ECH Chapter 12 quiz

Reference: Ref 12-14 (Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a Perfectly Competitive Firm. If the market price is $3.50, the profit-maximizing output is _____ units.

7

The short-run individual supply curve for a perfectly competitive firm is given by the marginal cost curve above minimum average fixed cost.

True

Reference: Ref 12-9 (Figure: Marginal Decision Rule) Look at the figure The Marginal Decision Rule. If P1 is the market price and if this firm is maximizing profit, it should produce:

at quantity q2.

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

Products are differentiated.

The short-run industry supply curve is the sum of the marginal cost curves above average variable cost for all of the firms in the industry, assuming that the number of firms is constant.

True

In perfect competition:

a firm's total revenue is found by multiplying the market price by the firm's quantity of output.

Tony runs Read Economic Reports. If Tony finds that the cost of completing an additional report is $100 and someone offers him $125 to complete this additional report, Tony should:

complete the additional report.

A perfectly competitive firm will not produce any output in the short run and will shut down if the price is:

less than average variable cost.

When a firm produces at an output level at which MR = MC, it is operating at the _____ level.

optimal output

The competitive model assumes all of the following EXCEPT:

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

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 market price will _____ and the output of a typical firm will _____.

rise; rise

If a perfectly competitive firm is producing a quantity where P > MC, then the firm can increase profit by:

increasing production.

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, that the price of each candy cane is $0.10, and that the market demand curve is downward-sloping. The price of sugar rises, increasing the marginal and average total costs of producing candy canes by $0.05. In the short run a typical producer of candy canes will be making:

negative economic profit.

A perfectly competitive firm's marginal cost curve above the average variable cost curve is its _____ curve.

short-run supply

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

If a California avocado stand operates in a perfectly competitive market, that stand owner will be a price:

taker

Reference: Ref 12-9 (Figure: Marginal Decision Rule) Look at the figure The Marginal Decision Rule. To the left of point C (e.g., at q1):

the firm is not maximizing profits.

A firm's total output times the price at which it sells that output is _____ revenue.

total

Reference: Ref 12-14 (Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a Perfectly Competitive Firm. If the market price is $4.50, profit at the profit-maximizing quantity of output is:

$2.00.

Reference: Ref 12-14 (Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a Perfectly Competitive Firm. The firm will stop production and shut down if the price is:

$2.50.

Reference: Ref 12-20 (Table: Cherry Farm) Look at the table Cherry Farm. Which of the following is a point on the industry short-run supply curve?

$2; 300 pounds

Reference: Ref 12-24 (Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for the mower. His variable costs include fuel, his time, and mower parts. If the price for mowing a lawn is $70, how much is Alex's profit at the profit-maximizing output?

$700

Reference: Ref 12-15 (Figure: Perfectly Competitive Firm) Look at the figure The Perfectly Competitive Firm. The figure shows a perfectly competitive firm that faces demand curve d maximizes profit. Given the market price, the firm's total revenue per day is:

$900.

Reference: Ref 12-6 (Figure: Revenues, Costs, and Profits for Tomato Producers) Look at the figure Revenues, Costs, and Profits for Tomato Producers. The market for tomatoes is perfectly competitive. The market price of a bushel of tomatoes is $18. At the profit-maximizing quantity of output in the figure, the farmer's total revenue is _____, total cost is _____, and profit is _____.

$90; $70; $20

Reference: Ref 12-21 (Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at football games in a perfectly competitive market. His costs are identical to the costs of the other 9 vendors. If the price of a shirt is $6, the short-run industry supply will be _____ shirts.

0

(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

Reference: Ref 12-21 (Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at football games in a perfectly competitive market. His costs are identical to the costs of the other 9 vendors. If the price of a shirt is $9, the short-run industry supply will be _____ shirts.

200

Reference: Ref 12-21 (Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at football games in a perfectly competitive market. His costs are identical to the costs of the other 9 vendors. If the industry is in long-run equilibrium, how many shirts will each vendor sell?

22

Reference: Ref 12-15 (Figure: Perfectly Competitive Firm) Look at the figure The Perfectly Competitive Firm. The figure shows a perfectly competitive firm that faces demand curve d and maximizes profit. If the market price is $3, the firm will produce _____ units of output per day.

300

Reference: Ref 12-3 (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

Reference: Ref 12-10 (Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. N is the _____ curve.

ATC

Reference: Ref 12-10 (Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm. O is the _____ curve.

AVC

In the short run, a perfectly competitive firm produces output and incurs an economic loss if:

AVC < P < ATC.

