Question 1

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.

Accepted Answer

A) True 
 B)False

Question 2

When managers of firms in a competitive market observe falling profits, they may infer that the market is experiencing

Accepted Answer

A) a violation of conventional market forces. 
B) over-investment. 
C) the entry of new firms. 
D) too few firms in the market. 
A) a violation of conventional market forces. 
B) over-investment. 
C) the entry of new firms. 
D) too few firms in the market.

Question 3

A firm's marginal cost has a minimum value of $4, its average variable cost has a minimum value of $6, and its average total cost has a minimum value of $7. Then the firm will shut down in the short run once the price of its product falls below

Accepted Answer

A) $7. 
B) $6. 
C) $4. 
D) We do not have enough information to answer the question. 
A) $7. 
B) $6. 
C) $4. 
D) We do not have enough information to answer the question.

Question 4

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) 420,000 
A) 140,000 
B) 210,000 
C) 280,000 
D) 420,000

Question 5

For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price.

Accepted Answer

A) True 
 B)False

Question 6

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

Accepted Answer

A) a one-unit increase in output will increase the firm's profit. 
B) a one-unit decrease in output will increase the firm's profit. 
C) total revenue exceeds total cost. 
D) total cost exceeds total revenue. 
A) a one-unit increase in output will increase the firm's profit. 
B) a one-unit decrease in output will increase the firm's profit. 
C) total revenue exceeds total cost. 
D) total cost exceeds total revenue.

Question 7

A firm operating in a perfectly competitive industry will continue to operate if it earns zero economic profits because it is likely to be earning positive accounting profits.

Accepted Answer

A) True 
 B)False

Question 8

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-6. Firms will shut down in the short run if the market price

Accepted Answer

A) exceeds P3. 
B) is less than P1. 
C) is greater than P1 but less than P3. 
D) exceeds P2. 
A) exceeds P3. 
B) is less than P1. 
C) is greater than P1 but less than P3. 
D) exceeds P2.

Question 9

​Firms operating in a perfectly competitive market have an incentive to advertise their products since this will increase the demand for their products.

Accepted Answer

A) True 
 B)False

Question 10

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 variable cost.

Accepted Answer

A) True 
 B)False

Question 11

A firm's marginal cost has a minimum value of $80, its average variable cost has a minimum value of $90, and its average total cost has a minimum value of $100. Then the firm will shut down in the short run once the price of its product falls below

Accepted Answer

A) $100. 
B) $90. 
C) $80. 
D) $40. 
A) $100. 
B) $90. 
C) $80. 
D) $40.

Question 12

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

Accepted Answer

A) new firms to enter the market. 
B) the market price to rise. 
C) its profits to rise. 
D) Both b and c are correct. 
A) new firms to enter the market. 
B) the market price to rise. 
C) its profits to rise. 
D) Both b and c are correct.

Question 13

Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is

Accepted Answer

A) -$1,600. 
B) $1,600. 
C) $3,200. 
D) $8,000. 
A) -$1,600. 
B) $1,600. 
C) $3,200. 
D) $8,000.

Question 14

Free entry means that

Accepted Answer

A) the government pays any entry costs for individual firms. 
B) government-funded research lowers the costs of patents and other barriers to entry. 
C) a firm's marginal cost is zero. 
D) no legal barriers prevent a firm from entering an industry. 
A) the government pays any entry costs for individual firms. 
B) government-funded research lowers the costs of patents and other barriers to entry. 
C) a firm's marginal cost is zero. 
D) no legal barriers prevent a firm from entering an industry.

Question 15

Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-4. The firm will earn positive economic profits if the price is (i)
P4)
(ii)
P3)
(iii)
P2)
(iv)
P1)

Accepted Answer

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

Question 16

For a firm, marginal revenue minus marginal cost is equal to

Accepted Answer

A) profit. 
B) average total cost. 
C) change in profit. 
D) change in average revenue. 
A) profit. 
B) average total cost. 
C) change in profit. 
D) change in average revenue.

Question 17

Scenario 14-3
Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20.
-Refer to Scenario 14-3. At Q=499, the firm's total costs equal

Accepted Answer

A) $5,983. 
B) $5,988. 
C) $5,995. 
D) $5,999. 
A) $5,983. 
B) $5,988. 
C) $5,995. 
D) $5,999.

Question 18

Profit-maximizing firms enter a competitive market when existing firms in that market have

Accepted Answer

A) total revenues that exceed fixed costs. 
B) total revenues that exceed total variable costs. 
C) average total costs that exceed average revenue. 
D) average total costs less than market price. 
A) total revenues that exceed fixed costs. 
B) total revenues that exceed total variable costs. 
C) average total costs that exceed average revenue. 
D) average total costs less than market price.

Question 19

Figure 14-7  
-Refer to Figure 14-7. When the price of the good is $175, the firm's maximum profit is

Accepted Answer

A) $16,500. 
B) $20,375. 
C) $25,750. 
D) $90,125. 
A) $16,500. 
B) $20,375. 
C) $25,750. 
D) $90,125.

Question 20

Table 14-12
Bill's Birdhouses  
-Refer to Table 14-12. What is the marginal cost of the 8th unit?

Accepted Answer

A) $0 
B) $72.75 
C) $120 
D) $502 
A) $0 
B) $72.75 
C) $120 
D) $502

Exam 14: Firms in Competitive Markets

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.

When managers of firms in a competitive market observe falling profits, they may infer that the market is experiencing

A firm's marginal cost has a minimum value of $4, its average variable cost has a minimum value of $6, and its average total cost has a minimum value of $7. Then the firm will shut down in the short run once the price of its product falls below

For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price.

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

A firm operating in a perfectly competitive industry will continue to operate if it earns zero economic profits because it is likely to be earning positive accounting profits.

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. Firms will shut down in the short run if the market price

​Firms operating in a perfectly competitive market have an incentive to advertise their products since this will increase the demand for their products.

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 variable cost.

A firm's marginal cost has a minimum value of $80, its average variable cost has a minimum value of $90, and its average total cost has a minimum value of $100. Then the firm will shut down in the short run once the price of its product falls below

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

Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is

Free entry means that

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. The firm will earn positive economic profits if the price is (i) P4) (ii) P3) (iii) P2) (iv) P1)

For a firm, marginal revenue minus marginal cost is equal to

Scenario 14-3 Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. -Refer to Scenario 14-3. At Q=499, the firm's total costs equal

Profit-maximizing firms enter a competitive market when existing firms in that market have

Figure 14-7 -Refer to Figure 14-7. When the price of the good is $175, the firm's maximum profit is

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the marginal cost of the 8th unit?

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

Filters

Firms operating in a perfectly competitive market have an incentive to advertise their products since this will increase the demand for their products.