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Economic
Q:
If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold, what should the farm do to maximize its profit?
A) determine what the total revenue and total cost of production are
B) increase output
C) decrease output
D) lower its price to sell more
Q:
If, for the last bushel of apples produced and sold by an apple farm marginal revenue exceeds marginal cost, then in producing that bushel the farm
A) added more to total cost than it added to total revenue.
B) added an equal amount to both total revenue and total cost.
C) added more to total revenue than it added to total cost.
D) maximized its profits or minimized its losses.
Q:
At the profit-maximizing level of output for a perfectly competitive firm, price equals marginal cost. Which of the following is also true?
A) The difference between total revenue and total cost is the greatest.
B) Total revenue equals total cost.
C) Average revenue equals average total cost.
D) Marginal profit equals marginal cost.
Q:
For a perfectly competitive firm, at profit maximization
A) market price exceeds marginal cost.
B) total revenue is maximized.
C) marginal revenue equals marginal cost.
D) production must occur where average cost is minimized.
Q:
At the profit-maximizing level of output for a perfectly competitive firm
A) price equals marginal cost.
B) average revenue equals average variable cost and price equals marginal cost.
C) marginal revenue equals marginal cost and average total cost equals average fixed cost.
D) price equals average revenue and marginal cost equals average variable cost.
Q:
What is the relationship among the following variables in for a perfectly competitive firm: the market price, average revenue and marginal revenue?
A) Average revenue is equal to the market price; average revenue is greater than marginal revenue.
B) The market price is equal to both average revenue and marginal revenue.
C) Average revenue is equal to marginal revenue; average revenue is greater than the market price.
D) As a firm lowers the market price to sell more output, marginal revenue and average revenue will be less than the market price.
Q:
Table 12-2Apples (pounds)Market Price per PoundTotal Revenue (TR)Average Revenue (AR)Marginal Revenue (MR)0$3$0----------100150200250300350400Table 12-2 lists the various pounds (lbs.) of apples that Margie Stattler can sell. Assume that Margie operates in a perfectly competitive market.Refer to Table 12-2. How many pounds of apples should Margie sell to maximize her profit?A) 300 poundsB) 400 poundsC) This cannot be determined without knowing Margie's total or marginal production costs.D) This can be determined only when all of the values for market price, total revenue, average revenue and marginal revenue are given.
Q:
Table 12-2Apples (pounds)Market Price per PoundTotal Revenue (TR)Average Revenue (AR)Marginal Revenue (MR)0$3$0----------100150200250300350400Table 12-2 lists the various pounds (lbs.) of apples that Margie Stattler can sell. Assume that Margie operates in a perfectly competitive market.Refer to Table 12-2. What is Margie's total revenue if she sells 250 pounds of apples?A) $250B) $500C) $750D) There is not enough information in the table to determine Margie's total revenue.
Q:
A perfectly competitive firm's marginal revenue
A) is greater than price.
B) is less than price because a firm must lower its price to sell more.
C) is equal to price.
D) may be either greater or less than price, depending on the quantity sold.
Q:
Producing where marginal revenue equals marginal cost is equivalent to producing where
A) average total cost equals average revenue.
B) average fixed cost is minimized.
C) total revenue is equal to total cost.
D) total profit is maximized.
Q:
Mark Frost grows apples in a perfectly competitive market. If we drew a line in a graph that illustrates Mark's total revenue from selling apples, it would be
A) a straight, upward-sloping line.
B) a horizontal line.
C) a straight, downward-sloping line.
D) a curve that is negatively sloped at low levels of output and positively sloped at higher levels of output.
Q:
The marginal revenue curve for a perfectly competitive firm
A) is downward-sloping.
B) is the same as its demand curve.
C) is perfectly inelastic.
D) is the same as its marginal cost curve.
Q:
In a graph that illustrates a perfectly competitive firm, marginal revenue is
A) a diagonal line that lies below the firm's demand curve.
B) a line that intersects the firm's demand curve from below at its lowest point.
C) a line that intersects the firm's average total cost curve from below at its lowest point.
D) the same as the firm's demand curve.
Q:
Marginal revenue is
A) total revenue divided by the total quantity of output.
B) the change in profit divided by the change in the quantity of output.
C) the change in total revenue divided by the change in total cost.
D) the change in total revenue divided by the change in the quantity of output.
Q:
For a firm in a perfectly competitive market, price is
A) equal to both average revenue and marginal revenue.
B) equal to average revenue but greater than marginal revenue.
C) greater than marginal revenue but less than average revenue.
D) less than both average revenue and marginal revenue.
Q:
If the market price is $40 in a perfectly competitive market, the marginal revenue from selling the fifth unit is
A) $8.
