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Exam 8: Firms in Perfectly Compitive Markets

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Question 141

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If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold, what should the farm do to maximise its profit?

A) determine what the total revenue and total cost of production are
B) increase output
C) decrease output
D) lower its price to sell more

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

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Question 142

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Both buyers and sellers are price takers in a perfectly competitive market because

A) the price is determined by government intervention and dictated to buyers and sellers.
B) each buyer and seller knows it is illegal to conspire to affect price.
C) both buyers and sellers in a perfectly competitive market are concerned for the welfare of others.
D) each buyer and seller is too small relative to others to independently affect the market price.

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

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Question 143

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Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12. Which of the following will happen?

Assume that a perfectly competitive market is in long-run equilibrium. Suppose as a result of a health hazard associated with the industry's product, demand decreases drastically. What is the immediate result of this event?

If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then

To maximise profit, a firm will produce the level of output where MR = MC. If a firm actually makes a profit depends on the relationship of price to average total cost. What are the three possible relationships between price and average total cost that determine if a firm will make a profit, experience a loss, or break even?

Use a graph to show the demand, AVC, ATC, MC, and MR curves of a firm that should temporarily shut down in the short run. Identify the shutdown point on the graph.

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

A perfectly competitive wheat farmer in a constant-cost industry produces 1000 bushels of wheat at a total cost of $50 000. The prevailing market price is $48. What will happen to the market price of wheat in the long run?

Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.