Question 1

Which of the following statements is correct regarding a firm's decision-making?

Accepted Answer

A) The decision to shut down and the decision to exit are both short-run decisions. 
B) The decision to shut down and the decision to exit are both long-run decisions. 
C) The decision to shut down is a short-run decision, whereas the decision to exit is a long-run decision. 
D) The decision to exit is a short-run decision, whereas the decision to shut down is a long-run decision. 
A) The decision to shut down and the decision to exit are both short-run decisions. 
B) The decision to shut down and the decision to exit are both long-run decisions. 
C) The decision to shut down is a short-run decision, whereas the decision to exit is a long-run decision. 
D) The decision to exit is a short-run decision, whereas the decision to shut down is a long-run decision.

Question 2

If a firm can influence the market price of the good it sells, then it is said to have __________.

Accepted Answer

The answer of If a firm can influence the market...

Question 3

When buyers in a competitive market take the selling price as given, they are said to be

Accepted Answer

A) market entrants. 
B) monopolists. 
C) free riders. 
D) price takers. 
A) market entrants. 
B) monopolists. 
C) free riders. 
D) price takers.

Question 4

Figure 14-14    
-Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b). An increase in demand from D0 to D1 will result in

Accepted Answer

A) a new market equilibrium at point X. 
B) an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z. 
C) rising prices and falling profits for existing firms in the market. 
D) falling prices and falling profits for existing firms in the market. 
A) a new market equilibrium at point X. 
B) an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z. 
C) rising prices and falling profits for existing firms in the market. 
D) falling prices and falling profits for existing firms in the market.

Question 5

Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-4. When price falls from P3 to P1, the firm finds that it

Accepted Answer

A) decreases its fixed costs. 
B) should produce Q1 units of output. 
C) should produce Q3 units of output. 
D) should shut down immediately. 
A) decreases its fixed costs. 
B) should produce Q1 units of output. 
C) should produce Q3 units of output. 
D) should shut down immediately.

Question 6

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales.  
-Refer to Table 14-14. What is the total revenue from selling 5 units?

Accepted Answer

A) $2.50 
B) $3.25 
C) $12.50 
D) $16.25 
A) $2.50 
B) $3.25 
C) $12.50 
D) $16.25

Question 7

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be

Accepted Answer

A) less than $12. 
B) more than $12. 
C) $12. 
D) Any of the above may be correct depending on the price elasticity of demand for the product. 
A) less than $12. 
B) more than $12. 
C) $12. 
D) Any of the above may be correct depending on the price elasticity of demand for the product.

Question 8

A competitive firm's profit will be increasing as long as marginal revenue is greater than marginal cost.

Accepted Answer

A) True 
 B)False

Question 9

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run

Accepted Answer

A) more firms will enter the market. 
B) some firms will exit from the market. 
C) the equilibrium price per bottle will rise 
D) average total costs will rise. 
A) more firms will enter the market. 
B) some firms will exit from the market. 
C) the equilibrium price per bottle will rise 
D) average total costs will rise.

Question 10

Table 14-3
The table represents a demand curve faced by a firm in a competitive market.  
-Refer to Table 14-3. For this firm, the price is

Accepted Answer

A) $39. 
B) $26. 
C) $13. 
D) $0. 
A) $39. 
B) $26. 
C) $13. 
D) $0.

Question 11

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 12

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, total revenue will be

Accepted Answer

A) $2,000. 
B) $2,400. 
C) $4,200. 
D) We do not have enough information to answer the question. 
A) $2,000. 
B) $2,400. 
C) $4,200. 
D) We do not have enough information to answer the question.

Question 13

Suppose that firms in a competitive industry are earning positive economic profits. 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. 
A) increase. 
B) decrease. 
C) remain the same. 
D) We do not have enough information with which to answer this question.

Question 14

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves:  
-Refer to Figure 14-1. If the market price falls below $4.50, the firm will earn

Accepted Answer

A) positive economic profits in the short run. 
B) negative economic profits in the short run but remain in business. 
C) negative economic profits in the short run and shut down. 
D) zero economic profits in the short run. 
A) positive economic profits in the short run. 
B) negative economic profits in the short run but remain in business. 
C) negative economic profits in the short run and shut down. 
D) zero economic profits in the short run.

Question 15

In competitive markets, firms that raise their prices are typically rewarded with larger profits.

Accepted Answer

A) True 
 B)False

Question 16

A competitive firm is producing 500 units of output and its efficient scale is 400 units of output. Can the market in which this firm operates be in a long-run equilibrium? Briefly explain.

Accepted Answer

No, the market cannot be in a

Question 17

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. 
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.

Question 18

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. 
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.

Question 19

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's total revenue

Accepted Answer

A) can be represented by the area P3 × Q3. 
B) can be represented by the area P3 × Q2. 
C) can be represented by the area (P3-P2) × Q3. 
D) is zero. 
A) can be represented by the area P3 × Q3. 
B) can be represented by the area P3 × Q2. 
C) can be represented by the area (P3-P2) × Q3. 
D) is zero.

Question 20

Which of the following statements is not correct about competitive firms?

Accepted Answer

A) In a long-run equilibrium, firms must be operating at their efficient scale. 
B) In the short run, the number of firms in an industry may be fixed. 
C) In the long run, the number of firms can adjust to changing market conditions. 
D) In the short run, firms must be operating at a level of output where price equals average variable cost. 
A) In a long-run equilibrium, firms must be operating at their efficient scale. 
B) In the short run, the number of firms in an industry may be fixed. 
C) In the long run, the number of firms can adjust to changing market conditions. 
D) In the short run, firms must be operating at a level of output where price equals average variable cost.

Exam 14: Firms in Competitive Markets

Which of the following statements is correct regarding a firm's decision-making?

If a firm can influence the market price of the good it sells, then it is said to have __________.

When buyers in a competitive market take the selling price as given, they are said to be

Figure 14-14 -Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b). An increase in demand from D0 to D1 will result in

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. When price falls from P3 to P1, the firm finds that it

Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. -Refer to Table 14-14. What is the total revenue from selling 5 units?

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be

A competitive firm's profit will be increasing as long as marginal revenue is greater than marginal cost.

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run

Table 14-3 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-3. For this firm, the price is

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).

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, total revenue will be

Suppose that firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price falls below $4.50, the firm will earn

In competitive markets, firms that raise their prices are typically rewarded with larger profits.

A competitive firm is producing 500 units of output and its efficient scale is 400 units of output. Can the market in which this firm operates be in a long-run equilibrium? Briefly explain.

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

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

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's total revenue

Which of the following statements is not correct about competitive firms?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

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