B) $20.
C) $40.
D) $200.
Q:
If the market price is $40, the average revenue of selling five units is
A) $8.
B) $20.
C) $40.
D) $200.
Q:
For a perfectly competitive firm, average revenue is equal to
A) marginal cost.
B) the market price.
C) total revenue.
D) average fixed cost.
Q:
To maximize profit, a perfectly competitive firm
A) should sell the quantity of output determined by the interaction between industry demand and supply.
B) should sell the quantity of output that results in a value for total revenue that is equal to total cost.
C) should produce the quantity of output that results in the greatest difference between total revenue and total cost.
D) should produce the quantity of output that results in the greatest difference between marginal revenue and marginal cost.
Q:
Assume that price is greater than average variable cost. If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize profits the firm should
A) continue producing at the current output.
B) produce a larger level of output.
C) produce a smaller level of output.
D) There is not enough information given to answer the question.
Q:
For a perfectly competitive firm, which of the following is not true at profit maximization?
A) Market price is greater than marginal cost.
B) Marginal revenue equals marginal cost.
C) Total revenue minus total cost is maximized.
D) Price equals marginal cost.
Q:
In a graph with output on the horizontal axis and total revenue on the vertical axis, what is the shape of the total revenue curve for a perfectly competitive seller?
A) U-shaped
B) inverted U-shaped
C) a horizontal line
D) a ray from the origin
Q:
Figure 12-2 Refer to Figure 12-2. Why is the total revenue curve a ray from the origin?
A) because revenue increases at an increasing rate
B) because revenue increases at a decreasing rate
C) because the firm can sell its product at a constant price
D) because the firm must lower its price to sell more
Q:
Figure 12-2 Refer to Figure 12-2. What happens if the firm produces more than Q4 units?
A) Its profit increases.
B) It makes a loss.
C) Its total revenue is increasing faster than its total cost.
D) It could make a profit or a loss depending on what happens to demand.
Q:
Figure 12-2 Refer to Figure 12-2. The firm breaks even at an output level of
A) Q1units.
B) Q2units.
C) Q3units.
D) Q4units.
Q:
Figure 12-2 Refer to Figure 12-2. Suppose the firm is currently producing Q2units. What happens if it expands output to Q3units?
A) Its profit increases by the size of the vertical distance df.
B) It makes less profit.
C) It incurs a loss.
D) It will be moving toward its profit maximizing output.
Q:
Figure 12-2 Refer to Figure 12-2. What is the amount of profit if the firm produces Q2units?
A) It is equal to the vertical distance c to g.
B) It is equal to the vertical distance c to Q2.
C) It is equal to the vertical distance g to Q2.
D) It is equal to the vertical distance c to g multiplied by Q2units.
Q:
If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should
A) increase its output.
B) reduce its output.
C) keep output constant and enjoy the above normal profit.
D) lower the price.
Q:
If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing it, the firm
A) added more to total costs than it added to total revenue.
B) added more to total revenue than it added to total cost.
C) is maximizing marginal profit.
D) has minimized its losses.
Q:
A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The price of each good is $10. Calculate the firm's short-run profit or loss.
A) loss of $6,000
B) profit of $6,000
C) profit of $30,000
D) There is insufficient information to answer the question.
Q:
Figure 12-1 Refer to Figure 12-3. If the firm is charging a price of $12 per unit
A) it breaks even.
B) it is making a profit.
C) it is selling 700 units.
D) it is not selling any output.
Q:
Figure 12-1 Refer to Figure 12-3. If the firm is producing 500 units, what is the amount of its profit or loss?
A) profit of $280
B) loss equivalent to the area A
C) profit equivalent to the area A
D) There is insufficient information to answer the question.
Q:
Figure 12-1 Refer to Figure 12-3. If the firm is producing 500 units
A) it is making a profit.
B) it is making a loss.
C) it should maintain its output to maximize profit.
D) it should increase its output to maximize profit.
Q:
Figure 12-1 Refer to Figure 12-1. If the firm is producing 200 units
A) it breaks even.
B) it is making a loss.
C) it should cut back its output to maximize profit.
D) it should increase its output to maximize profit.
Q:
Figure 12-1 Refer to Figure 12-1. If the firm is producing 700 units, what is the amount of its profit or loss?
A) loss of $280
B) loss equivalent to the area A
C) profit equivalent to the area A
D) There is insufficient information to answer the question.
Q:
Figure 12-1 Refer to Figure 12-1. If the firm is producing 700 units
A) it is making a profit.
B) it is making a loss.
C) it should cut back its output to maximize profit.
D) it should increase its output to maximize profit.
