Economics Chapter 12 Practice Questions

A perfectly competitive firm is losing money in the short​ run, and its price is less than its average variable cost. In order to minimize its losses in the short​ run, this firm should A. shut down. B. increase its level of output. C. continue producing its current level of output. D. do none of the above.

A

Profit for a perfectly competitive firm can be expressed as ...

profit = (P times Q) = (ATC times Q)

Because the price of laptops falls in the long run as output​ increases, what is true about this​ industry? A. It is no longer perfectly competitive. B. It is an​ increasing-cost industry. C. It is a​ decreasing-cost industry. D. It is a constant cost industry.

C

Suppose​ that, at the beginning of the​ year, the price of corn is​ $3.80 per bushel and 14 billion bushels are harvested. There are approximately​ 400,000 corn​ farmers, so the average output per farmer is about​ 35,000 bushels. At the beginning of the​ year, the average corn farmer produced ______ of the total corn production. ​(Enter your response rounded to five decimal​ places.)

0.00025 percent

Which of the following terms best describes the result of the forces of competition driving the market price to the minimum average cost of the typical​ firm? A. productive efficiency B. competitive markdown C. decreasing-cost industry D. allocative efficiency

A

Suppose an assistant professor of economics is earning a salary of ​$70,000 per year. One day she quits her​ job, withdraws ​$100,000 from a bank certificate of deposit​ (CD) that had been earning 4 percent per​ year, and uses the funds to open a bookstore. At the end of the​ year, she shows an accounting profit of ​$87,500 on her income tax return. What is her economic​ profit? Her economic profit for the year is ​____

13,500 dollars

An article in the Wall Street Journal discussing the financial results for bookstore chain Barnes​ & Noble during the first quarter of 2019 reported​ that, compared with the same quarter in the previous​ year, the​ firm's revenue was unchanged from​ $1.23 billion, while its profit had improved to​ $66.9 million from a loss of​ $63.5 million. ​Source: Allison​ Prang, "Barnes​ & Noble Lowers Earnings Forecast after Weak Postholiday​ Sales," Wall Street Journal​, March​ 7, 2019. It is possible for profits to increase even if revenue remains unchanged if A. costs decrease. B. output decreases. C. output increases. D. costs increase.

A

An article on forbes.com discussed a business decision by Matt​ O'Hayer, owner of Vital Farms.​ O'Hayer was one of the first poultry farmers to begin selling​ pasture-raised eggs. He committed to raising his chickens with each having 108 feet of outdoor space. According to the​ article, "It was one of many decisions he made knowing it would likely limit his​ company's growth." ​Source: Chloe​ Sorvino, "How Whole Foods Favorite Vital Farms Made​ Pasture-Raised Eggs​ Mainstream," forbes.com, May​ 31, 2018. a. In what sense did​ O'Hayer's decision to take on these additional costs of raising chickens limit his​ company's growth? A. Raising chickens in larger cages reduces the number of chickens he can raise on a given amount of land. B. Chickens raised in larger cages are less likely to be injured or killed by being pecked by other chickens. C. Chickens raised in larger cages move around more and will therefore eat less chicken feed that those raised in smaller cages. D. All of the above

A

As production of laptop displays​ increases, firms in the industry can now enjoy economies of scale. In the short​ run, makers of laptop displays will​ what? A. Be able to earn economic profit. B. Earn zero economic profit. C. Find their average total cost rising as more are produced. D. Find their price dropping.

A

Assume the market for oranges is perfectly competitive. if the demand for oranges increases, will the market supply additional oranges? If the demand for oranges increases, then the market A. will supply additional oranges because producers seek the highest return on their investments B. Will not supply additional oranges because producers are price takers C. will not supply additional oranges because consumers are not willing to pay higher prices for fruit D. will not supply additional oranges because government bureaucrats will not order additional orange production E. will not supply additional oranges because oranges produced by different sellers are differentiated

A

Discuss the shape of the​ long-run supply curve in a perfectly competitive market. The​ long-run supply curve is A. a horizontal line equal to the minimum point on the typical​ firm's average total cost curve. B. an​ upward-sloping line equal to the sum of each​ firm's supply curve. C. a horizontal line equal to the minimum point on the typical​ firm's average variable cost curve. D. an​ upward-sloping line equal to the sum of each​ firm's marginal cost curve. E. an​ upward-sloping line equal to the sum of the portion of each​ firm's marginal cost curve that is above minimum average variable cost.

A

In perfect​ competition, long-run equilibrium occurs when the economic profit is A. zero. B. positive. C. negative. D. None of the above.

A

In the figure to the​ right, Sacha Gillette reduces her output from 7500 to 5500 dozen eggs when the price falls to ​$1.80. At this price and this output​ level, she is operating at a loss. Part 2 What option does Gillette have in this​ situation? A. Try to cut her costs of production to decrease the loss in the short run. B. Raise her price back up to ​$2.05. C. Continue producing 7500 dozen eggs. D. Increase the quantity produced.

