Question 1

Because there are many buyers and sellers in a perfectly competitive market, no one seller can influence the market price.

Accepted Answer

A) True 
 B)False

Question 2

When economic profits are zero in equilibrium, the firm's revenue must be sufficient to cover all opportunity costs.

Accepted Answer

A) True 
 B)False

Question 3

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing

Accepted Answer

A) to produce the quantity at which average variable cost is minimized. 
B) to produce the quantity at which average fixed cost is minimized. 
C) the quantity at which market price is equal to Mr. McDonald's marginal cost of production. 
D) the quantity at which market price exceeds Mr. McDonald's marginal cost of production by the greatest amount. 
A) to produce the quantity at which average variable cost is minimized. 
B) to produce the quantity at which average fixed cost is minimized. 
C) the quantity at which market price is equal to Mr. McDonald's marginal cost of production. 
D) the quantity at which market price exceeds Mr. McDonald's marginal cost of production by the greatest amount.

Question 4

In a competitive market the current price is $6. The typical firm in the market has ATC = $5.00 and AVC = $4.50.

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 some of the economic profits. 
D) The firm will earn zero profits in both the short run and long run. 
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 some of the economic profits. 
D) The firm will earn zero profits in both the short run and long run.

Question 5

When fixed costs are ignored because they are irrelevant to a business's production decision, they are called

Accepted Answer

A) explicit costs. 
B) implicit costs. 
C) sunk costs. 
D) opportunity costs. 
A) explicit costs. 
B) implicit costs. 
C) sunk costs. 
D) opportunity costs.

Question 6

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:  
-Refer to Table 14-11. The marginal revenue from producing the 3rd unit equals (i) $6.
(ii) the price.(iii) the marginal cost.

Accepted Answer

A) (i) only 
B) (i) and (ii) only 
C) (iii) only 
D) (i), (ii), and (iii) 
A) (i) only 
B) (i) and (ii) only 
C) (iii) only 
D) (i), (ii), and (iii)

Question 7

Scenario 14-4
The information below applies to a competitive firm that sells its output for $40 per unit.
• When the firm produces and sells 150 units of output, its average total cost is $24.50.
• When the firm produces and sells 151 units of output, its average total cost is $24.55.
-Refer to Scenario 14-4. When the firm increases its output from 150 units to 151 units, its marginal cost is

Accepted Answer

A) $29.95. 
B) $32.05. 
C) $33.00. 
D) $34.25. 
A) $29.95. 
B) $32.05. 
C) $33.00. 
D) $34.25.

Question 8

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. 
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.

Question 9

Which of the following statements is not correct?

Accepted Answer

A) In a long-run equilibrium, marginal firms make zero economic profit. 
B) To maximize profit, firms should produce at a level of output where price equals average variable cost. 
C) The amount of gold in the world is limited. Therefore, the gold jewelry market probably has a long-run supply curve that is upward sloping. 
D) Long-run supply curves are typically more elastic than short-run supply curves. 
A) In a long-run equilibrium, marginal firms make zero economic profit. 
B) To maximize profit, firms should produce at a level of output where price equals average variable cost. 
C) The amount of gold in the world is limited. Therefore, the gold jewelry market probably has a long-run supply curve that is upward sloping. 
D) Long-run supply curves are typically more elastic than short-run supply curves.

Question 10

Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-4. When price rises from P2 to P3, the firm finds that

Accepted Answer

A) marginal cost exceeds marginal revenue at a production level of Q2. 
B) if it produces at output level Q3 it will earn a positive profit. 
C) expanding output to Q4 would leave the firm with losses. 
D) it could increase profits by lowering output from Q3 to Q2. 
A) marginal cost exceeds marginal revenue at a production level of Q2. 
B) if it produces at output level Q3 it will earn a positive profit. 
C) expanding output to Q4 would leave the firm with losses. 
D) it could increase profits by lowering output from Q3 to Q2.

Question 11

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. 
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.

Question 12

Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to

Accepted Answer

A) increase. 
B) remain unchanged. 
C) decrease by less than 20 percent. 
D) decrease by more than 20 percent. 
A) increase. 
B) remain unchanged. 
C) decrease by less than 20 percent. 
D) decrease by more than 20 percent.

