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In the short run,a profit-maximizing firm will shut down if its total revenue is greater than its variable costs.

A) True
B) False

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Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?


A) Restaurants do not sell identical products.
B) Restaurants compete in small market areas - neighborhoods and cities - rather than in regional or national markets. Therefore, restaurants are not small relative to their market size.
C) Restaurants usually have entry barriers in the form of zoning restrictions and health regulations.
D) Restaurants have significant liability costs that perfectly competitive firms do not have; for example, customers may sue if they suffer from food poisoning.

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

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

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Profit is the difference between


A) marginal revenue and marginal cost.
B) total revenue and variable cost.
C) total revenue and total explicit cost.
D) total revenue and total cost.

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

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Which of the following is not true for a firm in perfect competition?


A) Profit equals total revenue minus total cost.
B) Price equals average revenue.
C) Average revenue is greater than marginal revenue.
D) Marginal revenue equals the change in total revenue from selling one more unit.

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

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For a perfectly competitive firm,at the profit-maximizing output average revenue equals marginal cost.

A) True
B) False

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For a perfectly competitive firm,average revenue is equal to


A) marginal cost.
B) the market price.
C) total revenue.
D) average fixed cost.

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

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A firm's total profit can be calculated as all of the following except


A) total revenue minus total cost.
B) average profit per unit times quantity sold.
C) (price minus average total cost) times quantity sold.
D) marginal profit times quantity sold.

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

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The long-run supply curve for a perfectly competitive,constant-cost industry


A) is upward-sloping.
B) is horizontal.
C) is downward-sloping.
D) is found by adding up the marginal cost curves for all firms in the industry.

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

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Figure 12-19 Figure 12-19 -Refer to Figure 12-19.The figure above shows the cost curves of a perfectly competitive firm in the coffee market.Use the graph in Figure 12-19 to answer the following questions.Assume the market price is $3 per pound. a.What is the lowest price at which the coffee grower will supply output in the short run? b.In the diagram draw the firm's demand curve (label this MR for marginal revenue). c.What is the firm's profit-maximizing output? d.Is the firm earning a profit or a loss? Identify the area in the graph that represents the firm's profit or loss. e.Explain how entry or exit will occur in the market to ensure that firms will break even in the long run. -Refer to Figure 12-19.The figure above shows the cost curves of a perfectly competitive firm in the coffee market.Use the graph in Figure 12-19 to answer the following questions.Assume the market price is $3 per pound. a.What is the lowest price at which the coffee grower will supply output in the short run? b.In the diagram draw the firm's demand curve (label this "MR" for marginal revenue). c.What is the firm's profit-maximizing output? d.Is the firm earning a profit or a loss? Identify the area in the graph that represents the firm's profit or loss. e.Explain how entry or exit will occur in the market to ensure that firms will break even in the long run.

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a.$1.50 per pound.This represents the lo...

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Figure 12-8 Figure 12-8 -Refer to Figure 12-8.Suppose the market price is $120.Which of the following is true? A) The firm earns a profit equal to the area A. B) The firm earns a profit equal to the area A + B. C) The firm suffers a loss equal to the area A. D) The firm will break even. -Refer to Figure 12-8.Suppose the market price is $120.Which of the following is true?


A) The firm earns a profit equal to the area A.
B) The firm earns a profit equal to the area A + B.
C) The firm suffers a loss equal to the area A.
D) The firm will break even.

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

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Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterizes the industry if,as demand for tuna increases,fishing boats have to go farther into the ocean to harvest tuna?


A) a constant-cost industry
B) an increasing-cost industry
C) a decreasing-cost industry
D) a fixed-cost industry

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

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Figure 12-8 Figure 12-8 -Refer to Figure 12-8.Suppose the firm produces 4,000 units.What does the shaded area labeled B represent? A) the firm's economic loss B) total variable cost C) average variable cost D) total fixed cost -Refer to Figure 12-8.Suppose the firm produces 4,000 units.What does the shaded area labeled B represent?


A) the firm's economic loss
B) total variable cost
C) average variable cost
D) total fixed cost

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

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Figure 12-7 Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7.If the market price is P<sub>1</sub> A) The firm will experience a loss and raise its price to P<sub>2</sub>. The firm will then break even. B) The firm will break even by producing a quantity of Q<sub>2</sub>. C) The firm will experience a loss since price is less than ATC. D) The firm may make a profit if it can increase the demand for its product. Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7.If the market price is P1


A) The firm will experience a loss and raise its price to P2. The firm will then break even.
B) The firm will break even by producing a quantity of Q2.
C) The firm will experience a loss since price is less than ATC.
D) The firm may make a profit if it can increase the demand for its product.

E) B) and C)
F) None of the above

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The demand curve for each seller's product in perfect competition is horizontal at the market price because


A) each seller is too small to affect market price.
B) the price is set by the government.
C) all the sellers get together and set the price.
D) all the demanders get together and set the price.

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

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Figure 12-6 Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6.Jason is currently producing 20 thousand pounds of apples.To maximize his profit Jason should A) keep production at 20 thousand pounds. B) increase production to the output rate indicated by point d. C) increase production to the output rate indicated by point e. D) decrease production to the output rate indicated by point a. Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6.Jason is currently producing 20 thousand pounds of apples.To maximize his profit Jason should


A) keep production at 20 thousand pounds.
B) increase production to the output rate indicated by point d.
C) increase production to the output rate indicated by point e.
D) decrease production to the output rate indicated by point a.

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

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Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows: Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows: Suppose the current equilibrium price in the teapot market is $20.To maximize profit,how many teapots will Veronica produce,what price will she charge,and how much profit (or loss)will she make? Draw a graph to illustrate your answer.Your graph should include Veronica's demand,ATC,AVC,MC,and MR curves,the price she is charging,the quantity she is producing,and the area representing her profit (or loss). Suppose the current equilibrium price in the teapot market is $20.To maximize profit,how many teapots will Veronica produce,what price will she charge,and how much profit (or loss)will she make? Draw a graph to illustrate your answer.Your graph should include Veronica's demand,ATC,AVC,MC,and MR curves,the price she is charging,the quantity she is producing,and the area representing her profit (or loss).

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Veronica will produce 6 teapot...

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Figure 12-1 Figure 12-1 -Refer to Figure 12-1.If the firm is producing 700 units,what is the amount of its profit or loss? A) loss of $280 B) loss equivalent to the area A C) profit equivalent to the area A D) There is insufficient information to answer the question. -Refer to Figure 12-1.If the firm is producing 700 units,what is the amount of its profit or loss?


A) loss of $280
B) loss equivalent to the area A
C) profit equivalent to the area A
D) There is insufficient information to answer the question.

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

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Assume that the LCD and plasma television sets industry is perfectly competitive.Suppose a producer develops a successful innovation that enables it to lower its cost of production.What happens in the short run and in the long run?


A) Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short run profits because other firms would also innovate.
B) The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits.
C) This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation.
D) The firm will be able to increase its profits temporarily, but in the long run its profits will be eliminated as other firms copy the innovation.

E) B) and C)
F) None of the above

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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 market price is $20,what is the average profit at the profit-maximizing quantity? A) $5 B) $6 C) $9 D) $20 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 market price is $20,what is the average profit at the profit-maximizing quantity?


A) $5
B) $6
C) $9
D) $20

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

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