21 Jul WHICH OF THE FOLLOWING STATEMENTS IS CORRECT?
a.the price the firm should charge Show more The manager of a perfectly competitive firm has to decide: a.the price the firm should charge for its output. b.the quantity of output the firm should produce and the price it should charge. c.the quantity of output the firm should produce. d.neither the quantity of output the firm should produce nor the price it should charge because the market makes both of these decisions. Perfectly competitive firms are said to be small. Which of the following best describes this smallness? a.The individual firm is unable to affect market price through its output decisions. b.The individual firm must have fewer than 10 employees. c.The individual firm faces a downward-sloping demand curve. d.The individual firm has assets of less than $2 million. The fact that the outputs of the firms in a perfectly competitive market are undifferentiated means that: a.consumers dont care which supplier they buy from. b.purchase decisions are based only on price. c.the quality of each producers output is the same. d.all of the above. Assume a perfectly competitive firm is producing a level of output at which MR > MC. What should the firm do to maximize its profits? a.The firm should increase price. b.The firm should hire less labor. c.The firm should increase output. d.The firm should do nothing > it wants to maximize the difference between MR and MC in order to maximize its profits. The demand curve faced by the individual perfectly competitive firm is: a.vertical. b.upward sloping. c.horizontal. d.downward sloping. In order to maximize its profits a price-taking firm should produce the level of output at which: a.marginal revenue = marginal cost. b.average revenue = average cost. c.total revenue = total cost. d.variable revenue = variable cost. A firm will earn zero economic profit when at the firms profit-maximizing level of output: a.MR = MC > ATC. b.P = AFC. c.P = AVC. d.P = ATC. When price is less than average variable cost at the profit-maximizing level of output a firm should: a.continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the long run. b.shutdown because it cannot even cover all of its variable costs let alone its fixed costs if it stays in business. c.shutdown because it will lose nothing in that case. d.continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the short run. When a firm is earning positive economic profit: a.price is greater than average total cost. b.price equals average total cost. c.price is less than average total cost. d.price is greater than or less than average total cost depending on the level of output. Assume that at the current market price a perfectly competitive firms profit-maximizing level of output yields total revenues that are just equal to total costs. Which of the following statements applies to this firm? a.The firm should increase its explicit costs to reduce its tax burden. b.The firm should continue to operate in the short run to minimize losses but shut down if things dont improve over the long run. c.The firm is earning zero economic profit and should continue to operate. d.The firm should shut down right now. Assume there is a decrease in the market demand for a good sold by price-taking firms that are initially producing the profit-maximizing level of output. How will the market adjust over time? a.Firms will exit the market causing price to rise until losses are eliminated. b.Firms will exit the market causing price to fall until positive profits are eliminated. c.Firms will enter the market causing price to fall until positive profits are eliminated. d.Firms will enter the market causing price to rise until losses are eliminated. Assume a perfectly competitive firm is producing the profit-maximizing level of output and price is less than average total cost but greater than average variable cost. Which of the following statements is correct? a.The firm should raise its price enough to cover its losses. b.The firm should continue to produce in the short run in order to minimize its losses. c.The firm should shutdown in order to minimize its losses. d.The firm should move its resources to another industry. The perfectly competitive firms supply curve: a.is the firms average total cost curve above the shutdown point. b.is the firms marginal cost curve above the minimum point on the AVC curve. c.coincides with its perfectly elastic demand curve. d.is perfectly inelastic at the market price. If farmers operating in the competitive wheat industry are incurring losses and are not kept in business with government subsidies which of the following will result? a.Resources will be reallocated out of the wheat industry into more productive uses. b.Farmers will run economic losses indefinitely if they are rational. c.Price and quantity produced will both increase in the long run. d.The supply of wheat will fall to near zero and the U.S. will become dependent on foreign suppliers of food. Industry X which is perfectly competitive is in long-run equilibrium. Assume a new law is passed that requires employers in industry X to provide health insurance to previously uninsured employees. As a result of this new requirement we would expect to observe: a.an increase in price and a decrease in total output in industry X. b.an increase in price and total output in industry X. c.a decrease in price and total output in industry X. d.a decrease in price and an increase in total output in industry X. Assume that there is an improvement in the technology used by firms in a perfectly competitive industry. After all adjustments have taken place we would expect to see: a.an increase in equilibrium price and a decrease in quantity. b.a decrease in equilibrium price and quantity. c.a decrease in equilibrium price and an increase in quantity. d.an increase in equilibrium price and quantity. Assume that goods X and Y are complements and are produced in perfectly competitive markets. All else constant a decrease in demand for good X would cause: a.an increase in the number of firms that produce good X. b.an increase in the number of firms that produce good Y. c.no effect on the number of firms that produce either good. d.a decrease in the number of firms that produce good Y. What is the most efficient capacity for the perfectly competitive firm? a.The plant size for which Price = AR. b.The plant size at which LRAC is at its minimum. c.The plant size at which MR = MC. d.The plant size at which any of the SRATC curves are tangent to the LRAC curve. The term industry concentration: a.is a measure of how many firms produce the total output of an industry. b.is a measure of how many customers purchase the total output of an industry. c.refers to how capital or labor intensive a particular industry is. d.refers to the degree of product differentiation in an industry. Show less
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