Question 1

In a competitive market with identical firms,

Accepted Answer

A)   an increase in demand in the short run will result in a new price above the minimum of average total cost,allowing firms to earn a positive economic profit in both the short run and the long run.
B)   firms cannot earn positive economic profit in either the short run or long run.
C)   firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping.
D)   free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.E) C) and D)
F) A) and D)

Question 2

The long-run supply curve for a competitive industry

Accepted Answer

A)   may be horizontal if entry into the industry lowers average total cost.
B)   may be upward-sloping if higher-cost firms enter the industry.
C)   will be horizontal if there is free entry into the industry.
D)   will be upward-sloping if there are barriers to entry into the industry.E) A) and D)
F) All of the above

Question 3

Regardless of the cost structure of firms in a competitive market,in the long run

Accepted Answer

A)   firms will experience rising demand for their products.
B)   the marginal firm will earn zero economic profit.
C)   firms will experience a less competitive market environment.
D)   exit and entry is likely to lead to a horizontal long-run supply curve.E) B) and D)
F) A) and B)

Question 4

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

Accepted Answer

A)   In the short run firms will shut down,and in the long run firms will leave the market.
B)   In the short run firms will continue to operate,but in the long run firms will leave the market.
C)   New firms will likely enter this market to capture any remaining economic profits.
D)   The firm will earn zero profits in both the short run and long run.E) A) and B)
F) B) and D)

Question 5

Scenario 13-2
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 13-2.At Q = 1,000,the firm's profits equal

Accepted Answer

A)   $-5,000.
B)   $2,500.
C)   $5,000.
D)   $10,000.E) B) and C)
F) A) and D)

Question 6

Suppose you value a special watch at $100.You purchase it for $75.On your way home from class one day,you lose the watch.The store is still selling the same watch,but the price has risen to $85.Assume that losing the watch has not altered how you value it.What should you do?

Accepted Answer

A)   Pay the $85 to buy the watch.
B)   Wait to see if the watch goes on sale.If the price drops to $75 or less,buy the watch.
C)   Wait to see if the watch goes on sale.If the price drops to $25 or less,buy the watch.
D)   Do not buy the watch.E) None of the above
F) A) and D)

Question 7

The competitive firm's short-run supply curve is that portion of the

Accepted Answer

A)   average variable cost curve that lies above marginal cost.
B)   average total cost curve that lies above marginal cost.
C)   marginal cost curve that lies above average variable cost.
D)   marginal cost curve that lies above average total cost.E) B) and C)
F) A) and B)

Question 8

A firm that shuts down temporarily has to pay

Accepted Answer

A)   its variable costs but not its fixed costs.
B)   its fixed costs but not its variable costs.
C)   both its variable costs and its fixed costs.
D)   neither its variable costs nor its fixed costs.E) A) and C)
F) All of the above

Question 9

Figure 13-8
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 13-8.The firm will exit the market for any price on the line segment

Accepted Answer

A)   ABCD.
B)   AB.
C)   CD.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 10

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) B) and C)
F) All of the above

Question 11

If some resources used in the production of a good are only available in limited quantities,then the long run market supply curve will be perfectly elastic.

Accepted Answer

A) True 
 B)False

Question 12

When a competitive market experiences an increase in demand that increases production costs for existing firms and potential new entrants,which of the following is most likely to arise?

Accepted Answer

A)   The long-run market supply curve will be upward sloping.
B)   The condition of free entry into the market will be violated.
C)   Producer profits will fall in the long run.
D)   The long-run market supply curve will be horizontal as new firms enter and drive the price downward.E) B) and C)
F) All of the above

Question 13

Table 13-1
 
-Refer to Table 13-1.Over which range of output is average revenue equal to price?

Accepted Answer

A)   1 to 5 units
B)   3 to 7 units
C)   5 to 9 units
D)   Average revenue is equal to price over the entire range of output.E) A) and B)
F) B) and D)

Question 14

You purchase a $30,nonrefundable ticket to a play at a local theater.Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show.Alternatively you could leave the theater and go home and watch TV or read a book.You place an $8 value on watching TV and a $6 value on reading a book.

Accepted Answer

A)   You should leave the theater since the net benefit from seeing the remainder of the show is -$20,while going home will earn you at least $8 of satisfaction.
B)   You should stay and watch the remainder of the show.
C)   You should go home and watch TV.
D)   You should go home and read a book.E) None of the above
F) A) and B)

Question 15

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 100th unit for $5.The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 16

A firm in a competitive market has the following cost structure:  If the firm's fixed cost of production is $3,and the market price is $10,how many units should the firm produce to maximize profit?