A

Question content area Part 1 A student​ argues: ​"To maximize profit​, a firm should produce the quantity where the difference between marginal revenueLOADING... and marginal cost is the greatest. If a firm produces more than this​ quantity, then the profit made on each additional unit will be​ falling." Is the above statement true or​ false? A. False. Profit is maximized at the output level where marginal revenue equals marginal cost. B. True. As​ per-unit profit​ falls, total profit falls. C. False.​ Per-unit profit increases and is maximized where marginal revenue equals marginal cost. D. True. This is where marginal profit equals marginal cost and profit is maximized.

A

Suppose you read the following item in a newspaper​ article, under the headline ​"Price Gouging Alleged in Pencil​ Market": Consumer advocacy groups charged at a press conference yesterday that there is widespread price gouging in the sale of pencils. They released a study showing that whereas the average retail price of pencils was​ $1.00, the average cost of producing pencils was only​ $0.50. "Pencils can be produced without complicated machinery or highly skilled​ workers, so there is no justification for companies charging a price that is twice what it costs them to produce the product. Pencils are too important in the life of every American for us to tolerate this sort of price gouging any​ longer," said George​ Grommet, chief spokesperson for the consumer groups. The consumer groups advocate passage of a law that would allow companies selling pencils to charge a price no more than 20 percent greater than their average cost of production. Which of the following is not likely to happen in the pencil​ market? A. Firms will charge a price above marginal cost in the long run. B. Firms will return to earning zero economic profit. C. If there are economic profits in the​ industry, there will be entry of new firms. D. In the long​ run, even without a law being​ passed, prices will be exactly equal to the average total cost of production.

A

The late Nobel​ Prize-winning economist George Stigler once​ wrote, "the most common and most important criticism of perfect competition...​ [is] that it is​ unrealistic." ​Source: George​ Stigler, "Perfect​ Competition, Historically​ Contemplated," Journal of Political Economy​, Vol.​ 55, No.​ 1, (February​ 1957), pp.​ 1-17. Despite the fact that few firms sell identical products in markets where there are no barriers to​ entry, economists believe that the model of perfect competition is important because A. it is a benchmark—a market with the maximum possible competition—that economists use to evaluate actual markets that are not perfectly competitive. B. this is the type of market that our business laws protect and promote. C. all markets eventually become perfectly competitive. D. economists prefer studying theoretical markets instead of actual markets.

A

What determines entry and exit of firms in a perfectly competitive industry in the long run? In a perfectly competitive industry in the long run, A. new firms will enter if existing firms are making a profit and existing firms will exit if they are experiencing losses B. new firms cannot enter the market due to barriers but existing firms will exit if they are experiencing losses C. new firms will enter if existing firms are making a profit and existing firms will exit if they are breaking even or experiencing losses D. new firms will enter if price is above the shutdown point and existing firms will exit if price is below the shutdown point E. new firms will enter if market demand exceeds market supply and existing firms will exit if market supply exceeds market demand.

A

What is a price​ taker? A price taker is A. a firm that is unable to affect the market price. B. a firm that does not seek to maximize profits. C. a firm with a perfectly inelastic demand curve. D. a firm with a​ downward-sloping demand curve. E. a firm that has the ability to charge a price greater than marginal cost.

A

What is the difference between a​ firm's shutdown point in the short run and its exit point in the long​ run? In the short​ run, a​ firm's shutdown point is the minimum point on the A. average variable cost​ curve, while in the long​ run, a​ firm's exit point is the minimum point on the average total cost curve. B. marginal cost curve and and in the long​ run, a​ firm's exit point is the minimum point on the marginal cost curve. C. average total cost curve and in the long​ run, a​ firm's exit point is the minimum point on the average total cost curve. D. average variable cost​ curve, while in the long​ run, a​ firm's exit point is the minimum point on the average fixed cost curve. E. average variable cost​ curve, while in the long​ run, a firm cannot exit.

A

When are firms likely to enter an​ industry? When are they likely to​ exit? Part 2 A. Economic profits attract firms to enter an​ industry, and economic losses cause firms to exit an industry. B. Firms will exit an industry when price is less than the minimum point on the average variable cost​ curve, and firms will enter an industry when price is greater than the minimum point on the average variable cost curve. C. Firms will exit an industry when price is greater than the minimum point on the average total cost​ curve, and firms will enter an industry when price is less than the minimum point on the average total cost curve. D. Firms will enter an industry when price equals marginal​ cost, but firms will exit an industry when price does not equal marginal cost. E. Accounting profits attract firms to enter an​ industry, and accounting losses cause firms to exit an industry.

