1. At present output levels, a firm in a perfectly competitive industry is in the following position: output = 1000 1 000 units, market price = $3, $3 , total cost = $000, fi!ed cost co st = $"000, marginal cost = $3. #o achieve optimum output, the firm should: A. reduce output ut keep producing. %. increase its selling price. &. leave output unchanged. '. reduce output to (ero. ). increase output ut keep its price constant. ". *hich of the following is not usually a characteristic of a perfectly competitive industry+ A. no individual firm has any significant amount of market power. %. the market demand curve is perfectly elastic. &. any individual firm can increase its production and sales without affecting the price of the good. '. e!isting firms cannot ar the entry of new firms. ). all of the aove are characteristics of perfectly competitive industries. 3. A competitive firms demand curve is determined y: A. firm demand and firm supply. %. the price set y the individual firm. &. market demand and market supply. '. the level of the firms short-run average total cost. ). the & curve aove average variale cost. /. At present output levels, a perfectly competitive firm is in the following position: output = /000 units, market price = $1, fi!ed costs = $"000, total variale costs = $1000, marginal cost = $1.10. #his firm is: A. making a positive economic profit. %. making a (ero economic profit. &. losing money, although it could make a profit y decreasing its output. '. producing the output where A A& = &. ). not ma!imi(ing its profit ut could do so y increasing its output. . 2n the long-run for a competitive industry: A. all factors of production are variale so that firms are free to enter or leave the market. %. technology may change in response to profit opportunities. &. all inputs are fi!ed for the industry as a whole. '. firms can earn more than normal accounting profits if demand is high. ). profits serve as a signal for entry which does not happen for other market structures such as monopolies, oligopolies, or monopolistically competitive firms4.
. *hen typical firms in a perfectly competitive industry are making economic profits, then all of the following will take place e!cept: A. new firms will enter the industry. %. the industry supply curve will shift to the right. &. the firm demand curves will shift down. '. the typical firm in the industry will egin to e!perience a reduction in profits. ). all of the aove will occur. 5. 2f an industry is characteri(ed y perfect competition as well as increasing costs then: A. the long-run industry supply curve is perfectly elastic. %. each firm must e!perience decreasing returns to scale at low levels of production. &. some of the resources used in production have supply curves that are upward sloping. '. some firms are likely to ecome natural monopolies. ). economies of scale are significant for all firms. 6. 2n the long-run, competition in competitive markets: A. yields economic inefficiency with the asence of government intervention. %. results in output eing produced at ma!imum opportunity cost. &. forces all surviving firms to adopt the most efficient technology. '. guarantees each firm economic profits. ). may result in economic losses.
11. At present output levels, a perfectly competitive firm is in the following position: output = /000 units, market price = $1.10, fi!ed costs = $"000, total variale costs = $1000, marginal cost = $1.00. #his firm is: A. not ma!imi(ing its profit ut could do so y decreasing its output. %. making a (ero economic profit. &. losing money, although it could make a profit y increasing its output. '. 7roducing the output where A#& = &. ). not ma!imi(ing its profit ut could do so y increasing its output. 1". 2n the long-run, competition in competitive markets: A. yields economic inefficiency in the asence of e!ternal costs. %. results in output eing produced at ma!imum opportunity cost. &. forces all surviving firms to adopt the most efficient technology. '. guarantees each firm long-run economic profits. ). may result in economic losses. 13. #hat portion of a perfectly competitive firms marginal cost curve lying aove its A& curve has all of the following characteristics e!cept: A. it is upward sloping. %. it intersects the firms A#& curve at minimum A#&.
&. its intersection with the firms 8 curve determines the firms profit ma!imi(ing output level. '. it is the firms supply curve. ). all of the aove are true. 1/. *hen in long-run e9uilirium, perfectly competitive firms: A. must employ the most efficient least costly4 production technology or e driven out of the usiness y competition. %. are paid a price that e9uals the ma!imum value of the long-run average cost curve. &. collectively produce more output than society desires. '. reap economic profits if the firm is e!ceptionally efficient. ). cover all variale costs and make a profit ust sufficient to cover previous losses. 1. #he short-run shutdown point for the perfectly competitive firm occurs: A. where total revenue is ust sufficient to cover total cost. %. when the demand curve facing the firm is tangent to its average variale cost curve. &. where total revenue is ust sufficient to cover all e!plicit cost ut not any implicit or imputed costs. '. when the firm is ale to cover all of its fi!ed costs and part of its variale costs. ). at the same 9uantity level as the long-run shutdown point. 1. #he long-run e9uilirium outcomes in monopolistic competition and perfect competition are similar ecause in oth market structures:
firms will only earn a normal profit. firms realise all economies of scale. the efficient output level will e produced in the long run. firms will e producing at minimum average cost.
1 *hich of the following is not a valid option for a perfectly competitive firm+ A. 2ncreasing its output.
%. 'ecreasing its output.
&. 2ncreasing its price.
'. 2ncreasing its resources.
" 2n the long run, a perfectly competitive firm will achieve all ut which of the following: A. )conomic profit
%. Allocative )fficiency
&. 7roductive )fficiency
'. ;ormal profit
3 2f the price a firm receives for its product is e9ual to the marginal cost of producing that product, the firm is: A. Always earning an economic profit
%. Always productively efficient.
&. Always allocatively efficient.
'. Always e!periencing an economic loss.
/ A firm that is producing at the lowest possile average cost is always: A. )arning an economic profit.
%. 7roductively efficient.
&. 'ominating the other firms in the market.
'. ;ot producing enough output.
A perfectly competitive firm should always: A. )arn an economic profit.
%. 2ncrease its price if it is e!periencing an economic loss.
