Deck 9: Perfect Competition

Question 1

The perfectly competitive firm faces a demand curve that is ________ and ________.

A) perfectly inelastic; vertical
B) perfectly elastic; horizontal
C) unitary elastic; sloping downward
D) the same as the market demand for the product; vertical

Answer 1

perfectly elastic; horizontal

Question 2

Recall the Application about the wireless phone service provided by thousands of entrepreneurial women in Pakistan to answer the following question(s).
Recall the Application.Why is the market for phone service perfectly competitive?

A) Thousands of entrepreneurial women in Pakistan sell phone service to neighbors who each take the market price as given.
B) The market for phone service has significant barriers to entry, and many women in Pakistan have trouble getting service due to the shortage in supply.
C) The initial investment would be millions for entering the phone business in Pakistan and will keep the numbers of suppliers low.
D) none of the above

Answer 2

Thousands of entrepreneurial women in Pakistan sell phone service to neighbors who each take the market price as given.

Question 3

Monopolistic competition is characterized by barriers to entry.

Answer 3

False

Question 4

In a perfectly competitive market,an individual firm cannot charge any price it wants.

Question 5

In a perfectly competitive market,an individual firm faces a perfectly elastic demand curve.

Question 6

In a monopoly,the firm specific demand curve is the same as

A) the market supply curve.
B) the market demand curve.
C) the market price.
D) none of the above

Question 7

Of the following,the best example of an oligopolistic industry is

A) wheat.
B) restaurants.
C) automobiles.
D) All of the above are examples of oligopolistic industries.

Question 8

A perfectly competitive market is one in which

A) firms do not attempt to maximize profit.
B) all firms produce the same level of output.
C) all firms sell an homogeneous product.
D) there are only a few firms in the industry.

Question 9

In a perfectly competitive market

A) the government imposes price ceilings on the products produced and buyers and sellers are price takers.
B) buyers set the price and sellers take the price.
C) both buyers and sellers are price takers.
D) the market demand for products produced is perfectly elastic.

Question 10

In the form of market organization called "perfect competition," the firms tend to be ________ and the product they sell is ________.

A) large; identical
B) small; different
C) large; different
D) small; identical

Question 11

Of the following,the best example of a perfectly competitive industry is

A) music stores.
B) beer.
C) cigarettes.
D) corn.

Question 12

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

A) There are many sellers.
B) The product is homogeneous.
C) There are barriers to entry.
D) all of the above

Question 13

Of the following,the best example of a monopolistic industry is

A) grocery stores.
B) toothbrushes.
C) patented drugs.
D) automobiles.

Question 14

In a monopoly firms are called "price makers" because

A) they are so small that they must accept any reasonable offer from consumers for their outputs.
B) they are able to affect the market price.
C) they are unable to sell their products at any price above the market price.
D) the firms are large relative to the size of the industry.

Question 15

Perfectly competitive industries are characterized by a homogeneous product.

Question 16

Which of the following is an example of a monopolistically competitive industry?

A) music stores
B) grocery stores
C) mobile phone service
D) Both A and B are correct.

Question 17

With respect to price,in a perfectly competitive market,firms can

A) affect the market price.
B) set the market price.
C) take the market price.
D) negotiate the market price, to a certain extent.

Question 18

Monopolistic industries are characterized by a homogeneous product.

Question 19

If a firm in a perfectly competitive market tries to raise its price above the going market price,then

A) it will sell more output.
B) it will sell the same amount of output as before.
C) it will not be able to sell any output.
D) it will sell some output, but not as much as before.

Question 20

A monopolistic competitive market has the following characteristics EXCEPT

A) no barriers to entry.
B) the product is homogeneous.
C) many sellers.
D) relatively elastic demand.

Question 21

Johan's Shoe Sole Inc.is producing at the level at which marginal revenue is equal to marginal cost.Johan's Shoe Sole Inc.must be

A) earning a zero economic profit.
B) incurring a loss.
C) maximizing profits.
D) maximizing revenue but not maximizing profits.

Question 22

For a firm in a perfectly competitive market,at the profit-maximizing level of output

A) Price = Marginal Revenue = Marginal Cost.
B) Price > Marginal Revenue > Marginal Cost.
C) Price < Marginal Revenue < Marginal Cost.
D) Price > 0 and Marginal Revenue = 0.

Question 23

For oligopolistic industries,demand is more elastic than the demand facing monopolistically competitive industries.

Question 24

Marginal revenue is

A) the ratio of total revenue to quantity.
B) the difference between total revenue and total costs.
C) the added revenue that a firm takes in from selling an additional unit of output.
D) the additional profit the firm earns when it sells an additional unit of output.

