the perfectly competitive industry is downward sloping while the demand curve of an individual firm is horizontal with a height equal to the product price.
Which of the following is NOT correct concerning perfectly competitive firms in the long run?
The opportunity cost of capital is zero.
For a perfectly competitive firm, which of the following is NOT true?
The total revenue curve is horizontal.
Which of the following is NOT a characteristic of perfect competition?
There are substantial barriers to entry into the industry.
In the short run, which of the following is FALSE about the shutdown point?
Total revenue is equal to total fixed cost.
A perfectly elastic long-run supply curve indicates
a constant-cost industry.
Consider an industry that is in long-run equilibrium. An increase in demand leads to a decrease in the price of the good. We know that this is
a decreasing cost industry.
If an industry's long-run supply curve slopes downward, then the industry is
a decreasing-cost industry.
If the long-run supply curve slopes downward, we know that this is
a decreasing-cost industry.
A decreasing-cost industry will have
a downward sloping supply curve in the long run.
Being a price taker essentially means
a firm cannot influence the market price.
A constant-cost industry will have
a perfectly elastic long-run supply curve
Firms in a perfectly competitive industry are earning economic losses. This is
a signal to entrepreneurs that some of the firms in the industry should exit and the resources of these firms should move into production of other goods
The perfectly competitive firm's demand curve has
a slope of 0.
Market signals
are ways of conveying information
Refer to the above figure. The firm's short-run shutdown price is
at $1.
Under what condition are profits maximized?
at the rate of output at which marginal revenue equals marginal cost
The equation TR/Q is used to compute
average revenue
The demand curve for a perfectly competitive industry is
downward sloping.
In a perfectly competitive market structure any firm can enter or leave the industry without serious impediments. This implies
firms will move labor and capital in pursuit of profit-making opportunities to whatever business venture gives them the highest return on their investment.
Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $8.00; AVC = $5.00; MC = $8.00; MR = $9.00. The firm should
increase output
A firm that has negative economic profits has accounting profits that are
indeterminate without more information.
Clothing retailers have faced greater competition in recent years as more firms have entered the clothing market. Some of the competition has come from foreign competitors, but much of it is domestic competition. As a result there is much competition in markets for many types of clothing and
individual buyers and sellers cannot affect the market price because it is determined by the market forces of demand and supply
In a perfectly competitive industry, the industry demand curve
is downward sloping
The owner of a perfectly competitive firm that is earning economic losses in the short run
is earning less than he would if he worked for someone else
Below the short-run shutdown price, the firm
is earning negative economic profits.
At the short-run break-even price, the firm
is making a normal rate of return on its capital investment
For a perfectly competitive firm facing the short-run break-even price
it has an economic profit of zero.
For a perfectly competitive firm facing the short-run break-even price,
it has an economic profit of zero.
The perfectly competitive firm maximizes profits when
it produces and sells the quantity at which marginal revenue and marginal cost are equal.
If a firm in a perfectly competitive market raises its price,
it will sell nothing.
The value of total output decreases when labor leaves one industry and goes to another and capital leaves the second industry and goes to the first. This indicates that
it would be efficient to return to the first situation
When a firm is operating at an output rate at which total revenue equal total costs, this is called
its breakeven point.
The demand curve for a perfectly competitive firm is horizontal because
its production decisions cannot influence the market price.
The perfectly competitive firm cannot influence the market price because
its production is too small to affect the market.
In a decreasing-cost industry, an increase in industry output will
lead to a lower market price
A perfectly competitive industry's market price is found by
locating the intersection of the market demand and market supply curves.
Under perfect competition, a firm that sets its price slightly above the market price would
lose all of its customers.
Perfect competition is characterized by
many buyers and sellers
A perfectly competitive firm will maximize profits when
marginal cost is equal to marginal revenue.
A situation in which the price charged is equal to society's opportunity cost is known as
marginal cost pricing.
The opportunity cost to society of producing one more unit of the good is
marginal cost.
For a perfectly competitive firm, profit maximization occurs when
marginal revenue equals marginal cost.
The change in total revenues resulting from a change in output of one unit is
marginal revenue.
Economic profits are maximized at the point at which
marginal revenues equal marginal costs
Suppose the perfectly competitive equilibrium occurs such that too many units of the good are produced. This is an example of
market failure.