A

Why do single firms in perfectly competitive markets face horizontal demand​ curves? A. With many firms selling an identical​ product, single firms have no effect on market price. B. With many​ buyers, single firms can sell as much as they want regardless of price. C. With only a few firms in the market selling an identical ​product, single firms have the ability to charge a constant price. D. With each firm facing a unique demand for its​ product, single firms have no effect on market price. E. Both a and b.

A

A buyer or seller that is unable to affect the market price is called A. an independent producer B. a price taker C. a monopoly D. a price maker

B

Can Barnes​ & Noble maximize profit without maximizing​ revenue? A. A firm can only maximize its revenue at the output level that maximizes its profit. B. A firm will typically not maximize its revenue at the output level that maximizes its profit. It a firm were to maximize​ revenue, it would typically produce a larger quantity than it does when maximizing profit. C. A firm will typically not maximize its revenue at the output level that maximizes its profit. It a firm were to maximize​ revenue, it would typically produce a smaller quantity than it does when maximizing profit. D. Most firms maximize their revenue at the output level that maximizes its profit.

B

Do all firms lose as a result of the competitive market​ process? Do all consumers​ win? A. Yes, all firms lose and all consumers win as a result of the competitive market process. B. Firms that are best able to respond to changing consumer tastes will​ win, and consumers generally win from competition because it forces firms to produce goods and services that match consumer wants at the lowest cost. C. Firms that are best able to use new technologies to reduce their costs​ win, and all​ consumers, regardless of whether they prefer products that firms no longer produce because demand​ isn't sufficient to cover their​ costs, win as well. D. Firms that are best able to use new technologies to reduce their costs​ lose, and consumers generally win from competition because it forces firms to produce goods and services that match consumer wants at the lowest cost.

B

Explain why it is true that for a firm in a perfectly competitive market that P​ = MR​ = AR. In a perfectly competitive​ market, P​ = MR​ = AR because A. firms are price makers. B. firms can sell as much output as they want at the market price. C. there are barriers to entry. D. firms face downward sloping demand curves. E. firms have market power.

B

Frances sells pencils in the perfectly competitive pencil market. Her output per day and costs are seen in the table. Part 2 a. If the current equilibrium price in the pencil market is ​$1.70​, what price will Frances​ charge? A. $2.00 B. $1.70 C. $1.05 D. $5.00

B

How is the market supply curve derived from the supply curves of individual​ firms? The market supply curve is derived A. by adding the average total cost curves for the individual firms. B. by horizontally adding the individual​ firms' supply curves. C. by vertically adding the individual​ firms' supply curves. D. by adding the individual average variable cost curves.

B

In the long run in the market for cage​-free ​eggs, we would expect A. the equilbrium price to decrease and the equilibrium quantity to​ increase, as firms exit. B. the equilbrium price to decrease and the equilibrium quantity to​ increase, as more firms enter. C. the equilbrium price to increase and the equilibrium quantity to​ increase, as more firms enter. D. the equilbrium price to decrease and the equilibrium quantity to​ decrease, as firms exit.

B

Question content area In​ 2018, a judge allowed a lawsuit alleging that Kona Brewing​ Company, which sells Kona​ beer, had misleadingly marketed Kona as if it were brewed in​ Hawaii, when it is actually brewed in​ Oregon, Washington,​ Tennessee, and New Hampshire. ​Source: Ross​ Todd, "Trouble​ Brewing: 'Kona'​ Beer-Maker Faces Certified Class of Consumers over Mainland​ Brewing," law.com, October​ 9, 2018. If the market for beer were perfectly​ competitive, the location of breweries would A. be outside the United States. B. not matter to consumers since the product would be homogeneous. C. be in the same geographic area. D. not matter to consumers since the product would be heterogeneous.

B

Suppose that the market for​ gluten-free spaghetti is in​ long-run equilibrium at a price of​ $3.50 per box and a quantity of 4 million boxes sold per year. Assume that the production of​ gluten-free spaghetti is a​ constant-cost industry. If the demand for​ gluten-free spaghetti increases​ permanently, which of the following combinations of equilibrium price and equilibrium quantity would you expect to see in the long​ run? a. A price of​ $3.50 per box and a quantity of 4 million boxes. b. A price of​ $3.50 per box and a quantity of more than 4 million boxes. c. A price of more than​ $3.50 per box and a quantity of more than 4 million boxes. d. A price of less than​ $3.50 per box and a quantity of less than 4 million boxes. A. After demand​ increases, and supply​ increases, the quantity and the price will fall below their initial levels. b. After demand​ increases, and supply​ increases, the quantity will be more than 4 million​ boxes, but the price will return to its initial level. C. After demand​ increases, and supply​ increases, the quantity and the price will be return to their initial levels. D. After demand​ increases, and supply​ increases, the quantity will be more than 4 million​ boxes, and the price will be higher than its initial level.

