Week 6: Perfect Competition

Why are some producers forced to sell their products at the prevailing market price? a. high degree of similarity to competitor's products b. they are very small players in the overall market c. price takers find market analysis is too costly d. they can increase output without affecting quality

a

Refer to the diagram above. In this instance, at the range of output represented at point b, a. the firm is earning profits. b. total costs exceed total revenues. c. the firm should shut-down. d. total revenues exceed total costs.

b

Refer to the diagram above. In this instance, the marginal revenue curve a. is a horizontal straight line b. reflects each of the above c. is equal to the price of the good d. reflects a perfectly competitive firm

b

In order to produce 100 oatmeal cookies, GoodieCookieCo incurs an average total cost of $0.25 per cookie. The company's marginal cost is constant at $0.10 for all oatmeal cookies produced. The total cost to produce 50 oatmeal cookies is a. $50 b. $25 c. $60 d. $20

20

Economic profit can be derived from calculating total revenues minus all of the firm's costs, a. including its opportunity costs. b. excluding its opportunity costs. c. including its marginal revenue. d. excluding its marginal revenue.

a

In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect ____________ and ________________. a. marginal revenue; marginal cost b. total revenue; total cost c. total revenue; marginal cost d. marginal revenue; total cost

a

In the _____________, the perfectly competitive firm will react to profits by __________________. a. long run; increasing its production b. short run; reducing its labor inputs c. short run; increasing quality of products d. long run; tailoring their quality controls

a

Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should a. keep the business open in the short-run, but plan to go out of business in the long-run. b. keep the business open in the short-run, and plan to expand the business in the long-run. c. raise her prices above the perfectly competitive level set by the market. d. lay-off her staff, break her lease, and close the business down immediately.

a

When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is a. preparing to exit operations. b. preparing to reach its shutdown point. c. considering capital investments. d. considering opportunity costs.

a

If a firm's revenues do not cover its average variable costs, then that firm has reached its ________________. a. opportunity margin b. shutdown point c. price taking point d. marginal point

b

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice? a. what quality to produce b. what quantity to produce c. what quantity of labor is needed d. what price to charge

b

In the ______________, the perfectly competitive firm will react to losses by ______________________. a. short run; increasing physical inputs b. long run; reducing production or shutting down c. long run; increasing capital inputs d. short run; reducing production or shutting down

b

If marginal cost is rising in a competitive firm's short-run production process and its average variable cost is falling as output is increased, then a. average fixed cost is constant. b. marginal cost is below average fixed cost. c. marginal cost is below average variable cost. d. marginal cost is above average variable cost.

c

Refer to the diagram above. At the point marked m, a. price is determining production at a level where P = MC. b. price is above average cost of production. c. TR is exactly equal to TC, so profits equal zero. d. the leftover rectangle is the profit earned.

c

Refer to the diagram above. In this instance, at the range of output represented at point c, a. the shutdown point has been reached. b. capital input levels have been reduced. c. profits will be maximized. d. physical input levels have been reduced.

c

'maSolarPanelCo. manufactures and distributes solar panels in the US market. Two years ago, it had 5 US competitors, but government stimulus in the industry has encouraged 7 new US competitors to enter the market. In these circumstances, I'maSolarPanelCo.'s price for its output a. can be set by management to maximize profits. b. can be tailored to exceed the price of its inputs. c. can be tailored to meet the price of its inputs. d. is dictated by the forces of demand and supply.

d

A perfectly competitive industry is a a. realistic extreme. b. hypothetical assumption. c. realistic assumption. d. hypothetical extreme.

d

An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________. a. accounting profit; including opportunity cost b. economic profit; excluding opportunity cost c. opportunity cost; including economic profit d. accounting profit; excluding opportunity cost

d

Given the data provided in the table below, what will the amount of profit be for production at quantity (Q) level 7? a. $1.00 b. -$5.00 c. zero d. -$10.00

d

Under perfect competition, any profit-maximizing producer faces a market price equal to its a. total costs b. average costs c. variable costs d. marginal costs

d