Chapter 15- ECON

3) The price charged by a perfectly competitive firm is A) the same as the market price. B) different than the price charged by competing firms. C) higher the more the firm produces. D) lower the more the firm produces. E) indeterminate.

A) the same as the market price.

9) The market supply in the short run for the perfectly competitive industry is A) the sum of the supply schedules of all firms. B) the same as each producer's supply. C) divided up according to each firm's selling price. D) set at the maximum price a buyer will pay for one unit. E) equal to the average of each firm's supply schedule

A) the sum of the supply schedules of all firms.

4) If a perfectly competitive wheat farmer is maximizing its profit and then increases its output, the farmer's A) total revenue increases, but total cost rises by more so that the farmer's total profit decreases. B) total revenue decreases and total cost increases, both thereby decreasing the farmer's total profit. C) marginal revenue increases, but so does marginal cost, so that the farmer's total profit increases. D) total revenue and total cost both rise, but the effect on the farmer's total profit is uncertain. E) total revenue does not change but total cost increases, thereby decreasing the farmer's total profit.

A) total revenue increases, but total cost rises by more so that the farmer's total profit decreases.

13) If perfectly competitive firms are entering or exiting a market, it must be true that the market A) is in a long-run equilibrium because average variable costs are no longer relevant. B) is in the short run. C) is in the long run only if the firms' economic profits are positive. D) is in the long run. E) is in the short run only if the firms' economic profits equal $0

B) is in the short run.

12) The above figure shows a perfectly competitive firm. If the market price is $15, the firm A) is incurring an economic loss. B) is making an economic profit. C) will immediately shut down. D) is making zero economic profit. E) might shut down but more information is needed about the AVC

B) is making an economic profit.

1) The characteristics that describe a perfectly competitive industry include A) a few firms selling to many buyers. B) many firms selling an identical product. C) many firms selling a slightly differentiated product. D) one firm selling to many buyers. E) None of the above answers is correct.

B) many firms selling an identical product.

8) A perfectly competitive firm is a price taker because A) only one firm produces the product. B) many other firms produce the same product. C) it faces a vertical demand curve. D) many firms produce a slightly differentiated product. E) a few firms compete.

B) many other firms produce the same product.

7) Under which of the following conditions will a profit-maximizing perfectly competitive firm shut down in the short run? A) when the price is less than its minimum average total cost B) when the price is less than its minimum average variable cost C) whenever its total cost is greater than its total revenue D) when it is making a normal profit E) whenever its marginal cost is less than its marginal revenue

B) when the price is less than its minimum average variable cost

20) One requirement for an industry to be perfectly competitive is that in the industry there A) is a barrier to entry that makes the entry of new firms difficult. B) are a few firms who control the market. C) are many firms for whom the efficient scale of production is small. D) are many firms selling different products. E) is one firm that sells a product with no close substitutes

C) are many firms for whom the efficient scale of production is small.

10) If a perfectly competitive firm finds that the price exceeds its ATC, then the firm A) will raise its price to increase its economic profit. B) is incurring an economic loss. C) is making an economic profit. D) will lower its price to increase its economic profit. E) is making zero economic profit.

C) is making an economic profit

16) The above figure shows a perfectly competitive firm. If the market price is $10, the firm A) is making an economic profit. B) is incurring an economic loss. C) is making zero economic profit. D) will immediately shut down. E) might shut down but more information is needed about the AVC.

C) is making zero economic profit

11) Peter's Pencils is a perfectly competitive company producing pencils. Suppose Peter is producing 1,000 pencils an hour. If the total cost of 1,000 pencils is $500, the market price per pencil is $2, and the marginal cost is $2, then Peter A) should increase his output to increase his profit. B) should decrease his output to increase his profit. C) is maximizing his profit and is making an economic profit. D) makes an economic profit because marginal revenue is equal to marginal cost at this output level. E) is not maximizing his profit but is making zero economic profit anyway.

C) is maximizing his profit and is making an economic profit.

15) If perfectly competitive firms are making an economic profit, then A) the market is in its long-run equilibrium. B) firms exit the market and the economic profit of the surviving firms in the market decreases. C) new firms enter the market and the equilibrium profit of the firms already in the market decreases. D) firms exit the market and the economic profit of the surviving firms in the market increases. E) new firms enter the market and the equilibrium profit of the firms already in the market increases.

C) new firms enter the market and the equilibrium profit of the firms already in the market decreases.

18) To increase its profit, a perfectly competitive firm will produce more output when A) marginal cost is less than average total cost. B) price is greater than average variable cost. C) price is greater than marginal cost. D) average variable cost is greater than average fixed cost. E) price is greater than average fixed cost.

C) price is greater than marginal cost

6) A perfectly competitive firm is earning an economic profit when total fixed costs increase. Assuming the firm does not shut down, in the short run the firm will A) continue producing the same quantity as before and continue making the same economic profit as before. B) produce less output to decrease total costs. C) charge a higher price. D) continue producing the same quantity as before but will make less economic profit. E) produce more output so the extra revenue will cover the increased costs.

D) continue producing the same quantity as before but will make less economic profit.

14) In the long run, a perfectly competitive firm will A) produce but incur an economic loss. B) not produce and will incur an economic loss equal to its total fixed cost. C) not produce but not incur an economic loss. D) make zero economic profit. E) be able to make an economic profit

D) make zero economic profit.

19) In which of the following market types do all firms sell products so identical that buyers do not care from which firm they buy? A) monopoly B) monopolistic competition C) oligopoly D) perfect competition E) perfect competition and monopolistic competition

D) perfect competition

17) The above figure shows a perfectly competitive firm. If the market price is $5, the firm A) will immediately shut down. B) is making an economic profit. C) is making zero economic profit. D) will not shut down. E) might shut down but more information is needed about the AVC.

E) might shut down but more information is needed about the AVC

5) Jennifer's Bakery Shop produces baked goods in a perfectly competitive market. If Jennifer decides to produce her 100th batch of cookies, the marginal cost is $120. She can sell this batch of cookies at a market price of $110. To maximize her profit, Jennifer should A) shut down. B) produce this batch of cookies because their MR exceeds their MC. C) produce this batch of cookies because they will help lower her average fixed cost. D) charge $120 for this batch. E) not produce this additional batch

E) not produce this additional batch

2) To maximize its profit, in the short run a perfectly competitive firm decides A) whether to exit the market. B) what price to charge for its product. C) whether to increase the size of its plant. D) how much advertising it should undertake. E) what quantity of output to produce.

E) what quantity of output to produce