Question 25

Accounting profit is equal to

A) total revenue minus economic cost.
B) total revenue minus accounting cost.
C) total revenue minus explicit costs.
D) total revenue minus implicit costs.

Question 26

Assume that a smartphone maker operates in a perfectly competitive market producing 25,000 smartphones per day.At this output level,price is less than this firm's marginal cost.It follows that producing one more smartphone will cause this firm's

A) total cost to decrease.
B) profits to increase.
C) profits to decrease.
D) profits to remain unchanged.

Question 27

Refer to Figure 9.1.A farmer earns a total revenue of $900.Each bushel of corn is sold for $5.This farmer must be selling ________ bushels of corn.

A) 180
B) 450
C) 900
D) 4,500

Question 28

An individual firm faces the market demand curve in a monopolistic competition industry.

Question 29

Refer to Figure 9.1.A farmer produces 100 bushels of corn and sells each bushel at $5.The cost of producing each unit bushel is $2.This farmer's total revenue is

A) $20.
B) $200.
C) $300.
D) $500.

Question 30

Refer to Figure 9.2.If Buffy gives 17 perms per day,her daily profit is

A) $3.
B) $10.
C) $45.
D) $51.

Question 31

If a firm is producing where marginal revenue is greater than marginal cost,

A) the revenue gained by producing one more unit of output exceeds the additional cost incurred by doing so.
B) the revenue gained by producing one more unit of output equals the additional cost incurred by doing so.
C) the revenue gained by producing one more unit of output is less than the additional cost incurred by doing so.
D) the firm is already maximizing profits because revenue is being increased by more than costs.

Question 32

The added revenue that a firm earns from selling an additional unit of output is

A) total revenue.
B) marginal revenue.
C) variable revenue.
D) fixed revenue.

Question 33

What are the assumptions of perfect competition?

Question 34

A pasta producer is in a perfectly competitive market.To maximize profits,the pasta producer should produce the output level where

A) price equals fixed cost.
B) price equals average variable cost.
C) price equals average total cost.
D) price equals marginal cost.

Question 35

Profit-maximizing firms want to maximize the difference between

A) total revenue and marginal cost.
B) total revenue and total cost.
C) marginal revenue and marginal cost.
D) marginal revenue and average cost.

Question 36

What does it mean for a firm to be suffering an economic loss? Does this imply that the firm is incurring a loss in the accounting sense? Explain.

Question 37

A milk company in a perfectly competitive industry is producing 10,000 gallons of milk,its profit-maximizing quantity.Industry price for a gallon of milk is $3.50,total fixed costs are $5,000,and total variable costs are $10,000.The firm's economic profit is

A) $35,000.
B) $30,000.
C) $20,000.
D) $15,000.

Question 38

In all four types of markets,a firm's main objective is to

A) maximize revenue.
B) maximize output.
C) maximize economic profit.
D) minimize fixed cost.

Question 39

In perfect competition,the marginal revenue curve

A) and the demand curve facing the firm are identical.
B) is always above the demand curve facing the firm.
C) is always below the demand curve facing the firm.
D) intersects the demand curve when marginal revenue is minimized.

Question 40

Economic profit is equal to

A) the amount received from the sale of the product.
B) total revenue divided by average costs.
C) the opportunity cost of each factor of production.
D) total revenue minus total economic cost.

Question 41

Refer to Figure 9.4.If the market price of hay falls to $18,then to maximize profits this farmer should produce

A) 350 bales of hay.
B) 500 bales of hay.
C) 750 bales of hay.
D) a level of output that is indeterminate from this information.

Question 42

Refer to Figure 9.5.If this farmer is maximizing profits,his total costs will be

A) $11.
B) $66.
C) $90.
D) $132.

Question 43

Refer to Figure 9.5.If this farmer is maximizing profits,his profit will be

A) -$24.
B) $45.
C) $48.
D) $72.

Question 44

Refer to Figure 9.5.If this farmer is maximizing profits,his total revenue will be

A) $90.
B) $135.
C) $180.
D) $240.

Question 45

Refer to Figure 9.3.If the market price of soybeans falls to $8,then to maximize profits this farmer should produce

A) 200 bushels of soybeans.
B) 700 bushels of soybeans.
C) 1,000 bushels of soybeans.
D) a level of output that is indeterminate from this information.

Question 46

Refer to Figure 9.5.If this farmer is maximizing his profits,his total variable cost is

A) $24.
B) $42.
C) $108.
D) $255.