B

Suppose you decide to open a copy store. You rent store space​ (signing a​ one-year lease), and you take out a loan at a local bank and use the money to purchase 10 copiers. Six months​ later, a large chain opens a copy store two blocks away from yours. As a​ result, the revenue you receive from your copy​ store, while sufficient to cover the wages of your employees and the costs of paper and​ utilities, doesn't cover all of your rent and the interest and repayment costs on the loan you took out to purchase the copiers. Part 2 Should you continue operating your​ business? ​A. Yes, as long as you are making an economic profit. ​B. Yes, because you are covering your variable costs. ​C. No, because you are making negative profits. ​D. No, because your revenue​ doesn't cover your fixed costs.

B

The financial writer Andrew Tobias has described an incident when he was a student at Harvard Business​ School: Each student in the class was given large amounts of information about a particular firm and asked to determine a pricing strategy for the firm. Most of the students spent hours preparing their answers and came to class carrying many sheets of paper with their calculations. When his professor called on him in class for an​ answer, Tobias​ stated, ​"The case said the XYZ Company was in a very competitive industry . . . and the case said that the company had all the business it could​ handle." ​Source: Andrew​ Tobias, The Only Investment Guide​ You'll Ever Need​, San​ Diego: Harcourt,​ 2005, pp.​ 6-8. Part 2 Given this​ information, what price do you think Tobias argued the company should​ charge? (Tobias says the class greeted his answer with​ "thunderous applause.") A. A price below the market price. B. The market price. C. A price above the market price.

B

The increase in total revenue that results from selling one more unit of output is A. average revenue. B. marginal revenue. C. marginal cost. D. None of the above.

B

What is the relationship between a perfectly competitive​ firm's marginal cost curve and its supply​ curve? A. A​ firm's marginal cost curve is equal to its supply curve for all prices. B. A​ firm's marginal cost curve is equal to its supply curve for prices above average variable cost. C. A​ firm's marginal cost curve is equal to its supply curve for prices above average total cost. D. A​ firm's marginal cost curve is upward sloping with twice the slope of its supply curve. E. A​ firm's marginal cost and supply curves are horizontal lines equal to the market price.

B

What will happen in the laptop market in the long​ run? A. Firms will exit the market. B. Firms will enter the market. C. Prices will stay high. D. Economic profits will remain.

B

Which of the following best explains why firms​ don't maximize revenue rather than profit​? Part 2 A. Maximizing revenue is not efficient. B. At the point where revenue is​ maximized, the difference between total revenue and total cost may not be maximized. C. It is impossible to maximize revenue. D. It is easier to maximize profit than to maximize revenue.

B

Which of the following terms best describes a state of the economy in which production reflects consumer​ preferences? A. consumer equilibrium B. allocative efficiency C. productive efficiency D. socialism

B

Why are consumers so powerful in a market​ system? A. Because consumers can lobby the government to impose regulations on the businesses. B. Because it is​ consumers' demand that influences the market price and dictates what producers will supply in the market. C. Because consumer surplus is larger than producer surplus. D. Because there are more consumers than producers.

B

Will the situation the columnist is describing continue​ indefinitely? A. Yes, the situation can continue indefinitely because there are no sunk costs in the long run. B. No, because if an oil firm finds that in the long run it​ can't break even pumping oil from a​ well, it will close down the well. C. Yes, the situation​ can, and​ will, continue​ indefinitely, as long as the firm continues to cover its variable costs. D. ​No, because in the long​ run, a firm will have to cover only its variable costs.

B

​"In a perfectly competitive​ market, in the long run consumers benefit from reductions in​ costs, but firms​ don't." ​Don't firms also benefit from cost reductions because they are able to earn greater​ profits? A. Yes. When costs are​ lower, firms are able to deter entry. B. No. Because​ short-run profits encourage​ entry, firms earn zero economic profit in the long run. C. Yes.​ Short-run profits encourage entry increasing the market price. D. No. Because price is equal to marginal​ cost, firms always earn zero economic profit.

B

Discuss the shape of the​ long-run supply curve in a perfectly competitive market. Part 2 The​ long-run supply curve is Part 3 A. an​ upward-sloping line equal to the sum of the portion of each​ firm's marginal cost curve that is above minimum average variable cost. B. an​ upward-sloping line equal to the sum of each​ firm's supply curve. C. a horizontal line equal to the minimum point on the typical​ firm's average total cost curve. D. an​ upward-sloping line equal to the sum of each​ firm's marginal cost curve. E. a horizontal line equal to the minimum point on the typical​ firm's average variable cost curve.

