Question 1

Scenario 14-2
Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit.
-Refer to Scenario 14-2. To maximize its profit, the firm should

Accepted Answer

A)  increase its output.
B)  continue to produce 1,000 units.
C)  decrease its output but continue to produce.
D)  shut down.E) A) and C)
F) B) and C)

Question 2

Figure 14-9
In the figure below, panel (a)  depicts the linear marginal cost of a firm in a competitive market, and panel (b)  depicts the linear market supply curve for a market with a fixed number of identical firms.  
-Refer to Figure 14-9. When 100 identical firms participate in this market, at what price will 15,000 units be supplied to this market?

Accepted Answer

A)  $1.00
B)  $1.50
C)  $2.00
D)  The price cannot be determined from the information provided.E) A) and B)
F) A) and C)

Question 3

A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average total cost but greater than the firm's average variable cost.

Accepted Answer

A) True 
 B)False

Question 4

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the unit for $6. The firm should produce more than 100 units in order to maximize its profits (or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 5

When economists refer to a production cost that has already been committed and cannot be recovered, they use the term

Accepted Answer

A)  implicit cost.
B)  explicit cost.
C)  variable cost.
D)  sunk cost.E) All of the above
F) A) and B)

Question 6

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-2. If the market price is Pc, in the short run the firm will earn

Accepted Answer

A)  positive economic profits.
B)  negative economic profits but will try to remain open.
C)  negative economic profits and will shut down.
D)  zero economic profits.E) A) and C)
F) All of the above

Question 7

Figure 14-10
In the figure below, panel (a)  depicts the linear marginal cost of a firm in a competitive market, and panel (b)  depicts the linear market supply curve for a market with a fixed number of identical firms.  
-Refer to Figure 14-10. If there are 700 identical firms in this market, what is the value of Q1?

Accepted Answer

A)  140,000
B)  210,000
C)  280,000
D)  420,000E) A) and B)
F) None of the above

Question 8

A market is competitive if
(i) firms have the flexibility to price their own product.
(ii) each buyer is small compared to the market.
(iii) each seller is small compared to the market.

Accepted Answer

A)  (i)  and (ii)  only
B)  (i)  and (iii)  only
C)  (ii)  and (iii)  only
D)  (i) , (ii) , and (iii) E) A) and B)
F) All of the above

Question 9

In order to maximize profits in the short run, a firm should produce where

Accepted Answer

A)  marginal revenue exceeds marginal cost by the greatest amount.
B)  marginal cost is minimized.
C)  average total cost is minimized.
D)  marginal cost equals marginal revenue.E) B) and D)
F) B) and C)

Question 10

When a competitive firm doubles the quantity of output it sells, its

Accepted Answer

A)  total revenue doubles.
B)  average revenue doubles.
C)  marginal revenue doubles.
D)  profits must increase.E) A) and B)
F) A) and C)

Question 11

For a particular competitive firm, the minimum value of average variable cost (AVC)  is $12 and is reached when 200 units of output are produced. For the same firm, the minimum value of average total cost (ATC)  is $15 and is reached when 230 units of output are produced. Which of the following statements is correct?

Accepted Answer

A)  In the short run, the firm will shut down if the price of its product is $14.
B)  In the long run, the firm will shut down if the price of its product is $11.
C)  For this firm, the minimum value of variable cost (V
C)   is $2,400.
D)  If the firm's fixed cost (F
C)   amounts to $500, then the firm cannot earn a positive profit unless the price of its product exceeds $16.E) B) and D)
F) A) and C)

Question 12

In a certain market there are many buyers and many sellers. It is easy to distinguish the product sold by one firm from the products sold by other firms. Is the market competitive?

Accepted Answer

The market is not competitive ...

Question 13

Table 14-12 
-Refer to Table 14-12. What is the total revenue from selling 7 units?

Accepted Answer

A)  $80
B)  $382
C)  $540
D)  $560E) A) and B)
F) None of the above

Question 14

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs: 
-Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will the firm earn?

Accepted Answer

A)  $2
B)  $4
C)  $6
D)  $8E) A) and B)
F) A) and C)

Question 15

Comparing marginal revenue to marginal cost
(i) reveals the contribution of the last unit of production to total profit.
(ii) is helpful in making profit-maximizing production decisions.
(iii) tells a firm whether its fixed costs are too high.

Accepted Answer

A)  (i)  only
B)  (i)  and (ii)  only
C)  (ii)  and (iii)  only
D)  (i)  and (iii)  onlyE) A) and D)
F) None of the above

Question 16

Suppose that some firms in a competitive industry are earning zero economic profits, while others are experiencing losses. All else equal, in the long run, we would expect the number of firms in the industry to

Accepted Answer

A)  increase.
B)  decrease.
C)  remain the same.
D)  We do not have enough information with which to answer this question.E) C) and D)
F) A) and D)

Question 17

Which of the following industries is most likely to exhibit the characteristic of free entry?

