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Exam 14: Firms in Competitive Markets

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Question 151

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Laura is a gourmet chef who runs a small catering business in a competitive industry.Laura specializes in making wedding cakes.Laura sells 20 wedding cakes per month.Her monthly total revenue is $5,000.The marginal cost of making a wedding cake is $200.In order to maximize profits,Laura should

A) make more than 20 wedding cakes per month.
B) make fewer than 20 wedding cakes per month.
C) continue to make 20 wedding cakes per month.
D) We do not have enough information with which to answer the question.

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

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Question 152

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All firms maximize profits by producing an output level where marginal revenue equals marginal cost;for firms operating in perfectly competitive industries,maximizing profits also means producing an output level where price equals marginal cost.

A) True
B) False

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Question 153

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Shrimp Galore,a shrimp harvesting business in the Pacific Northwest,has a 30-year loan on its shrimp harvesting boat.The annual loan payment is $25,000 and the boat has a market (salvage) value that exceeds its outstanding loan balance.Prior to the 2010 shrimp harvesting season,Shrimp Galore's accountant predicted that at expected market prices for shrimp,Shrimp Galore would have a net loss of $75,000 dollars after paying all 2010 expenses (including the annual loan payment) .In this case,Shrimp Galore should

In a certain large city there are two firms that supply concrete.The concrete sold by the first firm is indistinguishable from the concrete sold by the second firm.Is the market competitive?

The idea of "spilt milk" is associated with what type of cost?

A popular resort restaurant will maximize profits if it chooses to stay open during the less-crowded "off season" when its total revenues exceed its fixed costs.

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1.The firm will earn a negative economic profit but remain in business in the short run if the market price is

If there is an increase in market demand in a perfectly competitive market,then in the short run prices will

Suppose a firm operates in the short run at a price above its average total cost of production.In the long run the firm should expect

Give two reasons why the long-run industry supply curve may slope upward.Use an example to demonstrate your reasons.

Table 14-6 The following table presents cost and revenue information for a firm operating in a competitive industry. -Refer to Table 14-6.What is the total revenue from selling 7 units?

A profit-maximizing firm in a competitive market is currently producing 200 units of output.It has average revenue of $9 and average total cost of $7.It follows that the firm's

In a competitive market the price is $8.A typical firm in the market has ATC = $6,AVC = $5,and MC = $8.How much economic profit is the firm earning in the short run?

A competitive market will typically experience entry and exit until accounting profits are zero.

In a competitive market the current price is $7,and the typical firm in the market has ATC = $7.50 and AVC = $7.15.

If a firm in a competitive market doubles its number of units sold,total revenue for the firm will

Table 14-4 -Refer to Table 14-4.For a firm operating in a competitive market,the marginal revenue is

In a long-run equilibrium where firms have identical costs,it is possible that some firms in a competitive market are making a positive economic profit.

In the long run,when price is less than average total cost for all possible levels of production,a firm in a competitive market will choose to exit (or not enter)the market.

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5.In the short run,if the market price is P4,individual firms in a competitive industry will earn