C

Explain why it is true that for a firm in a perfectly competitive​ market, the​ profit-maximizing condition MR​ = MC is equivalent to the condition P​ = MC. When maximizing​ profits, MR​ = MC is equivalent to P​ = MC because A. the marginal cost curve for a perfectly competitive firm is horizontal. B. the demand curve for a perfectly competitive firm is horizontal but the marginal revenue curve is downward sloping. C. the marginal revenue curve for a perfectly competitive firm is the same as its demand curve. D. the marginal revenue curve and the demand curve for a perfectly competitive firm are downward sloping. E. when the marginal revenue curve is below average revenue for a perfectly competitive​ firm, it pulls the average revenue curve​ down, but when the marginal revenue curve is above average​ revenue, it pulls the average revenue curve up.

C

If a company is suffering a​ loss, why does the company remain in​ business, and why are banks willing to lend it​ money? A firm should continue to produce in the short​ run, even if it is suffering a​ loss, provided that it can cover its A. fixed costs. That banks were willing to lend these firms money indicates that they expected the firms would eventually earn large profits. B. total costs. That banks were willing to lend these firms money indicates that they expected the firms would eventually earn large profits. C. variable costs. That banks were willing to lend these firms money indicates that they expected the firms would eventually be able to at least break even. D. fixed costs. That banks were willing to lend these firms money indicates that they expected the firms would eventually be able to at least break even

C

If the market demand curve shifts to the​ right, how will a competitive​ firm's level of output​ change? A. The firm will keep its output​ constant, but its profits will increase. B. The firm will need to decrease its output and therefore suffer losses. C. The firm will increase its​ output, and its profits will increase. D. The firm will decrease its​ output, which will increase its profit.

C

In​ 2019, an article in the Wall Street Journal noted that the​ Nestlé company was facing​ "fierce competition" in the markets for its​ Nescafé coffee and KitKat chocolate bars. ​Source: Saabira​ Chaudhuri, "Nestlé's Revival Plan Starts to Pay​ Off," Wall Street Journal​, February​ 14, 2019. Does this​ "fierce competition" mean that the demand curves for​ Nescafé coffee and KitKat chocolate bars are​ horizontal? A. No.​ "Fierce competition" does not imply a horizontal demand curve because horizontal demand curves are found only in monopolistically competitive markets. B. No.​ "Fierce competition" does not imply a horizontal demand curve because the chocolate bars sold by different firms are identical. C. No.​ "Fierce competition" does not imply a horizontal demand curve because horizontal demand curves are found only in perfectly competitive markets. D. Yes.​ "Fierce competition" implies a horizontal demand curve.

C

Long-run equilibrium in perfect competition results in A. productive efficiency. B. allocative efficiency. C. Both A and B. D. Neither A nor B.

C

Question content area Part 1 In a perfectly competitive industry with increasing average​ costs, the​ long-run supply curve will be A. vertical. B. downward sloping. C. upward sloping. D. horizontal.

C

The chapter​ states, ​"Firms will supply all those goods that provide consumers with a marginal benefit at least as great as the marginal cost of producing​ them." A student objects to this statement by making the following​ argument: "I doubt that firms will really do this. After​ all, firms are in business to make a​ profit; they​ don't care about what is best for​ consumers." Part 2 After reminding the class that we are assuming a competitive​ market, your professor would most likely give the following reply. A. While​ it's true that firms​ don't care about consumer​ welfare, firms in a competitive market are bound by the law of demand to charge a price equal to marginal cost. B. While​ it's true that firms​ don't care about consumer​ welfare, they do maximize profits as long as marginal cost is less than price. C. While​ it's true that firms​ don't care about consumer​ welfare, they do maximize profits by producing the efficient level of output. D. Although producing at this point​ doesn't maximize​ profits, firms will really do this because it is production efficient to do so.

C

What is meant by productive​ efficiency? Part 5 Productive efficiency is Part 6 A. when a good or service is produced such that there is no deadweight loss. B. when a good or service is produced such that marginal cost is minimized. C. when a good or service is produced at lowest possible cost. D. when the average cost of production decreases with output. E. when​ labor, machinery, and other inputs are allocated to produce the goods and services that best satisfy consumer wants.

C

When are firms likely to be price​ takers? A firm is likely to be a price taker when A. it has market power. B. firms in the industry collude. C. it sells a product that is exactly the same as every other firm. D. it represents a substantial portion of the total market. E. barriers to entry are substantial

C

When firms exit​, A. market supply will increase​, increasing price. B. the average total cost of production will increase​, increasing price. C. market supply will decrease​, increasing price. D. the marginal cost of production will increase​, increasing price. E. market demand will decrease​, increasing price.

C

Why are firms willing to accept losses in the short run but not in the long​ run? A. Firms cannot shut down in the short run. B. It is always profitable to incur losses in the short run because profits will always arise in the long run. C. There are fixed costs in the short run but not in the long run. D. Firms are price takers in the short run but not in the long run. E. Sunk costs are larger in the long run than in the short run.

