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Consider the following cost curves for two perfectly competitive firms, A and B. Consider the following cost curves for two perfectly competitive firms, A and B. FIGURE 9- 4 -Refer to Figure 9- 4. Firms A and B are in the same industry. Choose the statement that best describes the situation facing the two firms. A) Firm A and Firm B are both suffering economic losses and will soon exit the industry. B) Firm A is making losses but remains producing as long as price falls no further; Firm B is producing at lower cost and is earning economic profits. C) Firm A and Firm B are both earning positive economic profits; new firms will likely enter the industry. D) Firm A is suffering losses and will be shut down immediately; Firm B will be shut down if the price falls any further. FIGURE 9- 4 -Refer to Figure 9- 4. Firms A and B are in the same industry. Choose the statement that best describes the situation facing the two firms.


A) Firm A and Firm B are both suffering economic losses and will soon exit the industry.
B) Firm A is making losses but remains producing as long as price falls no further; Firm B is producing at lower cost and is earning economic profits.
C) Firm A and Firm B are both earning positive economic profits; new firms will likely enter the industry.
D) Firm A is suffering losses and will be shut down immediately; Firm B will be shut down if the price falls any further.

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

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Consider the price and quantity data below for a perfectly competitive firm producing mousetraps.  Price ($)  Quantity 5100051250515005175052000 TABLE 9-1 \begin{array}{l}\begin{array} { | l | l | } \hline \text { Price } ( \$ ) & \text { Quantity } \\\hline 5 & 1000 \\\hline 5 & 1250 \\\hline 5 & 1500 \\\hline 5 & 1750 \\\hline 5 & 2000 \\\hline\end{array}\\\text { TABLE 9-1 }\end{array} -Refer to Table 9- 1. Suppose this firm is producing 1250 mousetraps and its average total cost is $4 per unit. The firm will be


A) suffering losses of $5000.
B) earning profits of $1250.
C) earning profits of $5000.
D) suffering losses of $1250.
E) breaking even.

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

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Assume the following total cost schedule for a perfectly competitive firm.  Output  TVC  TFC 001001401002701003120100418010052501006330100 TABLE 9- 2\begin{array}{l}\begin{array} { | l | l | l | } \hline \text { Output } & \text { TVC } & \text { TFC } \\\hline 0 & 0 & 100 \\\hline 1 & 40 & 100 \\\hline 2 & 70 & 100 \\\hline 3 & 120 & 100 \\\hline 4 & 180 & 100 \\\hline 5 & 250 & 100 \\\hline 6 & 330 & 100 \\\hline\end{array}\\\text { TABLE 9- } 2\end{array} -Refer to Table 9- 2. The profit- maximizing firm would shut down in the short run if the market price of its output dropped below


A) $35.
B) $40.
C) $70.
D) $90.
E) $100.

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

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The conditions for a perfectly competitive market include which one of the following?


A) Firms can control prices.
B) New entrants cannot threaten the position of existing firms.
C) Firms must employ the newest technologies as soon as they are developed.
D) Firms behave as price takers.
E) Profits are zero in the short run.

F) B) and C)
G) B) and D)

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Given the usual assumptions about perfect competition, a perfectly competitive firm


A) can affect the market conditions in a significant way.
B) can set the price it charges.
C) competes actively with other sellers in the industry.
D) can sell as much of its product as it wishes at the market price.
E) is aware of its competitors' costs.

F) B) and C)
G) A) and B)

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Total revenue (TR) for an individual firm in a perfectly competitive market equals


A) Oq/Op.
B) p × q.
C) O(p × q) /Oq.
D) (p × q) /q.
E) Op × Oq.

F) B) and E)
G) A) and B)

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If a perfectly competitive firm in the short run is producing where P = ATC = MC, this firm is


A) on the downward- sloping portion of its demand curve.
B) at its profit- maximizing output level.
C) earning economic profits.
D) incurring losses.
E) obliged to shut down.

F) A) and E)
G) A) and C)

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Suppose that in a perfectly competitive industry, the market price of the product is $6. A firm is producing the output level at which average total cost equals marginal cost, both of which are $8. Average variable cost is $4. To maximize its profits in the short run, the firm should


A) leave its output unchanged.
B) -- there is insufficient information to know.
C) reduce its output.
D) expand its output.
E) shut down.