Accepted Answer

A)   1 unit
B)   2 units
C)   3 units
D)   4 unitsE) A) and B)
F) A) and C)

Question 17

When price is below average variable cost,a firm in a competitive market will

Accepted Answer

A)   shut down and incur fixed costs.
B)   shut down and incur both variable and fixed costs.
C)   continue to operate as long as average revenue exceeds marginal cost.
D)   continue to operate as long as average revenue exceeds average fixed cost.E) B) and C)
F) A) and B)

Question 18

Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In long-run equilibrium,market price is determined by

Accepted Answer

A)   the minimum point on the firms' average variable cost curve.
B)   the minimum point on the firms' average total cost curve.
C)   the portion of the marginal cost curve below average variable cost.
D)   a firm's level of sunk costs.E) A) and B)
F) A) and C)

Question 19

In a competitive market,firms are unable to differentiate their product from that of other producers.

Accepted Answer

A) True 
 B)False

Question 20

The assumption of a fixed number of firms is appropriate for analysis of

Accepted Answer

A)   the short run but not the long run.
B)   the long run but not the short run.
C)   both the short run and the long run.
D)   neither the short run nor the long run.E) A) and D)
F) All of the above

Exam 13: Firms in Competitive Markets

Figure 13-8 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 13-8.The firm will exit the market for any price on the line segment

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

Correct Answer
verified

If some resources used in the production of a good are only available in limited quantities,then the long run market supply curve will be perfectly elastic.

Correct Answer
verified

When a competitive market experiences an increase in demand that increases production costs for existing firms and potential new entrants,which of the following is most likely to arise?

Correct Answer
verified

Suppose you value a special watch at $100.You purchase it for $75.On your way home from class one day,you lose the watch.The store is still selling the same watch,but the price has risen to $85.Assume that losing the watch has not altered how you value it.What should you do?

Correct Answer
verified

In a competitive market with identical firms,

Correct Answer
verified

The assumption of a fixed number of firms is appropriate for analysis of

Correct Answer
verified

Table 13-1 -Refer to Table 13-1.Over which range of output is average revenue equal to price?

Correct Answer
verified

Scenario 13-2 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 13-2.At Q = 1,000,the firm's profits equal

Correct Answer
verified

A firm that shuts down temporarily has to pay

Correct Answer
verified

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

Correct Answer
verified

Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In long-run equilibrium,market price is determined by

Correct Answer
verified

The long-run supply curve for a competitive industry

Correct Answer
verified

The competitive firm's short-run supply curve is that portion of the

Correct Answer
verified

In a competitive market,firms are unable to differentiate their product from that of other producers.

Correct Answer
verified

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 100th unit for $5.The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Correct Answer
verified

Correct Answer
verified

A firm in a competitive market has the following cost structure: If the firm's fixed cost of production is $3,and the market price is $10,how many units should the firm produce to maximize profit?

Correct Answer
verified

Regardless of the cost structure of firms in a competitive market,in the long run

Correct Answer
verified

When price is below average variable cost,a firm in a competitive market will

Correct Answer
verified

Exam 13: Firms in Competitive Markets

Figure 13-8 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 13-8.The firm will exit the market for any price on the line segment

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If some resources used in the production of a good are only available in limited quantities,then the long run market supply curve will be perfectly elastic.

Correct AnswerverifiedShow Answer

When a competitive market experiences an increase in demand that increases production costs for existing firms and potential new entrants,which of the following is most likely to arise?

Correct AnswerverifiedShow Answer

Suppose you value a special watch at $100.You purchase it for $75.On your way home from class one day,you lose the watch.The store is still selling the same watch,but the price has risen to $85.Assume that losing the watch has not altered how you value it.What should you do?

Correct AnswerverifiedShow Answer

In a competitive market with identical firms,

Correct AnswerverifiedShow Answer

The assumption of a fixed number of firms is appropriate for analysis of

Correct AnswerverifiedShow Answer

Table 13-1 -Refer to Table 13-1.Over which range of output is average revenue equal to price?

Correct AnswerverifiedShow Answer

Scenario 13-2 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 13-2.At Q = 1,000,the firm's profits equal

Correct AnswerverifiedShow Answer

A firm that shuts down temporarily has to pay

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In long-run equilibrium,market price is determined by

Correct AnswerverifiedShow Answer

The long-run supply curve for a competitive industry

Correct AnswerverifiedShow Answer

The competitive firm's short-run supply curve is that portion of the

Correct AnswerverifiedShow Answer

In a competitive market,firms are unable to differentiate their product from that of other producers.

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 100th unit for $5.The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A firm in a competitive market has the following cost structure: If the firm's fixed cost of production is $3,and the market price is $10,how many units should the firm produce to maximize profit?

Correct AnswerverifiedShow Answer

Regardless of the cost structure of firms in a competitive market,in the long run

Correct AnswerverifiedShow Answer

When price is below average variable cost,a firm in a competitive market will

Correct AnswerverifiedShow Answer

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