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Both buyers and sellers are price takers in a perfectly competitive market because


A) the price is determined by government intervention and dictated to buyers and sellers.
B) each buyer and seller knows it is illegal to conspire to affect price.
C) both buyers and sellers in a perfectly competitive market are concerned for the welfare of others.
D) each buyer and seller is too small relative to others to independently affect the market price.

E) None of the above
F) A) and D)

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The price of a seller's product in perfect competition is determined by


A) the individual seller.
B) a few of the sellers.
C) market demand and market supply.
D) the individual demander.

E) All of the above
F) C) and D)

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A perfectly competitive firm faces a demand curve that is


A) horizontal.
B) vertical.
C) perpendicular to the quantity axis.
D) perfectly inelastic.

E) B) and C)
F) All of the above

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A

What is allocative efficiency?


A) It refers to a situation in which resources are allocated to their highest profit use.
B) It refers to a situation in which resources are allocated such that goods can be produced at their lowest possible average cost.
C) It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it.
D) It refers to a situation in which resources are allocated fairly to all consumers in a society.

E) A) and D)
F) A) and C)

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Figure 12-5 Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.The figure shows the cost structure of a firm in a perfectly competitive market.If the firm's fixed cost increases by $1,000 due to a new environmental regulation, what happens to its profit-maximizing output level? A) It increases. B) It decreases. C) It remains the same. D) It could increase, decrease, or remain constant, depending on whether the firm is able to cut costs somewhere else. Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.The figure shows the cost structure of a firm in a perfectly competitive market.If the firm's fixed cost increases by $1,000 due to a new environmental regulation, what happens to its profit-maximizing output level?


A) It increases.
B) It decreases.
C) It remains the same.
D) It could increase, decrease, or remain constant, depending on whether the firm is able to cut costs somewhere else.

E) A) and D)
F) B) and D)

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Being a price taker, a perfectly competitive firm cannot receive a producer surplus in the short run.

A) True
B) False

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False

Figure 12-2 Figure 12-2 -Refer to Figure 12-2.Suppose the firm is currently producing Qā‚‚ units.What happens if it expands output to Qā‚ƒ units? 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. -Refer to Figure 12-2.Suppose the firm is currently producing Qā‚‚ units.What happens if it expands output to Qā‚ƒ units?


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.

E) A) and B)
F) B) and D)

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Figure 12-2 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 -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

E) A) and B)
F) B) and D)

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Figure 12-9 Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9.Identify the short-run shutdown point for the firm. A) a B) b C) c D) d Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9.Identify the short-run shutdown point for the firm.


A) a
B) b
C) c
D) d

E) All of the above
F) B) and C)

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What is meant by the term "long-run competitive equilibrium"?

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Long-run competitive equilibri...

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Figure 12-4 Figure 12-4 Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 12-4.If the market price is $30 and if the firm is producing output, what is the amount of its total variable cost? A) $7,200 B) $6,480 C) $5,400 D) $3,960 Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 12-4.If the market price is $30 and if the firm is producing output, what is the amount of its total variable cost?


A) $7,200
B) $6,480
C) $5,400
D) $3,960

E) C) and D)
F) A) and D)

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Figure 12-9 Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9.At price Pā‚‚, the firm would A) lose an amount equal to its fixed cost. B) lose an amount more than fixed cost. C) lose an amount less than fixed cost. D) break even. Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9.At price Pā‚‚, the firm would


A) lose an amount equal to its fixed cost.
B) lose an amount more than fixed cost.
C) lose an amount less than fixed cost.
D) break even.

E) A) and C)
F) All of the above

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Which of the following statements is correct?


A) Economic profit takes into account all costs involved in producing a product.
B) Accounting profit is not relevant in preparing the firm's financial statement.
C) Economic profit always exceeds accounting profit.
D) Accounting profit is the same as economic profit.

E) C) and D)
F) A) and B)

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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.

E) All of the above
F) A) and C)

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Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run.Which of the following is one reason for this?


A) Owners of perfectly competitive firms realize that their short-run profits are temporary. Therefore, they either sell their businesses or develop other products that will earn short-run profits.
B) Firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms. But eventually consumers realize that all of the firms sell virtually identical products.
C) Firms from other countries are able to produce similar products at lower costs.
D) Firms in these industries sell identical products.

E) All of the above
F) B) and D)

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How are market price, average revenue, and marginal revenue related for a perfectly competitive firm and why?

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They are all equal to each other.The mar...

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Figure 12-5 Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.If the firm's fixed cost increases by $1,000 due to a new environmental regulation, what happens in the diagram above? A) All the cost curves shift upward. B) Only the average variable cost and average total cost curves shift upward; marginal cost is not affected. C) Only the average total cost curve shifts upward; the marginal cost and average variable cost curves are not affected. D) None of the curves shifts; only the fixed cost curve, which is not shown here, is affected. Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.If the firm's fixed cost increases by $1,000 due to a new environmental regulation, what happens in the diagram above?


A) All the cost curves shift upward.
B) Only the average variable cost and average total cost curves shift upward; marginal cost is not affected.
C) Only the average total cost curve shifts upward; the marginal cost and average variable cost curves are not affected.
D) None of the curves shifts; only the fixed cost curve, which is not shown here, is affected.

E) A) and B)
F) A) and C)

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C

In August 2008, Ethan Nicholas developed the iShoot app for the Apple iPhone 3G, and within five months had earned $800,000 from this program.By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,


A) earning an economic profit in the long run is extremely easy.
B) earning an economic profit in the long run is extremely difficult.
C) it is impossible to earn an economic profit in either the short run or the long run.
D) economic profits are only earned in the long run.

E) A) and D)
F) B) and C)

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Which of the following is not a characteristic of a monopolistically competitive market structure?


A) There is a large number of independently acting small sellers.
B) All sellers sell products that are differentiated.
C) There are low barriers to entry of new firms.
D) Each firm must react to actions of other firms.

E) B) and C)
F) A) and B)

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Why would a company continue to operate for many years while never once turning a profit rather than shut down immediately? Using revenue and cost analysis, explain when the company would shut down.

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A company would continue to op...

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