&. 7roduce the 9uantity where its marginal cost e9uals its marginal revenue.
'. 7roduce at the productively efficient level of output
#he supply curve for a perfect competitor is its: A. arginal 8evenue curve
%. Average total cost curve
&. arginal cost curve
'. arginal cost curve aove its average variale cost curve
5 2f a perfect competitor is producing at a level where its average cost is $6, and its marginal cost is $<, and it is receiving a price of $10 for its product, the firm A. is ma!imi(ing economic profit.
%. e!periencing economic loss.
&. should increase its output to ma!imi(e profit.
'. is allocatively efficient
6 2f a profit ma!imi(ing perfectly competitive firm is selling 1000 units at a price of $10 and its average total cost is $6 the firm is e!periencing: A. A total profit of $"
%. A total profit of $"000
&. A price greater than its marginal cost
'. An economic loss
< *hich of the following is most likely to happen if a typical firm in a perfectly competitive market is e!periencing an average revenue that is greater than its average cost+ A. 7rice will increase.
%. ther firms will enter the market
&. ther firms will leave the market
'. 'emand will decrease
10 2f the typical firm in a perfectly competitive market is e!periencing an economic loss, which of the following will happen+ A. >irms will enter the market and the price will decrease.
%. >irms will enter the market and the price will increase.
&. >irms will e!it the market and the price will decrease.
'. >irms will e!it the market and the price will increase.
11 A perfectly competitive firm that is in long-run e9uilirium will A. )arn an economic profit, e allocatively efficient, and e productively efficient.
%. ;ot earn an economic profit, ut e allocatively efficient and productively efficient.
&. ;ot earn an economic profit, not e allocatively efficient, ut e productively
efficient. '. ;ot earn an economic profit, not e productively efficient, ut e allocatively
efficient.
1" A firm in a perfectly competitive industry has A. a perfectly elastic supply curve.
%. a perfectly elastic demand curve.
&. a negatively sloped demand curve.
'. a positively sloped demand curve.
1/ A perfectly competive firm that is receiving a price of $ and has a marginal cost of $ should always A. drop out of the industry
%. decrease its output
&. increase its price
'. increase its output
1 Assume that a perfectly competive firm that produces widgets is in long-run e9uilirium. #hen suddenly the market demand for widgets increases. #he firm will A. )!perience an economic loss.
%. )!perience an economic profit and produce more in the short run.
&. )!perience an economic profit and produce less in the short run
'. )!perience no economic profit in the short run
148efer to >igure <-1. 2f the price a perfectly competitive firm is facing in the market is P ", then the profit-ma!imi(ing firm in the short run should produce output A4 %. %4 &. &4 '.
'4 ). )4 >.
"4 ?uppose a perfectly competitive firm is producing where its average revenue is less than its lowest average variale cost. #he firm should A4 shut down. %4 increase the market price. &4 reduce its output. '4 e!pand its output. )4 not change its output.
34 2n long-run e9uilirium a perfectly competitive industry A4 losses are tolerale ecause of the high fi!ed cost. %4 in order to stay in the industry each firm is making an economic profit. &4 each firm is producing at the minimum point on its LRAC curve. '4 individual firms will have no incentive for technological improvement.
)4 must e!hiit economies of scale. /4 *hen a perfectly competitive firm is at its profit-ma!imi(ing level of output, we can say that it A4 is producing where MC = AC . %4 is producing where price e!ceeds marginal cost. &4 is doing as well as it can and is making a profit. '4 may e making a profit or incurring a loss. )4 is producing where P = AVC .
4 #he demand curve facing a perfectly competitive firm depends on A4 the marginal cost of the firm. %4 market supply alone. &4 market demand and the market supply curve. '4 market demand and the firm s supply curve. )4 market demand alone ʹ
42n >igure <-", if the current market price is $, the profit-ma!imi(ing output of this firm is
A4 100 units. %4 "00 units. &4 300 units. '4 /00 units. )4 00 units 54 &omparing the short-run and long-run profit-ma!imi(ing positions of a perfectly competitive firm, which statement is true+
A4 #he firm may have une!ploited economies of scale in oth the short run and the long run. %4 7rice will e9ual marginal cost in the short run, ut not necessarily in the long run. &4 7rice should e9ual average cost in the long run, ut not necessarily in the short run. '4 #he firm will produce at minimum average cost in oth the short and long run. )4 )conomic profit may e!ist in the short run and in the long run.
64 2f a perfectly competitive firm in the short run is producing where P = ATC = MC , we can say thatthis firm is A4 earning economic profits. %4 at its profit-ma!imi(ing output level. &4 oliged to shut down. '4 on the downward-sloping portion of the demand curve. )4 incurring losses.
<4 All of the following pertain to a perfectly competitive market e!cept which one+ A4 All firms have reali(ed the possile economies of scale. %4 &onsumers can shop for the lowest availale price. &4 #here is freedom of entry and e!it of firms in the industry. '4 &onsumers prefer certain rands over others. )4 All firms in the industry are price takers.
Assume the following total cost schedule for a perfectly competitive firm. Output TVC TFC 0 0 100 1 /0 100 " 50 100 3 1"0 100 / 160 100 "0 100 330 100 TABLE 9-1
104 #he reak-even price for the firm depicted in #ale <-1 is A4 $/0. %4 $50. &4 $1/. '4 $""0. )4 $/30.
114 *hen price is constant the competitive firm s marginal-revenue curve ʹ
A4 is a positively sloped straight line, starting from the origin. %4 moves upward to the right and then declines when MC = MR. &4 is the same as the firm s TR curve. '4 is a straight line that coincides with the market demand curve. )4 is the same as the firm s demand curve. ʹ
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