Accepted Answer

A)  nuclear power
B)  municipal water and sewer
C)  dairy farming
D)  airport securityE) A) and D)
F) All of the above

Question 18

Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's

Accepted Answer

A)  total revenues exceed her total accounting costs.
B)  marginal revenue exceeds her total cost.
C)  marginal revenue exceeds her marginal cost.
D)  marginal cost exceeds her marginal revenue.E) C) and D)
F) A) and D)

Question 19

A long-run supply curve is flatter than a short-run supply curve because

Accepted Answer

A)  firms can enter and exit a market more easily in the long run than in the short run.
B)  long-run supply curves are sometimes downward sloping.
C)  competitive firms have more control over demand in the long run.
D)  firms in a competitive market face identical cost structures.E) A) and D)
F) All of the above

Question 20

A firm will shut down in the short run if, for all positive levels of output,

Accepted Answer

A)  its losses exceed its fixed costs.
B)  its total revenue is less than its variable costs.
C)  the price of its product is less than its average variable cost.
D)  All of the above are correct.E) A) and B)
F) All of the above

Exam 14: Firms in Competitive Markets

Correct Answer
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Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's

Correct Answer
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A market is competitive if (i) firms have the flexibility to price their own product. (ii) each buyer is small compared to the market. (iii) each seller is small compared to the market.

Correct Answer
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Scenario 14-2 Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. -Refer to Scenario 14-2. To maximize its profit, the firm should

Correct Answer
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Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. If the market price is Pc, in the short run the firm will earn

Correct Answer
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Comparing marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high.

Correct Answer
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When economists refer to a production cost that has already been committed and cannot be recovered, they use the term

Correct Answer
verified

Which of the following industries is most likely to exhibit the characteristic of free entry?

Correct Answer
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In a certain market there are many buyers and many sellers. It is easy to distinguish the product sold by one firm from the products sold by other firms. Is the market competitive?

Correct Answer
verified
The market is not competitive ...
View Answer

A long-run supply curve is flatter than a short-run supply curve because

Correct Answer
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A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average total cost but greater than the firm's average variable cost.

Correct Answer
verified

A firm will shut down in the short run if, for all positive levels of output,

Correct Answer
verified

Correct Answer
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In order to maximize profits in the short run, a firm should produce where

Correct Answer
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Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will the firm earn?

Correct Answer
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Correct Answer
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A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the unit for $6. The firm should produce more than 100 units in order to maximize its profits (or minimize its losses).

Correct Answer
verified

When a competitive firm doubles the quantity of output it sells, its

Correct Answer
verified

Table 14-12 -Refer to Table 14-12. What is the total revenue from selling 7 units?

Correct Answer
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Suppose that some firms in a competitive industry are earning zero economic profits, while others are experiencing losses. All else equal, in the long run, we would expect the number of firms in the industry to

Correct Answer
verified

Exam 14: Firms in Competitive Markets

Correct AnswerverifiedShow Answer

Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's

Correct AnswerverifiedShow Answer

A market is competitive if (i) firms have the flexibility to price their own product. (ii) each buyer is small compared to the market. (iii) each seller is small compared to the market.

Correct AnswerverifiedShow Answer

Scenario 14-2 Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. -Refer to Scenario 14-2. To maximize its profit, the firm should

Correct AnswerverifiedShow Answer

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. If the market price is Pc, in the short run the firm will earn

Correct AnswerverifiedShow Answer

Comparing marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high.

Correct AnswerverifiedShow Answer

When economists refer to a production cost that has already been committed and cannot be recovered, they use the term

Correct AnswerverifiedShow Answer

Which of the following industries is most likely to exhibit the characteristic of free entry?

Correct AnswerverifiedShow Answer

In a certain market there are many buyers and many sellers. It is easy to distinguish the product sold by one firm from the products sold by other firms. Is the market competitive?

Correct AnswerverifiedThe market is not competitive ...View AnswerShow Answer

A long-run supply curve is flatter than a short-run supply curve because

Correct AnswerverifiedShow Answer

A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average total cost but greater than the firm's average variable cost.

Correct AnswerverifiedShow Answer

A firm will shut down in the short run if, for all positive levels of output,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In order to maximize profits in the short run, a firm should produce where

Correct AnswerverifiedShow Answer

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will the firm earn?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the unit for $6. The firm should produce more than 100 units in order to maximize its profits (or minimize its losses).

Correct AnswerverifiedShow Answer

When a competitive firm doubles the quantity of output it sells, its

Correct AnswerverifiedShow Answer

Table 14-12 -Refer to Table 14-12. What is the total revenue from selling 7 units?

Correct AnswerverifiedShow Answer

Suppose that some firms in a competitive industry are earning zero economic profits, while others are experiencing losses. All else equal, in the long run, we would expect the number of firms in the industry to

Correct AnswerverifiedShow Answer

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The market is not competitive ...
View Answer

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