The goal of the perfectly competitive firm is to
maximize total profits.
The short-run shutdown price for a perfectly competitive firm is where price equals
minimum AVC
The total revenue of a perfectly competitive firm is calculated by
multiplying price by quantity.
A firm's total explicit costs are $1,000. Its total implicit costs are $500, and it has a total revenue of $900. This firm receives
neither an economic profit nor an accounting profit.
When economic profits in a perfectly competitive industry are positive
new firms will be attracted to the industry, and economic profits will decline to zero.
In a perfectly competitive industry
no buyer or seller can influence the market price.
When there are large numbers of buyers and sellers, then
no one buyer or seller has any influence on price.
Refer to the above figure. Profits for this firm are equal to zero
only at points B and C.
If a constant-cost, perfectly competitive industry experiences an increase in the demand for its product, we would expect
only the quantity supplied of the product to increase.
The exiting of firms from a perfectly competitive industry occurs when
opportunity costs cannot be covered.
A market structure in which the decisions of individual buyers and sellers have no effect on market price is
perfect competition.
The demand curve for a perfectly competitive firm is
perfectly elastic
The demand curve for the product of a perfectly competitive firm is
perfectly elastic.
A firm that has positive economic profits has accounting profits that are
positive.
If a perfectly competitive industry is in long-run equilibrium, then
price equals average cost
The firm in a perfectly competitive industry is a
price taker.
All firms in a perfect competition industry
produce identical products
In the above figure, if the market price is less than $7, the firm
produces 0 units.
In the above figure, if the market price is $10, the firm
produces 10 units
All of the following are characteristics of perfect competition EXCEPT
product differentiation
The vertical distance between the horizontal axis and any point on a perfect competitor's demand curve measures
product price, marginal revenue, and average revenue.
The rate of production that maximizes the positive difference between total revenues and total costs is the
profit-maximizing rate of production
When MR < MC for a firm, the firm should
reduce its level of output.
If a perfect competitor faces P = ATC in the long run, the firm will
remain in the industry.
For a firm in a perfectly competitive industry,
short-run economic profits may be positive, but long-run economic profits must be zero
For a firm in a perfectly competitive industry
short-run economic profits may be positive, but long-run economic profits must be zero.
When price is greater than both marginal cost and average variable cost, the perfectly competitive firm
should increase its level of output.
If a firm is producing an output rate at which marginal cost is greater than price, the firm
should reduce its output level.
If AVC is $6 when P = MC, a firm
should shut down if price is less than $6
A firm is currently producing at the rate of output at which total revenues just cover its total variable costs. If demand falls, the firm should
shut down
Suppose a perfectly competitive firm can produce 20,000 bushels of corn a year at an output at which marginal cost equals marginal revenue. The market price of corn per bushel is $1.00. The firm's total costs per year are $50,000 and fixed costs per year are $25,000. In the short run, this firm should
shut down
Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $6.00; AVC = $4.00; MC = $3.50; MR = $3.50. The firm should
shut down
A firm is currently producing an output at which price equals the minimum point on the average variable cost curve. If wage rates increase, the firm will
shut down since it would no longer be covering its variable costs.
In the above figure, when price is below E, this firm should
shut down.
The demand curve faced by a perfectly competitive industry
slopes downward.
Perfect competition is a market structure
in which individual buyers and sellers have no effect on the market price.
Refer to the above figure. Which panel represents the long-run supply curve for a constant cost industry?
Panel A.
Refer to the above figure. Which panel represents the long-run supply curve for an increasing cost industry?
Panel C.
Refer to the above figure. If the market price is equal to A, which statement can be made about profits?
Profits are negative and equal to BCEA.
According to the above figure, if the firm is earning zero economic profits, what quantity is the firm selling and at what price?
Q = 1,000; P = $5
In an increasing-cost industry, an increase in output will lead to
an increase in long-run per-unit costs.
In a perfectly competitive industry, which of the following is a market signal to resource owners?
Economic profits
Refer to the above table. If the price is $3, the perfectly competitive firm should produce
102 units
Refer to the above figure. If the market price is equal to A, which statement can be made about economic profits?
104 units
Refer to the above table. If the price is $5, the perfectly competitive firm should produce
104 units.