C

A columnist in the Wall Street Journal observes that​ "the highest-cost producers mining​ Canada's oil sands​ can't make profits at​ $50 but, since they have big sunk costs and little need to​ reinvest, they will keep pumping to generate​ cash." ​Source: Spencer​ Jakab, "For​ Oil, $50​ Isn't Quite the New​ $70," Wall Street Journal​, November​ 29, 2018. a. What does the columnist mean by​ "sunk costs"? Given an example of a sunk cost that the columnist is referring to. Sunk costs are A. costs that change as output changes. An example is the cost of drilling the oil wells. B. costs that remain constant as output changes. An example is labor costs. C. a nonmonetary opportunity cost. An example is the costs they incur to get the proper permits and licenses necessary to drill in a particular area. D. costs that a firm has already paid and cannot recover. An example is the costs of preparing the land for drilling

D

A student examines the graph to the right and​ argues, ​"I believe that a firm will want to produce at Q1​, not Q2. At Q1​, the distance between price and marginal cost is the greatest.​ Therefore, at Q1​, the firm will be maximizing its​ profits." Part 2 Is the​ student's argument correct or​ incorrect? A. Correct. Increasing output beyond Q Subscript 1 will decrease total profit. B. Correct. At Q Subscript 2​, the firm is making negative​ profits, while at Q Subscript 1 the firm is making positive profits. C. Incorrect. At this​ point, profits are negative. D. Incorrect. Profits are maximized at the quantity where marginal revenue equals marginal cost.

D

An economist argues that​ "the purpose of the competitive market system is to destroy businesses. The competitive market system acts like the cyborg played by Arnold Schwarzenegger in the movie The Terminator​, wiping out any firm that​ can't get out of its way. Without the destruction caused by​ competition, the economy could not achieve productive and allocative​ efficiency." a. Which of the following regarding the above statement is​ true? A. This is a fair analogy. B. In the long​ run, competition among firms in a competitive market forces firms that incur losses to shut down. C. The firms that survive are those that can produce at minimum​ long-run average cost while producing goods and services that consumers are willing and able to buy. D. All of the above.

D

As described in the chapter​ opener, the market for cage​-free eggs in 2019 was A. not in equilibrium because farmers who were raising chickens using more traditional methods were earning much higher profits than farmers who were raising​ cage-free chickens. B. in equilibrium because farmers who were raising​ cage-free chickens, and farmers who raised chickens using more traditional​ methods, had zero profits. C. not in equilibrium because farmers who were raising​ cage-free chickens were earning much higher profits than farmers who raised chickens using more traditional methods. D. moving toward​ long-run equilibrium where​ cage-free chicken farmers would break even because the profitability of selling​ cage-free eggs was​ declining, but it was not yet at this point.

D

Briefly discuss the difference between these two concepts. Part 8 A. Economic surplus is maximized with productive efficiency but not necessarily with allocative efficiency. B. Perfect competition results in productive efficiency but not necessarily allocative efficiency. C. Perfect competition results in allocative efficiency but not necessarily productive efficiency. D. Productive efficiency pertains to production within an industry while allocative efficiency pertains to production across all industries. E. Productive efficiency results in zero economic profits but allocative efficiency does not.

D

Can we tell from these observations whether the Soviet Union achieved productive efficiency in the production of​ sixth-grade textbooks, ballet​ shoes, and​ men's shoes? Briefly explain. A. The Soviet Union may or may not have achieved productive​ efficiency, depending on consumer​ well-being. B. Yes, it achieved productive efficiency because production occurred where marginal benefits were maximized. C. Yes, the country achieved productive efficiency because production represented consumer preferences. D. The Soviet Union may or may not have achieved productive​ efficiency, depending on average costs.

D

Hedrick Smith was a foreign correspondent for the New York Times who lived in the Soviet Union in the​ 1970s, a period when the country had a planned economy rather than a market system. In a book he wrote about everyday life in the Soviet​ Union, Smith made the following observations about shopping in​ Moscow: At first it seemed...that the stores were pretty well stocked. Only as we began to shop in earnest...did the Russian​ consumer's predicament really come through to me.​ First, we needed textbooks for our children...and found that the​ sixth-grade textbooks had run out.... We tried to find ballet shoes for our​ 11-year-old daughter...only to discover that in this land of​ ballerinas, ballet shoes size 8 were unavailable in Moscow.... I tried to find shoes for myself. They were out of anything in my size but sandals or​ flimsy, lightweight shoes that the​ clerk, with one look at​ me, recommended against buying.​ "They won't​ last," he admitted. ​Source: Hedrick​ Smith, The Russians​, New​ York: Ballantine​ Books, 1977, p. 77. Judging by​ Smith's observations, did the Soviet Union achieve allocative efficiency in the production of​ sixth-grade textbooks, ballet​ shoes, and​ men's shoes? Briefly explain. A. Yes, it achieved allocative efficiency because the marginal cost of production was very low. B. Yes, the Soviet Union achieved allocative efficiency because prices were very low. C. No, the Soviet Union did not achieve allocative efficiency because production did not occur at the lowest possible cost. D. No, it did not achieve allocative efficiency because the marginal benefit was greater than the marginal cost of production.