Question 47

Refer to Figure 9.4.At the market price of $18 per bushel,if this farmer produces at the profit-maximizing level of output,her total revenue would be

A) $1,200.
B) $2,800.
C) $5,600.
D) $6,300.

Question 48

Refer to Figure 9.5.For this farmer to maximize profits he should produce ________ bushels of wheat.

A) 6
B) 9
C) 12
D) 16

Question 49

Refer to Figure 9.4.If this farmer is producing the profit-maximizing level of output,her profit is

A) $0.
B) $1,000.
C) $2,000.
D) $3,000.

Question 50

Refer to Figure 9.3.This farmer's profit-maximizing level of output is ________ units of output.

A) 200
B) 700
C) 1,000
D) 1,400

Question 51

Refer to Figure 9.3.At the market price of $8 per bushel,if this farmer produces at the profit-maximizing level of output,his total revenue would be

A) $1,200.
B) $2,800.
C) $5,600.
D) $8,400.

Question 52

Recall the Application about the break-even price for growing switchgrass, a perennial grass that is native to the U.S. plains states and is used to create biofuel, to answer the following question(s).
Recall the Application.If the minimum average total cost for switchgrass farmers is $55 per ton and the minimum average variable cost is $30 per ton,then at a price of $35 per ton in the short run the switchgrass farmer will

A) shut down, that is bring no switchgrass to market.
B) operate and lose money.
C) make a zero economic profit.
D) make a positive economic profit.

Question 53

Refer to Figure 9.5.This farmer would earn zero economic profit if price was

A) $7.
B) $9.
C) $10.
D) $11.

Question 54

Refer to Figure 9.3.If this farmer is producing the profit-maximizing level of output,his profit is

A) $0.
B) $2,800.
C) $3,000.
D) $12,000.

Question 55

Refer to Figure 9.5.This farmer's fixed costs are

A) $0.
B) $24.
C) $45.
D) indeterminate unless we know the level of output the firm is producing.

Question 56

Recall the Application about the break-even price for growing switchgrass, a perennial grass that is native to the U.S. plains states and is used to create biofuel, to answer the following question(s).
Recall the Application.Which of the following statements is true about the implications of getting some North Dakota farmers to switch their crops to switchgrass?

A) The higher the price, the larger the acreage devoted to switchgrass.
B) The lower the price, the greater the amount of farmers who would switch their crops to switchgrass.
C) There are no farmers willing to switch their crops to switchgrass.
D) There is no fertile land in North Dakota to grow switchgrass.

Question 57

Refer to Figure 9.4.This farmer's profit-maximizing level of output is ________ units of output.

A) 100
B) 350
C) 500
D) 700

Question 58

Recall the Application about the break-even price for growing switchgrass, a perennial grass that is native to the U.S. plains states and is used to create biofuel, to answer the following question(s).
Recall the Application.If the minimum average variable cost for switchgrass farmers is $30 per ton and the current price is $35 per ton,in the long run the switchgrass farmer will

A) exit the industry.
B) operate and lose money.
C) make a positive economic profit.
D) make a zero economic profit.

Question 59

Recall the Application about the break-even price for growing switchgrass, a perennial grass that is native to the U.S. plains states and is used to create biofuel, to answer the following question(s).
Recall the Application.If the minimum average total cost for switchgrass farmers is $55 per ton and the minimum average variable cost is $30 per ton,then at a price of $20 per ton in the short run the switchgrass farmer will

A) shut down, that is bring no switchgrass to market.
B) operate and lose money.
C) make a zero economic profit.
D) make a positive economic profit.

Question 60

A perfectly competitive firm is producing 75 units of output.The market price is $7 and the firm's marginal cost is $8.The firm should

A) lower its price.
B) raise its price.
C) increase production.
D) decrease production.

Question 61

Scenario 9.1: 21st Century Pen, Inc. produces 2,000 pens per day, and hires 20 workers at a cost of $200 per day per worker. The price of each pen is $5 each. 21st Century Pen, Inc. pays a daily rental rate of $60 on its factory and a daily insurance rate of $20. 21st Century Pen, Inc. has a ten year lease on the factory, an insurance contract for a year, and the company has no other expenses.
Refer to Scenario 9.1.21st Century Pen,Inc.will earn positive economic profit as long as price is

A) greater than average variable cost.
B) greater than average total cost.
C) greater than marginal cost.
D) greater than average fixed cost.

Question 62

To maximize total profits,a firm should produce at the level of output at which there is the greatest difference between marginal revenue and marginal cost.