Refer to the above table. This firm operates in a perfectly competitive market in which the market price is $10 per unit. What is its profit-maximizing rate of production?
106 units
In the above figure, at which output level is this firm earning negative economic profits?
2
What is the shape of the long-run supply curve in a decreasing-cost industry?
Downward sloping
Referring to the diagram, which of the following statements is INCORRECT?
If the individual firm raises its price, it will capture all sales in the market
In the above figure, what happens to the firm's optimal level of output if the price it receives for its product decreases from P4 to P3?
Output decreases.
In the short run, in a perfectly competitive market, a firm will shut down if
P < AVC for all levels of output.
The shutdown rule for a firm in a perfectly competitive industry is that the firm should cease production if
P < AVC.
For a perfectly competitive firm at its long-run competitive equilibrium point,
P = AR = MR = LATC = SATC = MC
When a firm is earning zero economic profits
P = ATC.
In a long-run perfectly competitive equilibrium
P = MR = MC = ATC.
In a long-run perfectly competitive equilibrium,
P = MR = MC = ATC.
Which of the following is always true for a perfectly competitive firm?
P = d = MR
Which of the following is always true in the short run for a perfectly competitive firm that is maximizing economic profits?
P = d = MR = MC
Using the above figure, the short-run break-even price for the perfectly competitive firm will be
P3.
Using the above figure, the perfectly competitive firm in the diagram will earn an economic profit if the market price is
P4.
Consider an industry that is in long-run equilibrium. An increase in demand leads to an increase in the price of the good. We know that this is
an increasing cost industry.
An increasing-cost industry will have
an upward sloping supply curve in the long run
A firm's total explicit costs are $1,000. Its total implicit costs are $500, and it has a total revenue of $2000. This firm receives
both an economic profit and an accounting profit.
In the long run, all firms in a perfectly competitive industry
break even.
A perfectly competitive firm is maximizing profits in the short run. This implies that the firm is earning the most economic profits possible, which
can be positive, negative, or zero
A price taker is a firm that
cannot influence the market price.
Refer to the above figure. If an individual firm wants to maximize economic profits, it should
charge $5 for its product
Signals are
compact ways of conveying to economic decision makers information needed to identify industries where more resources are needed
A company finds that at the output level at which marginal cost equals marginal revenue, TC = $500, TVC = $400, and TR = $450. Your advice to the firm is
continue to produce because loss is less than TFC.
If marginal revenue is less than marginal cost, the firm should
decrease its rate of outpu
Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $12.00; AVC = $8.00; MC = $12.00; MR = $10.00. The firm should
decrease output.
An industry in which an increase in output leads to a reduction in long-run per-unit costs is a(n)
decreasing-cost industry.
In the above figure, if price is equal to P4, the firm will
earn positive economic profits.
In the long run, the perfectly competitive firm
earns only a normal profit
When a perfectly competitive firm experiences zero economic profits,
firms have no incentive to exit or enter the industry.
Along an industry's long-run supply curve,
economic profits are zero.
When a firm is at its short-run break-even point
economic profits equal zero and the firm is earning a nominal rate of return on investment.
When a firm is at its short-run break-even point,
economic profits equal zero and the firm is earning a nominal rate of return on investment.
In the long run in a perfectly competitive industry
economic profits will be zero.
In a perfectly competitive market, if P > ATC in the short run, there is apt to be
entry of new firms into the market
When demand is perfectly elastic, marginal revenue is
equal to price.
For the perfectly competitive firm, price
equals average revenue and marginal revenue.
In the long run when a perfectly competitive firm experiences negative economic profits,
existing firms exit the industry.
When considering perfect competition the absence of entry barriers implies that
firms can enter and leave the industry without serious impediments.
In the long run when a perfectly competitive firm experiences positive economic profits,
firms enter the industry, the market supply curve shifts rightward, and the market price falls
A constant-cost industry
has a horizontal long-run supply curve.
In a perfectly competitive industry, any restrictions that prevent new firms from entering
hinder economic efficiency
A perfectly competitive market has
homogeneous products
A perfectly competitive producer faces a demand curve for its own product that is
horizontal.
The market demand curve in perfect competition is found by
horizontally summing the demand curves of the individual consumers.