F) All of the above
G) A) and D)

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Consider the price and quantity data below for a perfectly competitive firm producing mousetraps.  Price ($)  Quantity 5100051250515005175052000 TABLE 9- 1\begin{array}{l}\begin{array} { | l | l | } \hline \text { Price } ( \$ ) & \text { Quantity } \\\hline 5 & 1000 \\\hline 5 & 1250 \\\hline 5 & 1500 \\\hline 5 & 1750 \\\hline 5 & 2000 \\\hline\end{array}\\\text { TABLE 9- } 1\end{array} -Refer to Table 9- 1. Suppose this firm is currently selling 1750 mousetraps at the market price of $5. If the firm raises its price to $6, it's average revenue will be


A) $5.
B) greater than $6.
C) $6.
D) $0.
E) between $5 and $6.

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

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The supply curve for a perfectly competitive industry is the horizontal summation of the individual firms'


A) MC curves above AVC.
B) MC curves above ATC.
C) short- run average cost curves.
D) MC curves above AFC.
E) AVC curves above MC.

F) A) and C)
G) A) and E)

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Firms have several different concepts of revenue: total revenue, average revenue, marginal revenue, and price. For a perfectly competitive firm, which statement below is true?


A) Only average revenue and price are equal.
B) Total revenue, average revenue, marginal revenue, and price are all equal.
C) Only marginal revenue and price are equal.
D) Average revenue, marginal revenue, and price are equal.
E) None of these revenues are equal.

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

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Suppose a perfectly competitive firm is producing a level of output for which price equals average total cost, and average total cost is less than marginal cost. In order to maximize its profits, the firm should


A) shut down.
B) not change its output.
C) reduce its output.
D) increase the market price.
E) expand its output.

F) C) and D)
G) C) and E)

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Consider the following total cost schedule for a perfectly competitive firm producing ball- point pens.  Output  per period  TVC ($)  TFC ($) 0051025203530654010550155 TABLE 9- 3\begin{array}{l}\begin{array} { | l | l | l | } \hline \begin{array} { l } \text { Output } \\\text { per period }\end{array} & \text { TVC } ( \$ ) & \text { TFC } ( \$ ) \\\hline 0 & 0 & 5 \\\hline 10 & 2 & 5 \\\hline 20 & 3 & 5 \\\hline 30 & 6 & 5 \\\hline 40 & 10 & 5 \\\hline 50 & 15 & 5 \\\hline\end{array}\\\text { TABLE 9- } 3\end{array} -Refer to Table 9- 3. Suppose the prevailing market price for this firm's product is $0.40 and the firm produces its profit- maximizing level of output. At this price


A) the firm is suffering economic losses and this firm will exit the industry.
B) the firm should decrease output.
C) the firm is earning positive economic profits.
D) the firm is earning zero economic profits.
E) the firm should increase output.

F) A) and B)
G) A) and D)

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A perfectly competitive firm's demand curve coincides with


A) both its marginal and total- revenue curves.
B) its average- revenue curve and total- revenue curve.
C) its total- revenue curve.
D) the market demand curve.
E) both its marginal and average- revenue curves.

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

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Consider a firm in a perfectly competitive industry. The shut- down point is the price at which the firm can just cover its


A) variable costs.
B) marginal costs.
C) unstated costs.
D) non- economic costs.
E) fixed costs.

F) B) and D)
G) None of the above

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If firms in a competitive industry are facing a continual decrease in demand for their product, in the long run


A) existing firms will modernize plant and equipment in order to increase efficiency.
B) capacity in the industry will gradually shrink as plant and equipment is not replaced.
C) newer, more efficient firms will enter the industry and earn normal profits.
D) existing firms will expand output as a means of recovering losses.
E) firms will begin advertising in order to increase demand for their product.

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

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A firm in a perfectly competitive industry


A) will maximize its profit by producing where P = ATC.
B) will not produce at all if P < the minimum of AVC.
C) can improve its competitive position and sell more output by advertising its product.
D) will not produce at all if P < ATC.
E) will maximize its profit by producing where P = AVC.

F) A) and B)
G) B) and C)

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In long- run equilibrium, a perfectly competitive firm has


A) P = MC = minimum short- run ATC = minimum long- run AC.
B) a highly differentiated product.
C) successfully established barriers to entry.
D) large economic profits.
E) a strong profit incentive to expand capacity.

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

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If a perfectly competitive firm produces at an output level where marginal cost equals marginal revenue, then


A) the difference between TR and TC is zero.
B) the firm should shut down.
C) the firm is maximizing its revenue.
D) there is no reason to reduce or expand output, as long as AVC is greater than or equal to price.
E) the last unit produced adds the same amount to costs as it does to revenue.

F) A) and E)
G) A) and B)

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A firm in a perfectly competitive industry will maximize profits by adjusting


A) average total cost until it equals price.
B) price until marginal revenue equals marginal cost.
C) output until average revenue equals short- run average total cost.
D) price until average revenue equals average total cost.
E) output until marginal cost equals marginal revenue.

F) None of the above
G) All of the above

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