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Exam 12: Firms in Perfectly Competitive Markets

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Question 51

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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.

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

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Question 52

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Writing in the New York Times on the technology boom of the late 1990s,Michael Lewis argues,"The sad truth,for investors,seems to be that most of the benefits of new technologies are passed right through to consumers free of charge." What does Lewis means by the benefits of new technology being "passed right through to consumers free of charge"?

A) Firms in perfect competition are price takers. Since they cannot influence price, they cannot dictate who benefits from new technologies, even if the benefits of new technology are being "passed right through to consumers free of charge."
B) In perfect competition, price equals marginal cost of production. In this sense, consumers receive the new technology "free of charge."
C) In the long run, price equals the lowest possible average cost of production. In this sense, consumers receive the new technology "free of charge."
D) In perfect competition, consumers place a value on the good equal to its marginal cost of production and since they are willing to pay the marginal valuation of the good, they are essentially receiving the new technology "free of charge."

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

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Question 53

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Table 12-3 Arnie sells basketballs in a perfectly competitive market. Table 12-3 summarizes Arnie's output per day (Q) , total cost (TC) , average total cost (ATC) and marginal cost (MC) . -Refer to Table 12-3.What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

When firms exit a perfectly competitive industry,the market supply curve shifts to the left.

If a perfectly competitive firm's price is above its average total cost,the firm

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.

Maximizing average profit is equivalent to maximizing total profit.

Figure 12-15 -Refer to Figure 12-15.Assume that the medical screening industry is perfectly competitive and that some firms are making short-run losses.Suppose the medical screening industry runs an effective advertising campaign which convinces a large number of people that yearly CT scans are critical for good health.Which of the diagrams in the figure best describes what happens in the industry?

Figure 12-16 -Refer to Figure 12-16.Which panel best represents the perfectly competitive organic produce market in which firms are breaking even,economically,organic produce is considered a normal good,and the average income level of consumers is rising?

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 shut down point for the firm.

How are sunk costs and fixed costs related?

Assume that after the record year for U.S.farm income in 2013,farmers are expected to break even in 2014.This means that at the quantity being produced in 2014

Figure 12-1 -Refer to Figure 12-3.If the firm is charging a price of $12 per unit

If a perfectly competitive firm achieves productive efficiency then

For a firm in a perfectly competitive market,price is

If a perfectly competitive firm's total revenue is less than its total variable cost,the firm

If a typical firm in a perfectly competitive industry is earning profits,then

A firm will break even when

What is a long-run supply curve? What does a long-run supply curve look like on a perfectly competitive market graph?

Figure 12-16 -Refer to Figure 12-16.Which panel best represents the perfectly competitive organic produce market in which some firms are earning short-run economic profits,and the Surgeon General announces that switching from non-organic produce to organic produce will add 5 years to the average life span of consumers?