_____ almost always take the market price as given—that is, are considered _____—but this is often not true of _____.

Consumers and producers; price takers; firms that produce a differentiated product

A perfectly competitive firm's supply curve is its marginal cost curve above the average variable cost curve.

True

Reference: Ref 12-10 (Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. M is the _____ curve.

MC

Assume that in the short run a perfectly competitive firm does not produce output and has economic losses. This occurs at the quantity where MR = MC and:

P < AVC and FC > 0.

Reference: Ref 12-24 (Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for the mower. His variable costs include fuel, his time, and mower parts. Which of the following is a point on the industry short-run supply curve?

P = $70; Q = 5,000.

Which of the following is TRUE?

Price and marginal revenue are the same in perfect competition.

Reference: Ref 12-27 (Figure: The Perfectly Competitive Firm II) Look at the figure The Perfectly Competitive Firm II. If this firm's MR curve is MR2, then this firm's optimal output is _____ units of output and its economic profit will be _____.

Q2; negative

In the long run, firms will leave an industry if the market price is consistently less than their break-even price.

True

The short-run industry supply curve is the sum of the individual supply curves of all of the firms in the industry, given a fixed number of firms.

True

When perfect competition prevails, which of the following characteristics of firms are we likely to observe?

They are all price takers.

In perfect competition, _____ are _____, and _____ are price takers.

all goods; standardized; all market participants

If all firms in an industry are price takers:

an individual firm cannot alter the market price even if it doubles its output.

A firm's shut-down point is the minimum value of:

average variable cost.

If a perfectly competitive firm is producing a quantity where MC > MR, then profit:

can be increased by decreasing production.

If a perfectly competitive firm is producing a quantity where P < MC, then profit:

can be increased by decreasing production.

Reference: Ref 12-9 (Figure: Marginal Decision Rule) Look at the figure The Marginal Decision Rule. Economic profit:

cannot be determined from the information provided.

Reference: Ref 12-8 (Figure: Revenues, Costs, and Profits for Tomato Producers III) Look at the figure Revenues, Costs, and Profits for Tomato Producers III. The market for tomatoes is perfectly competitive. If the market price of a bushel of tomatoes is $18, this farm will:

earn an economic profit.

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.

Reference: Ref 12-20 (Table: Cherry Farm) Look at the table Cherry Farm. If the price is $6 per pound:

firms will enter the industry.

Reference: Ref 12-21 (Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at football games in a perfectly competitive market. His costs are identical to the costs of the other 9 vendors. If the price of a shirt is $14, in the long run:

firms will enter the industry.

Firms will make a profit in the long run or short run if the price is:

greater than ATC.

In perfectly competitive markets, if the price is _____, the firm will _____.

greater than ATC; make an economic profit

A competitive firm operating in the short run is maximizing profits and just breaking even. Its costs include a monthly state license fee of $100 that must be paid for as long as the firm operates. If the license fee is raised to $150, what should the firm do to maximize profits in the short run?

not change output

A perfectly competitive firm is a:

price taker.

Individuals in a market who must take the market price as given are:

price takers.

In the short run, if P = ATC, a perfectly competitive firm:

produces output and earns zero economic profit.

In the short run, if AVC < P < ATC, a perfectly competitive firm:

produces output and incurs an economic loss.

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, that the price of each candy cane is $0.10, and that the market demand curve is downward-sloping. The price of sugar rises, increasing the marginal and average total cost of producing candy canes by $0.05; there are no other changes in production costs. Once all of the adjustments to long-run equilibrium have been made, the price of candy canes will equal:

$0.15.

Reference: Ref 12-21 (Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at football games in a perfectly competitive market. His costs are identical to the costs of the other 9 vendors. When the industry is in long-run equilibrium, the price of each shirt will be _____, and the total quantity supplied will be _____.

$11; 220

Reference: Ref 12-24 (Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for the mower. His variable costs include fuel, his time, and mower parts. If the price for mowing a lawn is $70, how much is Alex's profit per unit at the profit-maximizing output?

$14

Reference: Ref 12-24 (Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for the mower. His variable costs include fuel, his time, and mower parts. If the price for mowing a lawn is $70, how much is Alex's total cost at the profit-maximizing output?

$2,800

Reference: Ref 12-15 (Figure: Perfectly Competitive Firm) Look at the figure The Perfectly Competitive Firm. The figure shows a perfectly competitive firm that faces demand curve d and maximizes profit. If the firm faces a market price of $3, its total profit per day is:

$300.

