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Chapter 12 Firms in Perfectly Competitive Market

question
Perfectly Competitive Market
answer
A market that meets the conditions of (1) many buyers and sellers (2) all firms selling identical products, and (3) no barriers to new firms entering the marketer
question
Price taker
answer
a buyer or seller that is unable to affect the market price
question
profit
answer
total revenue minus total cost
question
average revenue (AR)
answer
Total revenue divided by the quantity of the product sold
question
Marginal revenue (MR)
answer
the change in total revenue from selling one more unit of product
question
Sunk cost
answer
A cost that has already been paid and cannot be recovered
question
Economic profit
answer
a firm's revenue minus all its cost, implicit and explicit
question
Economic loss
answer
the situation in which a firms total revenue is less than its cost, including all implicit costs
question
long run competitive equilibrium
answer
the situation in which the entry and exit of firms as resulted in the typical firm breaking even
question
Productive efficiency
answer
the situation in which a good or service is produced at the lowest possible cost
question
allocative efficiency
answer
a state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to he marginal cost of producing it
question
Shutdown point
answer
The minimum point on a firm's average variable cost curve; if the price falls between this point the firm shuts down production in the short run
question
b. downward sloping; a horizontal line
answer
1. Fill in the blanks. The market demand curve for a good produced in a perfectly competitive market is
_______, while the demand curve for one firm in a perfectly competitive market is _______ .
a. horizontal line; downward sloping
b. downward sloping; a horizontal line
c. downward sloping; a vertical line
d. None of the above is correct.
question
d. all of the above
answer
2. A perfectly competitive market is a market with which of the following conditions?
a. many sellers and buyers
b. homogonous product
c. no barriers to entry
d. all of the above
question
a. the change in total revenue that results from selling one more unit of output.
answer
3. Marginal revenue is
a. the change in total revenue that results from selling one more unit of output.
b. the change in average revenue that results from selling one more unit of output.
c. the change in total cost that results from selling one more unit of output.
d. none of the above.
question
d. The firm can sell any amount of output as long as it accepts the market price of $4.00.
answer
5. The equilibrium level of output is where
a. total revenue equals total cost.
b. marginal revenue equals marginal cost.
c. slope of total revenue equals slope of total cost.
d. both (b) and (c).
question
d. both (b) and (c).
answer
6. In perfect competition, marginal revenue equals to
a. average revenue.
b. price.
c. both (a) and (b).
d. none of the above.
question
c. both (a) and (b).
answer
8. The equilibrium level of output in perfect competition is where
a. total revenue equals total cost.
b. price equals marginal cost.
c. average revenue is greater than the price.
d. none of the above.
question
b. is a price taker.
answer
9. In perfect competition, the long-run equilibrium happens when
a. profit per unit is positive.
b. profit per unit is zero.
c. profit per unit is negative.
d. none of the above
question
a. total revenue equals total cost.
answer
11. In perfect competition,
a. marginal revenue, average revenue, and price are all equal.
b. marginal revenue equals average revenue, but average revenue is greater than the price.
c. average revenue equals price, but marginal revenue is greater than the price.
d. none of the above occurs
question
b. profit per unit is zero.
answer
19. What is the term given to a cost that has already been paid and cannot be recovered?
a. unrecoverable cost
b. variable cost
c. implicit cost
d. sunk cost
question
c. Marginal revenue remains constant as the quantity of bushels sold increases.
answer
24. If the demand curve for a perfectly competitive firm is above its average total cost curve, then this
firm's profit is
a. negative.
b. positive.
c. zero.
d. none of the above.
question
a. marginal revenue, average revenue, and price are all equal.
answer
25. The demand curve facing a perfectly competitive firm is
a. perfectly inelastic.
b. perfectly elastic.
c. unit elastic.
d. none of the above.
question
b. the distance between points A and B
answer
30. If market demand shifts to the right, how will a competitive firm's level of output change?
a. The firm will increase its output, and its profits will increase.
b. The firm will need to decrease its output and suffer losses.
c. The firm will keep its output constant, but its profits will increase.
d. The firm will decrease its output, which will increase its profit.
question
c. the ATC curve
answer
31. A perfectly competitive firm is losing money in the short run, and its total revenue is less than its total variable cost. In order to minimize its losses in the short run, this firm should
a. continue production.
b. shut down.
c. either continue production or shut down.
d. do none of the above.
question
d. All three curves are needed to determine the level of profit earned by a perfectly competitive
firm.
answer
32. Profit is measured as
a. total revenue minus total cost.
b. profit per unit multiplied by the quantity sold.