D

In a perfectly competitive industry with constant​ costs, the​ long-run supply curve will be A. downward sloping. B. vertical. C. upward sloping. D. horizontal.

D

In long=run perfectly competitive equilibrium, which of the following is false? A. economies of scale are exhausted B. there is efficient, low-cost production at the minimum efficient scale C. economic surplus is maximized D. firms earn economic profit

D

Nearly all of the companies that sell cars in the United States also sell cars in China. In​ addition, according to an article in the Wall Street Journal​, in China dozens of​ "local auto makers are kept alive by government​ support." ​Source: Trefor Moss and William​ Boston, "How​ China's Geely Turned a Disassembled Mercedes into a Global Car​ Company," Wall Street Journal​, March​ 4, 2018. We can conclude that there are more firms competing in the Chinese auto market than in the U.S. auto market. Can we also conclude that the Chinese auto market is more productively efficient than the U.S. auto​ market? More allocatively​ efficient? Having more firms competing A. guarantees both productive efficiency and allocative efficiency. B. guarantees productive efficiency but not allocative efficiency. C. does not guarantee productive efficiency or allocative efficiency. D. guarantees allocative efficiency but not productive efficiency.

D

Question content area Part 1 Economist Avinash Dixit of Princeton once​ wrote, "Never have I arrived at a coffee shop only to be​ told, 'Sorry; we​ don't have coffee​ today.' . . . How did they know I would come and why were they ready and willing to serve​ me?" ​Source: Avinash​ Dixit, ​Microeconomics: A Very Short Introduction​, New​ York: Oxford University​ Press, 2014, p. 1. Which of the following statements is​ true? A. Coffee shops are ready and willing to serve coffee to anyone willing to pay the equilibrium​ price, which is the price that will cover all of their costs—including the opportunity cost of the funds the owners have invested in the firm. B. Firms will supply to every consumer willing to pay a price equal to the​ long-run average cost of production all of a good or service the consumer wishes to purchase. C. Although the coffee shop​ doesn't know when Professor Dixit will arrive​ (or whether on a particular day he will come at​ all), the shop expects that at the current equilibrium​ price, enough buyers will be available to buy the coffee they are selling. D. All of the above.

D

Refer to the graph of the demand curve facing a firm in the perfectly competitive market for wheat. The fact that the demand curve is horizontal implies which of the​ following? A. The marginal revenue from the ​7,500 Superscript th bushel is greater than the marginal revenue from the ​3,000 Superscript th bushel. B. The firm must lower the price of wheat to increase the quantity demanded. C. The market demand for wheat is identical to the demand for wheat faced by an individual firm. D. The firm can sell any amount of output as long as it accepts the market price of​ $7.00.

D

Suppose that the laptop computer industry is perfectly competitive and that the firms that assemble laptops do not also make the displays for them. Suppose that the laptop display industry is also perfectly competitive. Suppose that because the demand for laptop displays is currently relatively​ small, firms in the laptop display industry have not been able to take advantage of all the economies of scale in laptop display production. Use this information and the graphs below to answer the following questions. What happens to the price and profit of the individual laptop produced in the short​ run? A. The price rises but profit falls in the short run. B. They both fall. C. The price falls but profit increases. D. They both rise.

D

What is the supply curve for a perfectly competitive firm in the short​ run? Part 2 The supply curve for a firm in a perfectly competitive market in the short run is Part 3 A. that​ firm's marginal revenue curve for prices at or above average variable cost. B. that​ firm's marginal cost curve. C. that​ firm's marginal cost curve for prices at or above average fixed cost. D. that​ firm's marginal cost curve for prices at or above average variable cost. E. a horizontal line equal to the market price.

D

Which of the following statements is true when the difference between TR and TC is at its maximum positive​ value? Part 2 A. MR​ = MC B. Slope of TR​ = Slope of TC C. MR​ = 0. D. Both A and B are true.

D

Which of the following statements regarding what is likely to happen to the profitability of​ O'Hayer's farm in the long run is​ true? A. In the long​ run, Vital Farms and other farms selling​ pasture-free eggs will be just breaking​ even, which means that they will be earning zero economic profit. B. Vital​ Farms' profit depends on the premium consumers are willing to pay for​ pasture-free eggs relative to eggs that have been raised in the conventional way and on the number of other farmers raising​ pasture-free eggs. C. Over​ time, we would expect that competition among farmers will result in the premium consumers pay for​ pasture-free eggs declining until it is just enough to cover the additional cost to farmers from raising eggs using​ pasture-free methods. D. All of the above.

