question
A market price is greater than marginal cost in a perfectly competitive market. What will allocative efficiency be at that level of production?
answer
The market will produce too little for allocation efficiency.
question
A firm producing where price equals marginal cost that has variable costs equaling $60 million, fixed costs equaling $40 million; and revenues equaling $50 million should:
answer
shut down now and leave the industry in the long run.
question
In the short run, a perfectly competitive firm that is maximizing profits will produce where,
answer
price is equal to marginal cost.
question
Which of the following best represents the long-run changes (from the very beginning to the end) in prices and quantities in a perfectly competitive, constant-cost industry? If demand in the market increases, the market price will ____________
answer
not change.
question
In the long run a perfectly competitive firm maximizing profit will produce where:
answer
average cost is at a minimum.
question
Following a decrease in demand, the perfectly competitive industry has adjusted to a short run equilibrium. As the firm moves back to a long run equilibrium, the price will _______________ and the typical firm's production will ___________.
answer
increase; increase
question
A perfectly competitive market is producing a level of production where price is equal to the marginal cost. There are economic profits being earned. What will happen to the firm and the market in the long run? Market production will _________; firm production will ___________.
answer
increase; decrease
question
Which of the following best represents the order (from lowest to highest) of likely price levels of firms in each of the market structures?
a. 1) perfect competition/monopolistic competition 2) oligopoly/monopoly
b. 1) perfect competition 2) monopolistic competition 3) oligopoly 4) monopoly
c. 1) perfect competition/oligopoly 2) monopolistic competition 3) monopoly
d. perfect competition 2) monopolistic competition 3) monopoly 4) oligopoly
a. 1) perfect competition/monopolistic competition 2) oligopoly/monopoly
b. 1) perfect competition 2) monopolistic competition 3) oligopoly 4) monopoly
c. 1) perfect competition/oligopoly 2) monopolistic competition 3) monopoly
d. perfect competition 2) monopolistic competition 3) monopoly 4) oligopoly
answer
b. 1) perfect competition 2) monopolistic competition 3) oligopoly 4) monopoly
question
In the short run, a perfectly competitive firm that is maximizing profits will produce where,
answer
price is equal to marginal cost.
question
Consider a market where competitive producers are making trucks and SUVc with basically the same resources. The demand for trucks increases. What is likely to happen in the market for SUVs?
answer
The equilibrium quantity will decrease; the equilibrium price will increase.
question
To make a decision about introducing a new product, what is the relevant cost? $10 million has been spent to date on research and development. The results of the research and development can be sold to another company for $12 million. Additional labor and other costs necessary to complete the project equal $7 million. Remember sunk costs.
answer
$19 million
question
Which of the following set of characteristics applies to a firm in a perfectly competitive market?
answer
Many firms with identical products and no control over the market price.
question
The perfectly competitive market price of bananas is $0.79 per pound. Marcy sells 100 pounds of bananas. Her total revenue for selling bananas is __________. Her marginal revenue for selling the 100th pound of bananas is ___________.
answer
$79.00; $0.79
question
The perfectly competitive market price of a box of paper clips is $1.49 per box of 100. Chloe sells 50 boxes of paper clips at her store. Her total revenue for selling boxes of paper clips is ___________. Her marginal revenue for selling the 50th box of paper clips is _________.
answer
$74.50; $1.49
question
If the price of music decreases, what will happen in the short run to perfectly competitive firms that produce headphones? The price of headphones will ____________ and headphone producing firms will ____________ output.
answer
increase; increase
question
In perfect competition, the individual firm cannot affect the price of the good it produces and sells. As a result, the total revenue (TR) function for an individual firm in perfect competition is:
answer
upward sloping and linear.
question
In the long run, one perfectly competitive industry charges higher prices than another perfectly competitive industry. Assume that both are constant cost industries. The cause of the price difference is that the industry with the higher price has a:
answer
greater average cost. As a result, the marginal utility is higher.
question
What happens to the total amount spent on a good if its demand increases in a perfectly competitive market?
answer
The total amount spent will increase.
question
Markets with competitive producers are making trucks and refrigerators with basically the same resources. The demand for trucks increase. What is likely to happen in the market for refrigerators?
answer
The equilibrium quantity will decrease; the equilibrium price will increase.
question
Think about the characteristics of firms and the products in a perfectly competitive model. Which of the markets is most likely to be considered perfectly competitive?
answer
agricultural commodities such as corn or wheat
question
Abinhav fixes computer screens in a very competitive market. He is currently earning zero economic profits. He gets an offer to work for a large tech company at a wage greater than his current accounting profits. If Abinhav does not take the job offer (and everything else remains the same):
answer
his accounting profits will stay the same but his economic profits will fall.
question
In a perfectly competitive market, if economic profits are positive then the economy will become more allocatively efficient when:
answer
firms enter the market and bring more resources into that market, which will decrease prices in the market.
question
A profit-maximizing monopoly will produces where which of the following is true?
a. Marginal revenue is less than the price
b. Marginal revenue is equal to the marginal cost
c. Marginal revenue is positive
a. Marginal revenue is less than the price
b. Marginal revenue is equal to the marginal cost
c. Marginal revenue is positive
answer
a, b, c
The marginal revenue is always below the demand curve (the price) for a monopoly. Their profit decision occurs where marginal revenue is equal to marginal cost, which occurs when marginal revenue is positive.
The marginal revenue is always below the demand curve (the price) for a monopoly. Their profit decision occurs where marginal revenue is equal to marginal cost, which occurs when marginal revenue is positive.
question
Imagine two firms with identical cost structures that do not exhibit economies of scale at high levels of production. One is competing in a perfectly competition market and one is a monopoly. In the long run which of the following is true? (Hint: For a perfectly competitive firm, the price will be the minimum at the average cost, while for a monopoly, the quantity will be lower and the price higher.)
answer
The monopoly will charge a higher price than the perfectly competitive firm
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