Q:
Table 12-1QuantityTotal Cost (dollars)Variable Cost (dollars)0$1,000$01001,3603602001,5605603001,9609604002,7601,7605004,0003,0006005,8004,800Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.Refer to Table 12-1. The firm will not produce in the short run if the output price falls belowA) $8.B) $4.C) $3.20.D) $2.80.
Q:
Table 12-1QuantityTotal Cost (dollars)Variable Cost (dollars)0$1,000$01001,3603602001,5605603001,9609604002,7601,7605004,0003,0006005,8004,800Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.Refer to Table 12-1. Suppose the fixed cost of production rises by $500 and the price per unit is still $8. What happens to the firm's profit-maximizing output level?A) It must fall.B) It must rise to offset the increased cost.C) It will remain the same.D) The firm will shut down.
Q:
Table 12-1QuantityTotal Cost (dollars)Variable Cost (dollars)0$1,000$01001,3603602001,5605603001,9609604002,7601,7605004,0003,0006005,8004,800Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.Refer to Table 12-1. If the market price of each camera case is $8 and the firm maximizes profit, what is the amount of the firm's profit or loss?A) $0 (it breaks even)B) loss of $1,000C) profit of $440D) loss of $440
Q:
Table 12-1QuantityTotal Cost (dollars)Variable Cost (dollars)0$1,000$01001,3603602001,5605603001,9609604002,7601,7605004,0003,0006005,8004,800Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.Refer to Table 12-1. If the market price of each camera case is $8, what is the firm's total revenue?A) $2,400B) $3,200C) $4000D) $4,800
Q:
Table 12-1QuantityTotal Cost (dollars)Variable Cost (dollars)0$1,000$01001,3603602001,5605603001,9609604002,7601,7605004,0003,0006005,8004,800Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.Refer to Table 12-1. If the market price of each camera case is $8, what is the profit-maximizing quantity?A) 300 unitsB) 400 unitsC) 500 unitsD) 600 units
Q:
Table 12-1QuantityTotal Cost (dollars)Variable Cost (dollars)0$1,000$01001,3603602001,5605603001,9609604002,7601,7605004,0003,0006005,8004,800Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.Refer to Table 12-1. What is the fixed cost of production?A) $0B) $500C) $1,000D) It cannot be determined.
Q:
Which of the following is not true for a firm in perfect competition?
A) Profit equals total revenue minus total cost.
B) Price equals average revenue.
C) Average revenue is greater than marginal revenue.
D) Marginal revenue equals the change in total revenue from selling one more unit.
Q:
If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is
A) $5.
B) $12.50.
C) $25.
D) $125.
Q:
If the market price is $25, the average revenue of selling five units is
A) $5.
B) $12.50.
C) $25.
D) $125.
Q:
Consider the market for wheat which is a perfectly competitive market. Is the market demand curve the same as the demand curve facing an individual producer? If not, explain how and why they are different? Illustrate your answer graphically.
Q:
Of the following industries, which are perfectly competitive? For those that are not perfectly competitive, explain why.
a. Restaurants
b. Corn
c. College education
d. Local radio and television
Q:
What assumptions are necessary for a market to be perfectly competitive? Explain why each of these assumptions is important.
Q:
Using two graphs, illustrate how a positive technological change in the market for notebook computers could eliminate short-run economic profit for a firm in that market. On the first graph, use a supply and demand graph to illustrate the positive technological change. On the second graph, use demand, ATC, MC and MR curves to illustrate the elimination of economic profit resulting from the positive technological change. Explain what is taking place in each graph.
Q:
Why are individual buyers and sellers in perfect competition called price takers?
Q:
In long-run competitive equilibrium, the perfectly competitive firm produces where price equals minimum average total cost.
a. What is this efficiency criterion called?
b. How does it benefit consumers?
Q:
The market demand curve in a perfectly competitive market is downward-sloping.
Q:
What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?
Q:
Perfectly competitive industries tend to produce low-priced, low-technology products.
Q:
What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?
Q:
The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.
Q:
A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.
Q:
A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.
Q:
Allocative efficiency is achieved in an industry when firms supply those goods and services that provide consumers with a marginal benefit equal to the marginal cost of producing those goods and services.
Q:
Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?
A) Restaurants do not sell identical products.
B) Restaurants compete in small market areas - neighborhoods and cities - rather than in regional or national markets. Therefore, restaurants are not small relative to their market size.
C) Restaurants usually have entry barriers in the form of zoning restrictions and health regulations.
D) Restaurants have significant liability costs that perfectly competitive firms do not have; for example, customers may sue if they suffer from food poisoning.
Q:
Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.
Q:
A wheat farmer and a firm in a perfectly competitive market are similar in that
A) both face vertical demand curves.