D

Would a firm earning zero economic profit continue to​ produce, even in the long​ run? Part 2 In​ long-run competitive​ equilibrium, a firm earning zero economic profit Part 3 A. will not continue to produce because it would be better off shutting down. B. will not continue to produce because it could earn a better return in another industry. C. will not continue to produce because such profit corresponds with negative accounting profit. D. will continue to produce because such profit is as high a return as could be earned elsewhere. E. will not continue to produce because this return is not covering its opportunity costs.

D

How does perfect competition lead to allocative and productive​ efficiency? Perfect competition leads to allocative and productive efficiency A. because prices reflect consumer preferences. B. because firms are motivated by profit. C. under the direction of associations of firms. D. under the planning of government bureaucrats. E. both a and b

E

What are the three conditions for a market to be perfectly competitive? For a market to be perfectly competitive, there must be A. many buyers and one​ seller, with the firm producing a product that has no close​ substitutes, and barriers to new firms entering the market. B. many buyers and a small number of firms that​ compete, selling identical ​products, and barriers to new firms entering the market. C. many buyers and​ sellers, with firms selling similar but not identical​ products, with low barriers to new firms entering the market. D. many buyers and a few ​sellers, with all firms selling identical​ products, and no barriers to new firms entering the market. E. many buyers and​ sellers, with all firms selling identical​ products, and no barriers to new firms entering the market.

E

What is meant by allocative​ efficiency? Part 2 Allocative efficiency is when every good or service Part 3 A. is produced at lowest possible cost. B. is produced up to the point where the difference between price and marginal cost is maximized. C. is produced up to the point where price equals marginal revenue. D. produced generates an equal amount of consumer surplus and producer surplus. E. is produced up to the point where the marginal benefit for consumers equals the marginal cost of producing it.

E

Is the following statement correct or​ incorrect? ​"According to the model of perfectly competitive marketsLOADING...​, the demand for wheat should be a horizontal line. But this​ can't be​ true: When the price of wheat​ rises, the quantity of wheat demanded​ falls, and when the price of wheat​ falls, the quantity of wheat demanded rises.​ Therefore, the demand for wheat is not a horizontal​ line." Correct. The law of demand holds in all cases. Incorrect. The commentator is confusing the market demand for wheat with the demand line facing the representative firm.

Incorrect

Describe if office building construction is perfectly competitive, number of firms, type of product, and ease of entry

Perfectly competitive - no number of firms - few type of product - differentiated ease of entry - low

As of​ 2019, the U.S. Department of Agriculture​ (USDA) did not have detailed guidelines for egg farmers to follow before they could claim that the eggs they sell were laid by​ cage-free chickens. Some animal rights activists were pushing for the USDA to enact stricter guidelines than many egg farmers were following voluntarily. Such guidelines would be likely to significantly raise the cost of producing​ cage-free eggs. Suppose that the USDA begins to require these stricter guidelines. What effect will this increase in cost have on the​ long-run price of​ cage-free eggs? In the long​ run, will the quantity of​ cage-free eggs be​ larger, smaller, or the same as it would have been without the USDA adopting the​ guidelines? Briefly explain. With the stricter​ guidelines, other things​ equal, the market price of​ cage-free eggs would _____ as the minimum​ long-run average cost ______. At the new market​ price, the​ long-run equilibrium quantity will be ____.

increase, increases, smaller

how do we calculate fixed costs?

it is the amount of total costs when output is 0

If a firm decided to maximize​ revenue, would it be likely to produce a smaller or a larger quantity than if it were maximizing​ profit? The firm would produce a larger quantity of output.

larger

If the columnist is​ correct, what must be true of the relationship between these​ firms' variable costs and their revenue from selling​ oil? With large sunk​ costs, a firm will continue to operate a well only if the​ firm's total revenue from the well is _____ than the variable costs of operating the well.

larger

Describe if manufacturing automobiles are perfectly competitive, number of firms, type of product, and ease of entry

perfectly competitive - no number of firms - few type of product - differentiated ease of entry - low

Describe if sub sandwhich shops are perfectly competitive, number of firms, type of product, and ease of entry

perfectly competitive - no number of firms - many type of product - differentiated ease of entry - high

describe if tomato growing perfectly competitive, number of firms, type of product, and ease of entry

perfectly competitive - yes number of firms - many type of product - identical ease of entry - high

An article in the Wall Street Journal about companies drilling in shale oil fields notes that​ "banks have provided financing when​ [oil] producers spend more cash than they take in from​ operations." ​Source: Bradley Olson and Rebecca​ Elliott, "Frackers Face Harsh Reality as Wall Street Backs​ Away," Wall Street Journal​, February​ 24, 2019. If a company spends more to produce oil than it receives in revenue from selling the​ oil, it is_____

suffering a loss

What is the supply curve for a perfectly competitive firm in the short run? The supply curve for a firm in a perfectly competitive market in the short run is ...

that firm's marginal cost curve for prices at or above average variable cost