c. both a and b.
d. none of the above.
question
c. Q3
answer
33. A perfectly competitive firm will shut down in the short run if price is less than
a. marginal cost.
b. average variable cost.
c. average revenue.
d. None of the above is true.
question
b. The firm earns zero economic profit.
answer
36. In perfect competition, when a firm is making positive economic profit in the short run, then new
firms enter the market causing the market supply curve to _______ and the market price to _______.
a. increase; decrease
b. decrease; increase
c. increase; increase
d. decrease; decrease
question
c. negative economic profit
answer
38. Which of the following terms best describes how the result of the forces of competition drives the
market price to the minimum average cost of the typical firm?
a. allocative efficiency
b. productive efficiency
c. decreasing-cost industry
d. competitive markdown
question
b. $250
answer
39. Which of the following terms best describes a state of the economy in which production reflects
consumer preferences?
a. allocative efficiency
b. productive efficiency
c. capitalism
d. consumer equilibrium
question
d. sunk cost
answer
40. Long-run equilibrium in perfect competition results in
a. productive efficiency.
b. allocative efficiency.
c. both (a) and (b).
d. none of the above.
question
b. Demand2
answer
undefined
question
c. The firm will suffer losses but should continue to operate.
answer
undefined
question
c. $2,400
answer
undefined
question
a. the market supply curve.
answer
undefined
question
b. positive.
answer
undefined
question
b. perfectly elastic.
answer
undefined
question
a. a profit in the short run.
answer
undefined
question
d. a shift to the right of the market supply curve as new firms enter
answer
undefined
question
c. The price will decrease until it is equal to the minimum of average total cost, and profits will
become zero.
answer
undefined
question
b. The firm will decrease its output and suffer losses.
answer
undefined
question
a. The firm will increase its output, and its profits will increase.
answer
undefined
question
b. shut down.
answer
undefined
question
c. both a and b.
answer
undefined
question
b. average variable cost.
answer
undefined
question
d. none of the above
answer
undefined
question
b. Point D is a short-run equilibrium, and point C is the new long-run equilibrium.
answer
undefined
question
a. increase; decrease
answer
undefined
question
a. the graph on the left
answer
undefined
question
b. productive efficiency
answer
undefined
question
a. allocative efficiency
answer
undefined
question
c. both (a) and (b).
answer
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1 of 52
question
Perfectly Competitive Market
answer
A market that meets the conditions of (1) many buyers and sellers (2) all firms selling identical products, and (3) no barriers to new firms entering the marketer
question
Price taker
answer
a buyer or seller that is unable to affect the market price
question
profit
answer
total revenue minus total cost
question
average revenue (AR)
answer
Total revenue divided by the quantity of the product sold
question
Marginal revenue (MR)
answer
the change in total revenue from selling one more unit of product
question
Sunk cost
answer
A cost that has already been paid and cannot be recovered
question
Economic profit
answer
a firm's revenue minus all its cost, implicit and explicit
question
Economic loss
answer
the situation in which a firms total revenue is less than its cost, including all implicit costs
question
long run competitive equilibrium
answer
the situation in which the entry and exit of firms as resulted in the typical firm breaking even
question
Productive efficiency
answer
the situation in which a good or service is produced at the lowest possible cost
question
allocative efficiency
answer
a state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to he marginal cost of producing it
question
Shutdown point
answer
The minimum point on a firm's average variable cost curve; if the price falls between this point the firm shuts down production in the short run
question
b. downward sloping; a horizontal line
answer
1. Fill in the blanks. The market demand curve for a good produced in a perfectly competitive market is
_______, while the demand curve for one firm in a perfectly competitive market is _______ .
a. horizontal line; downward sloping
b. downward sloping; a horizontal line
c. downward sloping; a vertical line
d. None of the above is correct.
question
d. all of the above
answer
2. A perfectly competitive market is a market with which of the following conditions?
a. many sellers and buyers
b. homogonous product
c. no barriers to entry
d. all of the above
question
a. the change in total revenue that results from selling one more unit of output.
answer
3. Marginal revenue is
a. the change in total revenue that results from selling one more unit of output.
b. the change in average revenue that results from selling one more unit of output.
c. the change in total cost that results from selling one more unit of output.
d. none of the above.
question
d. The firm can sell any amount of output as long as it accepts the market price of $4.00.
answer
5. The equilibrium level of output is where
a. total revenue equals total cost.
b. marginal revenue equals marginal cost.
c. slope of total revenue equals slope of total cost.
d. both (b) and (c).
question
d. both (b) and (c).