Question 63

Scenario 9.1: 21st Century Pen, Inc. produces 2,000 pens per day, and hires 20 workers at a cost of $200 per day per worker. The price of each pen is $5 each. 21st Century Pen, Inc. pays a daily rental rate of $60 on its factory and a daily insurance rate of $20. 21st Century Pen, Inc. has a ten year lease on the factory, an insurance contract for a year, and the company has no other expenses.
Refer to Scenario 9.1.21st Century Pen,Inc.'s average total cost at an output of 2,000 pens per day is approximately

A) $2.00 per unit.
B) $2.01 per unit.
C) $2.03 per unit.
D) $2.04 per unit.

Question 64

The marginal cost curve for a perfectly competitive firm is downward sloping over the entire range of output.

Question 65

For firms in perfect competition,price is equal to marginal revenue at all levels of output.

Question 66

Scenario 9.1: 21st Century Pen, Inc. produces 2,000 pens per day, and hires 20 workers at a cost of $200 per day per worker. The price of each pen is $5 each. 21st Century Pen, Inc. pays a daily rental rate of $60 on its factory and a daily insurance rate of $20. 21st Century Pen, Inc. has a ten year lease on the factory, an insurance contract for a year, and the company has no other expenses.
Refer to Scenario 9.1.21st Century Pen,Inc.'s fixed cost is

A) $4,080 per day.
B) $4,000 per day.
C) $80 per day.
D) $60 per day.

Question 67

Explain why,for all firms,profits are maximized where marginal revenue equals marginal cost.

Question 68

For firms in perfect competition,price is equal to marginal cost at all levels of output.

Question 69

Define marginal revenue.For a perfectly competitive firm,why are price and marginal revenue equal?

Question 70

Refer to Figure 9.6.At a market price of $9,this perfectly competitive,profit-maximizing firm should produce ________ units.

A) 30
B) 25
C) 20
D) 0

Question 71

What is the shape of the marginal revenue curve for a perfectly competitive firm? Why is it that way?

Question 72

At the break-even point,economic profit is zero and price is equal to average total cost.

Question 73

Suppose a farmer suddenly realized that his marginal cost was below the market price of the output.How would he react if he were a profit maximizer? Explain.

Question 74

Assume that Bright Lights,Inc.is part of a perfectly competitive market.If Bright Lights,Inc.decides to raise their prices for vanity light fixtures by 20%,which of the following is most likely to result?

A) Bright Lights, Inc.'s supply curve will shift to the left and they will produce less output.
B) Bright Lights, Inc. will increase the price of their output to compensate for the rise in their rent.
C) Bright Lights, Inc. will earn less profit but will produce the same amount of output.
D) Bright Lights, Inc. will shut down immediately.

Question 75

Maxine's Cookie Shop sells chocolate chip cookies in a perfectly competitive market for $2 per dozen.Maxine currently produces 200 dozen cookies per day and average total cost at this level of production is $1.75.What level of profit is this firm earning? Explain.

Question 76

Scenario 9.1: 21st Century Pen, Inc. produces 2,000 pens per day, and hires 20 workers at a cost of $200 per day per worker. The price of each pen is $5 each. 21st Century Pen, Inc. pays a daily rental rate of $60 on its factory and a daily insurance rate of $20. 21st Century Pen, Inc. has a ten year lease on the factory, an insurance contract for a year, and the company has no other expenses.
Refer to Scenario 9.1.21st Century Pen,Inc.'s profit is

A) $6,000 per day.
B) $5,920 per day.
C) $4,060 per day.
D) $4,000 per day.

Question 77

Refer to Figure 9.6.At a market price of $20,this profit-maximizing firm would earn ________ in economic profit.

A) $30
B) $25
C) $20
D) $0

Question 78

When a firm's economic profit is equal to one,the firm is at the break-even point.

Question 79

Refer to Figure 9.6.At a market price of $20,this perfectly competitive,profit-maximizing firm should produce approximately ________ units.

A) 30
B) 35
C) 40
D) 45

Question 80

Scenario 9.1: 21st Century Pen, Inc. produces 2,000 pens per day, and hires 20 workers at a cost of $200 per day per worker. The price of each pen is $5 each. 21st Century Pen, Inc. pays a daily rental rate of $60 on its factory and a daily insurance rate of $20. 21st Century Pen, Inc. has a ten year lease on the factory, an insurance contract for a year, and the company has no other expenses.
Refer to Scenario 9.1.Suppose that 21st Century Pen,Inc.continues to produce the same level of output and hires the same number of workers.21st Century Pen,Inc.will shut down in the short run if the price falls below

A) $1.
B) $2.
C) $3.
D) $4.