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The market demand curve in a perfectly competitive market is downward sloping.

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Figure 12-3 Figure 12-3 -Refer to Figure 12-3. Suppose the prevailing price is P<sub>1</sub> and the firm is currently producing its loss-minimizing quantity. Identify the area that represents the loss. A) P<sub>2</sub> deP<sub>1</sub> B) P<sub>3</sub>cbP<sub>1</sub> C) P<sub>3</sub>caP<sub>0</sub> D) 0P<sub>1</sub> bQ<sub>1</sub> -Refer to Figure 12-3. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. Identify the area that represents the loss.


A) P2 deP1
B) P3cbP1
C) P3caP0
D) 0P1 bQ1

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Assume that the medical screening industry is perfectly competitive. Consider a typical firm that is 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. How will this affect a typical firm that remains in the industry?


A) The firm's supply curve shifts right and its marginal revenue curve shifts upwards as the market price rises and ultimately the firm starts making profits.
B) The firm's marginal revenue curve and average cost curve shift upwards in response to the increase in market price and advertising expenditure. The firm increases output until it starts breaking even.
C) The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production and eventually starts making profits.
D) The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production until it breaks even.

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Assuming a market price of $4, fill in the columns in the following table. What is the profit-maximizing level of production? What are the two ways to determine the profit-maximizing level of production? Assuming a market price of $4, fill in the columns in the following table. What is the profit-maximizing level of production? What are the two ways to determine the profit-maximizing level of production?

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blured image The profit-maximizing level of producti...

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Figure 12-1 Figure 12-1 -Refer to Figure 12-1. If the firm is producing 500 units, what is the amount of its profit or loss? A) profit 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 500 units, what is the amount of its profit or loss?


A) profit 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.

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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>2 </sub>the firm A) will break even and produce a quantity of Q<sub>2</sub>. B) will make a profit and produce a quantity of Q<sub>2</sub>. C) will make a profit and produce a quantity of Q<sub>1</sub>. D) will make a profit and produce a quantity of Q<sub>3</sub>. Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7. If the market price is P2 the firm


A) will break even and produce a quantity of Q2.
B) will make a profit and produce a quantity of Q2.
C) will make a profit and produce a quantity of Q1.
D) will make a profit and produce a quantity of Q3.

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If the market price is $40 in a perfectly competitive market, the marginal revenue from selling the fifth unit is


A) $8.
B) $20.
C) $40.
D) $200.

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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.

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If productive efficiency characterizes a market


A) the marginal cost of production is minimized.
B) firms produce the goods that consumers desire most.
C) the output is being produced at the lowest possible cost.
D) firms use the best technology available to produce the good.

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Table 12-3 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) . -A firm will make a profit when A) P > AVC. B) P > ATC. C) P = ATC. D) P = MC. 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) . -A firm will make a profit when


A) P > AVC.
B) P > ATC.
C) P = ATC.
D) P = MC.

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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 shut down 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 shut down point for the firm.


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

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If, for the last bushel of apples produced and sold by an apple farm, marginal revenue exceeds marginal cost, then in producing that bushel the farm


A) added more to total cost than it added to total revenue.
B) added an equal amount to both total revenue and total cost.
C) added more to total revenue than it added to total cost.
D) maximized its profits or minimized its losses.

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In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are


A) implicit costs.
B) capital costs.
C) nonmonetary opportunity costs.
D) sunk costs.

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The supply curve of a perfectly competitive firm in the short run is


A) the firm's average variable cost curve.
B) the portion of the firm's marginal cost curve below the minimum point of the average variable cost curve.
C) the portion of the firm's marginal cost curve above the minimum point of the average variable cost curve.
D) the portion of the firm's marginal cost curve above the minimum point of the average total cost curve.

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A very large number of small sellers who sell identical products imply


A) a multitude of vastly different selling prices.
B) a downward sloping demand curve for each seller's product.
C) the inability of one seller to influence the price.
D) chaos in the market.

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The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

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Perfect competition is characterized by all of the following except


A) heavy advertising by individual sellers.
B) homogeneous products.
C) sellers are price takers.
D) a horizontal demand curve for individual sellers.

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Figure 12-1 Figure 12-1 -Refer to Figure 12-1. If the firm is producing 200 units A) it breaks even. B) it is making a loss. C) it should cut back its output to maximize profit. D) it should increase its output to maximize profit. -Refer to Figure 12-1. If the firm is producing 200 units


A) it breaks even.
B) it is making a loss.
C) it should cut back its output to maximize profit.
D) it should increase its output to maximize profit.

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In the long run, a firm in a perfectly competitive industry will supply output only if its total revenue covers its


A) explicit costs plus its implicit costs.
B) fixed costs.
C) implicit costs.
D) explicit costs.

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A wheat farmer and a firm in a perfectly competitive market are similar in that


A) both face vertical demand curves.
B) both have to lower their prices if a rival firm lowers its price.
C) both face horizontal demand curves.
D) both will earn an economic profit if their total revenue equals their total cost.

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