answer
6. In perfect competition, marginal revenue equals to
a. average revenue.
b. price.
c. both (a) and (b).
d. none of the above.
question
c. both (a) and (b).
answer
8. The equilibrium level of output in perfect competition is where
a. total revenue equals total cost.
b. price equals marginal cost.
c. average revenue is greater than the price.
d. none of the above.
question
b. is a price taker.
answer
9. In perfect competition, the long-run equilibrium happens when
a. profit per unit is positive.
b. profit per unit is zero.
c. profit per unit is negative.
d. none of the above
question
a. total revenue equals total cost.
answer
11. In perfect competition,
a. marginal revenue, average revenue, and price are all equal.
b. marginal revenue equals average revenue, but average revenue is greater than the price.
c. average revenue equals price, but marginal revenue is greater than the price.
d. none of the above occurs
question
b. profit per unit is zero.
answer
19. What is the term given to a cost that has already been paid and cannot be recovered?
a. unrecoverable cost
b. variable cost
c. implicit cost
d. sunk cost
question
c. Marginal revenue remains constant as the quantity of bushels sold increases.
answer
24. If the demand curve for a perfectly competitive firm is above its average total cost curve, then this
firm's profit is
a. negative.
b. positive.
c. zero.
d. none of the above.
question
a. marginal revenue, average revenue, and price are all equal.
answer
25. The demand curve facing a perfectly competitive firm is
a. perfectly inelastic.
b. perfectly elastic.
c. unit elastic.
d. none of the above.
question
b. the distance between points A and B
answer
30. If market demand shifts to the right, how will a competitive firm's level of output change?
a. The firm will increase its output, and its profits will increase.
b. The firm will need to decrease its output and suffer losses.
c. The firm will keep its output constant, but its profits will increase.
d. The firm will decrease its output, which will increase its profit.
question
c. the ATC curve
answer
31. A perfectly competitive firm is losing money in the short run, and its total revenue is less than its total variable cost. In order to minimize its losses in the short run, this firm should
a. continue production.
b. shut down.
c. either continue production or shut down.
d. do none of the above.
question
d. All three curves are needed to determine the level of profit earned by a perfectly competitive
firm.
answer
32. Profit is measured as
a. total revenue minus total cost.
b. profit per unit multiplied by the quantity sold.
c. both a and b.
d. none of the above.
question
c. Q3
answer
33. A perfectly competitive firm will shut down in the short run if price is less than
a. marginal cost.
b. average variable cost.
c. average revenue.
d. None of the above is true.
question
b. The firm earns zero economic profit.
answer
36. In perfect competition, when a firm is making positive economic profit in the short run, then new
firms enter the market causing the market supply curve to _______ and the market price to _______.
a. increase; decrease
b. decrease; increase
c. increase; increase
d. decrease; decrease
question
c. negative economic profit
answer
38. Which of the following terms best describes how the result of the forces of competition drives the
market price to the minimum average cost of the typical firm?
a. allocative efficiency
b. productive efficiency
c. decreasing-cost industry
d. competitive markdown
question
b. $250
answer
39. Which of the following terms best describes a state of the economy in which production reflects
consumer preferences?
a. allocative efficiency
b. productive efficiency
c. capitalism
d. consumer equilibrium
question
d. sunk cost
answer
40. Long-run equilibrium in perfect competition results in
a. productive efficiency.
b. allocative efficiency.
c. both (a) and (b).
d. none of the above.
question
b. Demand2
answer
undefined
question
c. The firm will suffer losses but should continue to operate.
answer
undefined
question
c. $2,400
answer
undefined
question
a. the market supply curve.
answer
undefined
question
b. positive.
answer
undefined
question
b. perfectly elastic.
answer
undefined
question
a. a profit in the short run.
answer
undefined
question
d. a shift to the right of the market supply curve as new firms enter
answer
undefined
question
c. The price will decrease until it is equal to the minimum of average total cost, and profits will
become zero.
answer
undefined
question
b. The firm will decrease its output and suffer losses.
answer
undefined
question
a. The firm will increase its output, and its profits will increase.
answer
undefined
question
b. shut down.
answer
undefined
question
c. both a and b.
answer
undefined
question
b. average variable cost.
answer
undefined
question
d. none of the above
answer
undefined
question
b. Point D is a short-run equilibrium, and point C is the new long-run equilibrium.
answer
undefined
question
a. increase; decrease
answer
undefined
question
a. the graph on the left
answer
undefined
question
b. productive efficiency
answer
undefined
question
a. allocative efficiency
answer
undefined
question
c. both (a) and (b).
answer
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