# Chapter 12 – Practice Problems Brooke Sharp
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Perfect competition is characterized by

The inability of any one firm to influence price
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An industry that contains a firm that is the only producer of a good or service for which there are no close substitutes and for which entry by potential rivals is prohibitively difficult is

A monopoly
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Which of the following is true in a perfectly competitive market?

One unit of a good or service cannot be differentiated from any other on any basis
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The assumptions of perfect competition imply that

Individuals in the market accept the market price as given
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The perfectly competitive model assumes all of the following EXCEPT

That firms attempt to maximize their total revenue
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If a perfectly competitive firm decreases production from 11 units to 10 units and the market price is \$20 per unit, total revenue for 10 units is

\$200
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If a perfectly competitive firm sells 10 units of output at \$30 per unit, its marginal revenue is

\$30
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If a perfectly competitive firm is producing a quantity where P > MC, then the firm can increase profit by

Increasing production
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A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if the price is

Greater than average total cost
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If the price is consistently below average total cost, then in the short run a perfectly competitive firm should

There is not enough information given to answer this question
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If the price is greater than the average variable cost and less than the average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will

produce at an economic loss
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In the short run, if P < AVC at the quantity where MR = MC, a perfectly competitive firm produces _____ and takes an economic _____.

no output; loss
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(Figure: Total Cost for Tomato Producers) Look at the figure Total Cost for Tomato Producers. The market for tomatoes is perfectly competitive. The market price of a bushel of tomatoes is \$14. The farmer’s total cost at the profit-maximizing number of bushels is:

\$56.00
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(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm. O is the _____ curve.

AVC
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(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly Competitive Firm in the Short Run. The minimum price that the firm must receive to produce in the short run is:

P
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If firms are taking economic losses in the short run, firms will leave the industry, industry output will _____, and economic losses will _____ in the long run

Fall;Fall
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Which of the following is MOST likely to cause firms to exit a perfectly competitive industry?

Consumer income falls
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Suppose that some firms in a perfectly competitive industry are earning positive economic profits. In the long run, the

Number of firms in the industry will increase
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A perfectly competitive industry is said to be efficient because the

Average total cost of production of the industry’s output is minimized
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Table: Cherry Farm) Look at the table Cherry Farm. If all farms are the same size, how much economic profit will each farm earn when the industry is in long-run equilibrium?

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When perfect competition prevails, which of the following characteristics of firms are we likely to observe?

They are all price takers
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In a perfectly competitive industry:

all firms are price-taking producers
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Suppose Sarah’s pottery studio is charging the market price, which is just higher than her minimum average total cost. This means that Sarah

Is earning a small economic profit
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A perfectly competitive industry is in a state of long-run equilibrium. Which of the following must be true?

P = MR = MC = ATC
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If a firm produces a quantity at which total revenue exceeds total cost, then

economic profit is positive
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One characteristic of a perfectly competitive market is that there are ________ sellers of the good or service

Many
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If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will

Produce at a profit
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The short-run supply curve for a perfectly competitive firm is

the marginal cost curve above the shut-down price
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In perfect competition

Price and marginal revenue are the same
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The price received by a firm in a perfectly competitive market

Is equal to the market price
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Perfect competition is a model of the market that assumes all of the following except:

firms face downward-sloping demand curves
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In the short run, a perfectly competitive firm produces output and earns zero economic profit if:

P=ATC
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For a perfectly competitive firm, marginal revenue:

is equal to price
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A perfectly competitive firm’s marginal cost curve above the average variable cost curve is its

Short run supply curve
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Lilly is the price-taking owner of an apple orchard. The price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect

Lower apple prices due to the entry of new firms
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Assume that in the short run a perfectly competitive firm does not produce output and has economic losses. This would occur if

P0
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Bob runs a pedicure business in a perfectly competitive industry. He knows that he will break even if the price of pedicures is \$15 but that he will have to shut down if the price is \$11. If the market demand in the industry is P = 30 – (0.2) Q and the market supply is P = (0.2) Q, then in the short run, Bob will

Produce, since he is at his break even level
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A perfectly competitive firm will produce

with a loss in the short run if its price is greater than AVC but less than ATC.
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Perfectly competitive firms will

increase output up to the point that the marginal benefit of an additional unit of output is equal to the marginal cost
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A decrease in production costs for firms in a perfectly competitive market will cause a(n)

economic profit for firms in the short run
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If a perfectly competitive firm can sell a bushel of soybeans for \$25 and it has an average variable cost of \$26 per bushel and the marginal cost is \$26 per bushel, the firm should

cut output to zero
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In perfect competition

A firm’s total revenue is found by multiplying the market price by the firm’s quantity of output
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In a perfectly competitive market

Both producers and consumers are price takers
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A firm’s shut-down point is the minimum value of

Average variable cost
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If some firms in a perfectly competitive industry are earning positive economic profits, then in the long run, the

Industry supply curve will shift to the right
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When a perfectly competitive industry is in long-run equilibrium, its firms

Allocate all of their resources efficiently
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The slope of the total revenue curve is

Constant under perfect competition
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The slope of the total revenue curve is