Problem set Chapter 12
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Which of the following is not a characteristic of a perfectly competitive market structure?
A) There are a very large number of firms that are small compared to the market.
B) All firms sell identical products.
C) There are restrictions on exit of firms.
D) There are no restrictions to entry by new firms.
1)
2) Perfect competition is characterized by all of the following except
A) heavy advertising by individual sellers.
B) homogeneous products.
C) a horizontal demand curve for individual sellers.
D) sellers are price takers.
2)
3) A very large number of small sellers who sell identical products imply
A) a downward sloping demand curve for each seller's product.
B) a multitude of vastly different selling prices.
C) the inability of one seller to influence price.
D) chaos in the market.
3)
4) Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry
charges $21. Which of the following will happen?
A) The firm's revenue will increase.
B) The firm will sell more output than its competitors.
C) The firm's profits will increase.
D) The firm will not sell any output.
4)
5) A perfectly competitive firm faces a demand curve that is
A) perfectly inelastic.
B) horizontal.
C) perpendicular to the quantity axis.
D) vertical.
5)
6) A firm's total profit can be calculated as all of the following except
A) total revenue minus total cost.
B) marginal profit times quantity sold.
C) (price minus average total cost) times quantity sold.
D) average profit per unit times quantity sold.
6)
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Table 12-1
Quantity
0
Total Cost
(dollars)
$1,000
Variable Cost
(dollars)
$0
100
1,360
360
200
1,560
560
300
1,960
960
400
2,760
1,760
500
600
4,000
5,800
3,000
4,800
Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that
output can only be increased in batches of 100 units.
7) Refer to Table 12-1. What is the fixed cost of production?
A) $0
B) $500
C) $1,000
D) It cannot be determined.
7)
8) Refer to Table 12-1. If the market price of each camera case is $8, what is the profit-maximizing
quantity?
A) 300 units
B) 400 units
C) 500 units
D) 600 units
8)
9) Refer to Table 12-1. If the market price of each camera case is $8, what is the firm's total revenue?
A) $2,400
B) $3,200
C) $4,000
D) $4,800
9)
10) Refer to Table 12-1. If the market price of each camera case is $8 and the firm maximizes profit,
what is the amount of the firm's profit or loss?
A) $0 (it breaks even)
B) loss of $1,000
C) profit of $440
D) loss of $440
10)
11) Refer to Table 12-1. Suppose the fixed cost of production rises by $500 and the price per unit is still
$8. What happens to the firm's profit-maximizing output level?
A) It will remain the same.
B) It must rise to offset the increased cost.
C) The firm will shut down.
D) It must fall.
11)
12) Refer to Table 12-1. The firm will not produce in the short run if the output price falls below
A) $8.
B) $4.
C) $3.20.
D) $2.80.
12)
13) If, for a given output level, a perfectly competitive firm's price is less than its average variable cost,
the firm
A) should shut down.
B) should increase price.
C) is earning a profit.
D) should increase output.
13)
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Figure 12-3
14) 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) P3 caP0
B) 0P1 bQ1
C) P2 deP 1
14)
D) P3 cbP1
15) If a perfectly competitive firm's price is less than its average total cost but greater than its average
variable cost, the firm
A) is incurring a loss.
B) should shut down.
C) is earning a profit.
D) is breaking even.
15)
Figure 12-4
Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
16) Refer to Figure 12-4. If the market price is $30, the firm's profit-maximizing output level is
A) 0.
B) 130.
C) 180.
D) 240.
16)
17) Refer to Figure 12-4. If the market price is $30 and if the firm is producing output, what is the
amount of its total variable cost?
A) $7,200
B) $6,480
C) $5,400
D) $3,960
17)
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18) Refer to Figure 12-4. What is the amount of its total fixed cost?
A) $1,080
B) $1,440
C) $2,520
D) It cannot be determined.
18)
19) Refer to Figure 12-4. If the market price is $30 and the firm is producing output, what is the
amount of the firm's profit or loss?
A) loss of $1,080
B) profit of $1,300
C) profit of $1,440
D) loss of $2,520
19)
20) Refer to Figure 12-4. If the market price is $30, should the firm represented in the diagram
continue to stay in business?
A) No, it should shut down because it is making a loss.
B) Yes, because it is making a profit.
C) No, it should shut down because it cannot cover its variable cost.
D) Yes, because it is covering part of its fixed cost.
20)
Table 12-3
Quantity
0
1
2
3
4
5
6
7
8
9
Total Cost
$10.00
15.00
17.50
22.50
30.00
40.00
52.50
67.50
85.00
105.00
Average Total
Cost
Marginal Cost
--------$15.00
$5.00
8.75
2.50
7.50
5.00
7.50
7.50
8.00
10.00
8.75
12.50
9.64
15.00
10.63
17.50
11.67
20.00
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).
21) Refer to Table 12-3. What price (P) will Arnie charge and how much profit will he earn if the
market price of basketballs is $12.50?
A) Price and profit cannot be determined from the information given.
B) P = $20; profit = $75.00.
C) P = $12.50; profit = $52.50
D) P = $12.50; profit = $22.50
21)
22) 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?
A) Q = 3; profit = -$7.50
B) Q = 0; profit = -$10.00
C) Q = 1; profit = -$10.
D) Price and profit cannot be determined from the information given.
22)
23) A firm will break even when
A) P < AVC.
B) P = ATC.
23)
C) P > ATC.
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D) P = AVC.
Figure 12-9
Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
24) Refer to Figure 12-9. At price P1 , the firm would produce
A) Q1 units
B) Q3 units.
C) Q5 units.
25) Refer to Figure 12-9. At price P3 , the firm would
24)
D) zero units.
25)
A) break even.
C) lose an amount more than fixed cost.
B) lose an amount less than fixed cost.
D) lose an amount equal to its fixed cost.
TRUE/FALSE. Write 'A' if the statement is true and 'B' if the statement is false.
26) A perfectly competitive firm's marginal revenue curve is downward sloping.
26)
27) For a perfectly competitive firm, at the profit-maximizing output average revenue equals
marginal cost.
27)
28) In the short run, if a firm shuts down its maximum loss equals the amount of its fixed cost.
28)
29) In the short run, a firm that incurs losses might choose to produce rather than shut down if the
amount of its revenue is less than its fixed cost.
29)
30) In the short run, a profit-maximizing firm will shut down if its total revenue is greater than its
variable costs.
30)
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Answer Key
Testname: UNTITLED1
1) C
2) A
3) C
4) D
5) B
6) B
7) C
8) B
9) B
10) C
11) A
12) D
13) A
14) D
15) A
16) C
17) D
18) C
19) A
20) D
21) D
22) A
23) B
24) D
25) A
26) FALSE
27) TRUE
28) TRUE
29) FALSE
30) FALSE
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