Question 13

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-5. Firms would be encouraged to enter this market for all prices that exceed

Accepted Answer

A) P1. 
B) P2. 
C) P3. 
D) P4. 
A) P1. 
B) P2. 
C) P3. 
D) P4.

Question 14

In the short-run, a firm's supply curve is equal to the

Accepted Answer

A) marginal cost curve above its average variable cost curve. 
B) marginal cost curve above its average total cost curve. 
C) average variable cost curve above its marginal cost curve. 
D) average total cost curve above its marginal cost curve. 
A) marginal cost curve above its average variable cost curve. 
B) marginal cost curve above its average total cost curve. 
C) average variable cost curve above its marginal cost curve. 
D) average total cost curve above its marginal cost curve.

Question 15

Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-3. The firm will earn zero economic profit if the market price is

Accepted Answer

A) $0. 
B) $6. 
C) $7. 
D) $10. 
A) $0. 
B) $6. 
C) $7. 
D) $10.

Question 16

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive market when price falls below the minimum of average variable cost?

Accepted Answer

A) The firm will continue to produce to attempt to pay fixed costs. 
B) The firm will immediately stop production to minimize its losses. 
C) The firm will stop production as soon as it is able to pay its sunk costs. 
D) The firm will continue to produce in the short run but will likely exit the market in the long run. 
A) The firm will continue to produce to attempt to pay fixed costs. 
B) The firm will immediately stop production to minimize its losses. 
C) The firm will stop production as soon as it is able to pay its sunk costs. 
D) The firm will continue to produce in the short run but will likely exit the market in the long run.

Question 17

Figure 14-7  
-Refer to Figure 14-7. Let Q represent the quantity of output and suppose the price of the good is $125. Then marginal revenue is $125 at

Accepted Answer

A) Q = 270. 
B) Q = 322. 
C) Q = 515. 
D) All of the above are correct. 
A) Q = 270. 
B) Q = 322. 
C) Q = 515. 
D) All of the above are correct.

Question 18

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the

Accepted Answer

A) production of the 100th unit of output increases the firm's profit by $3. 
B) production of the 100th unit of output increases the firm's average total cost by $7. 
C) firm's profit-maximizing level of output is less than 100 units. 
D) production of the101st unit of output must increase the firm's profit by more than $3. 
A) production of the 100th unit of output increases the firm's profit by $3. 
B) production of the 100th unit of output increases the firm's average total cost by $7. 
C) firm's profit-maximizing level of output is less than 100 units. 
D) production of the101st unit of output must increase the firm's profit by more than $3.

Question 19

Table 14-4
The table represents a demand curve faced by a firm in a competitive market.  
-Refer to Table 14-4. For this firm, the average revenue is

Accepted Answer

A) $0. 
B) $5. 
C) $10. 
D) $15. 
A) $0. 
B) $5. 
C) $10. 
D) $15.

Question 20

In the long run, when price is greater than average total cost, some firms in a competitive market will choose to enter the market.

Accepted Answer

A) True 
 B)False

Exam 14: Firms in Competitive Markets

Because there are many buyers and sellers in a perfectly competitive market, no one seller can influence the market price.

When economic profits are zero in equilibrium, the firm's revenue must be sufficient to cover all opportunity costs.

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing

In a competitive market the current price is $6. The typical firm in the market has ATC = $5.00 and AVC = $4.50.

When fixed costs are ignored because they are irrelevant to a business's production decision, they are called

Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11. The marginal revenue from producing the 3rd unit equals (i) $6. (ii) the price.(iii) the marginal cost.

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

Which of the following statements is not correct?

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. When price rises from P2 to P3, the firm finds that

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

Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. Firms would be encouraged to enter this market for all prices that exceed

In the short-run, a firm's supply curve is equal to the

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. The firm will earn zero economic profit if the market price is

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive market when price falls below the minimum of average variable cost?

Figure 14-7 -Refer to Figure 14-7. Let Q represent the quantity of output and suppose the price of the good is $125. Then marginal revenue is $125 at

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the

Table 14-4 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-4. For this firm, the average revenue is

In the long run, when price is greater than average total cost, some firms in a competitive market will choose to enter the market.

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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