B) both have to lower their prices if a rival firm lowers its price.
C) both face horizontal demand curves.
D) both will earn an economic profit if their total revenue equals their total cost.
Q:
Firms in perfect competition produce the productively efficient output level in the short run and in the long run.
Q:
Firms in perfect competition are price takers because
A) one firm determines the price that all other firms in the industry will charge.
B) consumers have enough market power to set prices.
C) firms accept the price determined by the government.
D) each firm is too small relative to the market to be able to influence price.
Q:
If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product, the firm will be able to earn economic profits in the long run.
Q:
Firms that are price takers
A) must lower their prices to increase sales.
B) are able to sell a fixed quantity of output at the market price.
C) can raise their prices as a result of a successful advertising campaign.
D) are able to sell all their output at the market price.
Q:
A teenaged babysitter is similar to a firm in a perfectly competitive industry in that, for both
A) fixed costs are lower than variable costs.
B) there are many other suppliers of similar goods or services.
C) the implicit costs of production exceed the explicit costs of production.
D) average costs of production do not change when their industry expands.
Q:
Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12. Which of the following will happen?
A) The firm will sell more output than its competitors.
B) The firm's revenue will increase.
C) The firm will not sell any output.
D) The firm's profits will increase.
Q:
If productive efficiency characterizes a market
A) the marginal cost of production is minimized.
B) firms produce the goods that consumers desire most.
C) the output is being produced at the lowest possible cost.
D) firms use the best technology available to produce the good.
Q:
Which of the following is the best example of a perfectly competitive firm?
A) a corn farmer in Illinois
B) a Taco Bell restaurant
C) the Ford Motor Company
D) the United Parcel Service (UPS)
Q:
If a perfectly competitive firm achieves productive efficiency then
A) it will raise its price in order to earn an economic profit.
B) the price of the good it sells is equal to the benefit consumers receive from consuming the last unit of the good sold.
C) it is producing at minimum efficient scale.
D) it is producing the good it sells at the lowest possible cost.
Q:
The price a perfectly competitive firm receives for its output
A) is determined by the interaction of the firm and all of the consumers who buy from the firm.
B) is determined by the interaction of all sellers and all buyers in the firm's market.
C) will not change in response to changes in market demand and supply because the firm is a price taker.
D) will be lowered by the firm in order to sell more output.
Q:
Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?
A) Allocative efficiency is achieved only in the long run. Productive efficiency is achieved only in the short run.
B) Allocative efficiency is achieved only in the long run. Productive efficiency is achieved in the short run and the long run.
C) Allocative efficiency is achieved only in the short run. Productive efficiency is achieved only in the long run.
D) Allocative efficiency is achieved in the short run and the long run. Productive efficiency is achieved only in the long run.
Q:
Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?
A) The market demand curve is a horizontal line; the firm's demand curve is downward-sloping.
B) The market demand curve is downward-sloping; the firm's demand curve is a vertical line.
C) The market demand curve can not have a constant slope; the firm's demand curve has a slope equal to zero.
D) The market demand curve is downward-sloping; the firm's demand curve is a horizontal line.
Q:
Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit. This condition is referred to as
A) productive efficiency.
B) constant returns to scale.
C) allocative efficiency.
D) perfectly competitive efficiency.
Q:
In a perfectly competitive market the term "price taker" applies to
A) sellers and buyers.
B) firms but not buyers.
C) buyers but not sellers.
D) only the smallest sellers and buyers.
Q:
When plasma television sets were first introduced prices were high and few firms were in the market. Later, economic profits attracted new firms and the price of plasma televisions fell. This example illustrates
A) a decreasing-cost industry.
B) that consumers receive this new technology "free of charge" in the sense that they only have to pay a price for plasma televisions equal to the lowest production cost.
C) an industry with a low minimum efficient scale.
D) how fickle consumer demands are.
Q:
Which of the following is not an assumption of perfectly competitive markets?
A) There are many sellers and many buyers, all of which are small relative to the market.
B) Each firm produces a similar but not identical product.
C) There are no barriers to new firms entering the market.
D) The products sold by all firms in the market are identical.
Q:
New York Times writer Michael Lewis wrote that "The sad truth, for investors, seems to be that most of the benefits....are passed through to consumers free of charge." To which of the following did Lewis refer?
A) apple farming in New York state
B) the Enron accounting scandal
C) the medical screening industry
D) new technologies developed in the 1990s
Q:
A perfectly competitive firm has to charge the same price as every other firm in the market. Therefore, the firm
A) faces a perfectly inelastic demand curve.
B) is not able to make a profit in the short run.
C) is a price taker.
D) faces a perfectly elastic supply curve.