Econ exam 3: 2

(Table: Soybean Cost) Look at the table Soybean Cost. What is the shut-down price for this farmer?

$10

If a perfectly competitive gardening shop sells 30 evergreen bushes at $10 per bush, its marginal revenue is:

$10.

(Table: Soybean Cost) Look at the table Soybean Cost. What is the break-even price for this farmer?

$13.50

(Table: Soybean Cost) Look at the table Soybean Cost. If the market price of a bushel of soybeans is $15, what will be the farmer's short-run maximum profit?

$6

Mikail's perfectly competitive camera memory card-producing factory is making positive economic profits. If the price of memory cards is $9, if Mikail's output is 3,000 cards a month, and if his monthly average total cost is $7, what are his monthly profits?

$6,000

(Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $4, in the short run the farmer will produce _____ bushels of corn and earn an economic _____ equal to _____.

0; loss; total fixed costs

(Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $10, then in the short run the farmer will produce _____ bushels of corn and take an economic loss equal to _____.

3; total fixed costs

(Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $14, in the short run, the farmer will produce _____ of corn and earn an economic _____ equal to _____.

4 bushels; profit; $0

(Table: Soybean Cost) Look at the table Soybean Cost. If the market price of a bushel of soybeans is $15, how many bushels will the farmer produce to maximize short-run profit?

5

The lowest point on a perfectly competitive firm's short-run supply curve corresponds to the minimum point on the _____ curve.

AVC

Which of the following is TRUE?

If price falls below average variable cost, the firm will shut down in the short run.

Consider a perfectly competitive firm in the short run. Assume that it is sustaining economic losses but continues to produce at the profit-maximizing (loss-minimizing) output. Which statement is FALSE?

Marginal cost is less than average variable cost.

In the short run, a perfectly competitive firm produces output and earns ZERO economic profit if:

P=ATC.

Which of the following is MOST likely to cause firms to exit a perfectly competitive industry?

Consumer income falls.

Which of the following is NOT a characteristic of a perfectly competitive industry?

There are many firms.

Which of the following statements is NOT characteristic of perfect competition?

There are many producers; one firm has a 25% market share, and all of the remaining firms have a market share of less than 2% each.

Which of the following is TRUE?

Total economic profit is per-unit profit times quantity.

In perfectly competitive long-run equilibrium:

all firms produce at the minimum point of their average total cost curves.

A perfectly competitive industry is said to be efficient because the:

average total cost of production of the industry's output is minimized.

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, the typical firm is likely to:

earn an economic profit.

People in the eastern part of Beirut are prevented by border guards from traveling to the western part of Beirut to shop for or sell food. This situation violates the perfect competition assumption of:

ease of entry and exit.

Suppose that the market for haircuts in a community is a perfectly competitive constant-cost industry and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the long run, firms will _____ the market, driving the price of haircuts _____ and the profits of individual firms _____.

enter; down; back to zero

Economic profits in a perfectly competitive industry encourage firms to _____ the industry, and losses encourage firms to _____ the industry.

enter; exit

Marginal revenue:

equals the market price in perfect competition.

If firms are making positive economic profits in the short run, then in the long run:

firms will enter the industry.

Marginal revenue is a firm's:

increase in total revenue when it sells an additional unit of output.

(Figure: Costs and Profits for Tomato Producers) Look at the figure Costs and Profits for Tomato Producers. The market for tomatoes is perfectly competitive. The market price of a bushel of tomatoes is $18. If the market price increases to $20, the farmer's marginal revenue _____ and the profit-maximizing output _____.

increases; increases

A curve that shows the quantity of a good or service supplied at various prices after all long-run adjustments to a price change have been completed is a long-run _____ curve.

industry supply

In perfect competition, the assumption of easy entry and exit implies that in the _____ run all firms in the industry will earn _____ economic profits.

long; zero

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

marginal cost curve above its average variable cost curve.

A perfectly competitive firm will maximize profits when the:

marginal revenue equals marginal cost.

In the model of perfect competition:

no individual or firm has enough power to affect price.

The competitive model assumes all of the following EXCEPT:

patents and copyrights that serve as barriers to entry into the industry.

The demand curve for a perfectly competitive firm is:

perfectly elastic.

A perfectly competitive firm is a:

price taker.

If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

produce at a profit.

The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost of $38, marginal cost of $30, and average variable cost of $30. Our firm should:

produce more guidebooks, because the next guidebook produced increases profit by $5.

(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P3, the firm will produce quantity _____ and _____ in the short run. A) q2; make a profit

q2; incur a loss

(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P4, the firm will produce quantity _____ and _____ in the short run.

q4; break even

(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is less than P2, the firm will _____ in the short run.

shut down

A perfectly competitive small organic farm produces 1,000 cauliflower heads in the short run. Its ATC = $6 and AFC = $2. The market price is $3 per head and is equal to MC. To maximize profits or minimize losses, this farm should:

shut down.

If a Florida strawberry wholesaler operates in a perfectly competitive market, that wholesaler will have a _____ share of the market, and consumers will consider her strawberries and her competitors' strawberries to be _____. Therefore, _____ advertising will take place in this market.

small; standardized; little or no

The perfectly competitive model assumes all of the following EXCEPT:

that firms attempt to maximize their total revenue.

The break-even price for a perfectly competitive firm is equal to:

the minimum value of average total cost.

During the summer, Alex runs a mowing service, and lawn mowing is a perfectly competitive industry. In the short run, Alex will shut down if:

the total revenues can't cover variable costs.

(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P4:

there will be economic profits and firms will enter the industry in the long run.

Zoe's Bakery determines that P < ATC and P > AVC. In the short run, Zoe should:

continue to operate even though she is taking an economic loss.

Zoe's Bakery operates in a perfectly competitive industry and has standard cost curves. The variable costs at Zoe's Bakery increase, so all of the cost curves (except fixed cost) shift upward. The demand for Zoe's pastries does not change, nor does the firm shut down. To maximize profits after the variable cost increase, Zoe's Bakery will _____ its price and _____ its level of production.

do nothing to; decrease

In a perfectly competitive industry, the market demand curve is usually:

downward-sloping.