Reference: Ref 12-14 (Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a Perfectly Competitive Firm. The firm will produce at a profit in the short run if the price is at least:

$4.26.

Reference: Ref 12-15 (Figure: Perfectly Competitive Firm) Look at the figure The Perfectly Competitive Firm. The figure shows a perfectly competitive firm that faces demand curve d and maximizes profit. Given the market price, the firm's total cost per day is:

$600.

Reference: Ref 12-24 (Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for the mower. His variable costs include fuel, his time, and mower parts. If the price for mowing a lawn is $40, how much is Alex's profit per unit at the profit-maximizing output?

-$10.00

Reference: Ref 12-8 (Figure: Revenues, Costs, and Profits for Tomato Producers III) Look at the figure Revenues, Costs, and Profits for Tomato Producers III. The market for tomatoes is perfectly competitive. If the market price of a bushel of tomatoes is $14, in the short run the farmer's profit-maximizing output is _____ bushels.

4

Reference: Ref 12-20 (Table: Cherry Farm) Look at the table Cherry Farm. If all cherry farms are the same size, how much will each farm produce in long-run equilibrium?

4 pounds

Reference: Ref 12-20 (Table: Cherry Farm) Look at the table Cherry Farm. If Hank and Helen have one of 100 farms in the perfectly competitive cherry industry and if the price is $4, in the short run the industry will supply _____ pounds.

400

Reference: Ref 12-20 (Table: Cherry Farm) Look at the table Cherry Farm. How much will the industry produce in long-run equilibrium?

400 pounds

Reference: Ref 12-8 (Figure: Revenues, Costs, and Profits for Tomato Producers III) Look at the figure Revenues, Costs, and Profits for Tomato Producers III. The market for tomatoes is perfectly competitive. If market price of a bushel of tomatoes is $18, in the short run the farmer's profit-maximizing output is _____ bushels.

5

In the short run, a perfectly competitive firm produces output and breaks even if the firm produces the quantity at which:

P = ATC.

For a perfectly competitive firm in the short run, if the firm produces the quantity at which _____, the firm _____.

P > ATC; is profitable

Reference: Ref 12-27 (Figure: The Perfectly Competitive Firm II) Look at the figure The Perfectly Competitive Firm II. If this firm's MR curve is MR1, the firm will maximize profit by producing _____ units of output, and its economic profit will be _____.

Q3; positive

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, that the price of each candy cane is $0.10, and that the market demand curve is downward-sloping. The price of sugar rises, increasing the marginal and average total cost of producing candy canes by $0.05; there are no other changes in production costs. In the long run we will observe:

firms leaving the industry.

Reference: Ref 12-20 (Table: Cherry Farm) Look at the table Cherry Farm. If the price is $10 per pound:

firms will enter the industry.

A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if the price is:

greater than average total cost.

The assumptions of perfect competition imply that:

individuals in the market accept the market price as given.

One characteristic of a perfectly competitive market is that there are _____ sellers of the good or service.

many

Reference: Ref 12-9 (Figure: Marginal Decision Rule) Look at the figure The Marginal Decision Rule. Given the market price P1, B is the _____ curve.

marginal revenue

Reference: Ref 12-8 (Figure: Revenues, Costs, and Profits for Tomato Producers III) Look at the figure Revenues, Costs, and Profits for Tomato Producers III. The market for tomatoes is perfectly competitive. If the market price of a bushel of tomatoes is $12, in the short run this farm will:

minimize its losses by continuing to produce.

For the Colorado beef industry to be classified as perfectly competitive, ranchers in Colorado must have _____ on prices and beef must be a _____ product.

no noticeable effect; standardized

Wenqin is a farmer, and in the short run she produces 100 bushels of wheat. Her average total cost per bushel is $1.75, total revenue is $450, and total fixed costs are $100. Wenqin's:

profit per bushel is $2.75.

Reference: Ref 12-9 (Figure: Marginal Decision Rule) Look at the figure The Marginal Decision Rule. At q2, or the _____, the _____ price is equal to marginal cost.

profit-maximizing quantity; market

Reference: Ref 12-9 (Figure: Marginal Decision Rule) Look at the figure The Marginal Decision Rule. As long as the price is above the minimum variable cost, this firm should produce quantity _____ where _____ equals _____ to maximize economic profit.

q2; price; MC

Reference: Ref 12-10 (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.

q3; make a profit

The shut-down point in the short run is:

the minimum point of AVC.