Question 1

Suppose a firm is considering producing zero units of output. We call this exiting an industry in the short run and shutting down in the long run.

Accepted Answer

A) True 
 B)False

Question 2

Why does a firm in a competitive industry charge the market price?

Accepted Answer

A) If a firm charges less than the market price, it loses potential revenue. 
B) If a firm charges more than the market price, it loses all its customers to other firms. 
C) The firm can sell as many units of output as it wants to at the market price. 
D) All of the above are correct. 
A) If a firm charges less than the market price, it loses potential revenue. 
B) If a firm charges more than the market price, it loses all its customers to other firms. 
C) The firm can sell as many units of output as it wants to at the market price. 
D) All of the above are correct.

Question 3

A golf course in Fargo, North Dakota - where it is very cold in the winter - is closed between November 1 and April 1. If the owner of the golf course is rational, what criterion does he or she use in deciding to close the course for this extended period of time?

Accepted Answer

The owner has determined that

Question 4

When new firms enter a perfectly competitive market,

Accepted Answer

A) demand increases. 
B) the short-run market supply curve shifts right. 
C) the short-run market supply curve shifts left. 
D) existing firms will increase prices to keep the new firms from entering. 
A) demand increases. 
B) the short-run market supply curve shifts right. 
C) the short-run market supply curve shifts left. 
D) existing firms will increase prices to keep the new firms from entering.

Question 5

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

Accepted Answer

A) $5 and 50 units 
B) $5 and 100 units 
C) $10 and 50 units 
D) $10 and 100 units 
A) $5 and 50 units 
B) $5 and 100 units 
C) $10 and 50 units 
D) $10 and 100 units

Question 6

In the short run, a firm operating in a competitive industry will shut down if price is

Accepted Answer

A) less than average total cost. 
B) less than average variable cost. 
C) greater than average variable cost but less than average total cost. 
D) greater than marginal cost. 
A) less than average total cost. 
B) less than average variable cost. 
C) greater than average variable cost but less than average total cost. 
D) greater than marginal cost.

Question 7

A dairy farmer must be able to calculate sunk costs in order to determine how much revenue the farm receives for the typical gallon of milk.

Accepted Answer

A) True 
 B)False

Question 8

Table 14-2
The table represents a demand curve faced by a firm in a competitive market.  
-Refer to Table 14-2. For this firm, the average revenue from selling 3 units is

Accepted Answer

A) $12. 
B) $4. 
C) $3. 
D) $1. 
A) $12. 
B) $4. 
C) $3. 
D) $1.

Question 9

Firms in a competitive market are said to be price takers because there are many sellers in the market, and the goods offered by the firms are very similar if not identical.

Accepted Answer

A) True 
 B)False

Question 10

Figure 14-14    
-Refer to Figure 14-14. Suppose a firm in a competitive market, like the one depicted in panel (a), observes market price rising from P1 to P2. Which of the following could explain this observation?

Accepted Answer

A) The entry of new firms into the market. 
B) The exit of existing consumers from the market. 
C) An increase in market supply from S0 to S1. 
D) An increase in market demand from D0 to D1. 
A) The entry of new firms into the market. 
B) The exit of existing consumers from the market. 
C) An increase in market supply from S0 to S1. 
D) An increase in market demand from D0 to D1.

Question 11

A profit-maximizing firm will shut down in the short run when

Accepted Answer

A) price is less than average variable cost. 
B) price is less than average total cost. 
C) average revenue is greater than marginal cost. 
D) average revenue is greater than average fixed cost. 
A) price is less than average variable cost. 
B) price is less than average total cost. 
C) average revenue is greater than marginal cost. 
D) average revenue is greater than average fixed cost.

Question 12

​Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $25. At this output, average total cost is decreasing and equals $22. Given this information, what should the firm do?

Accepted Answer

A) ​Continue to produce 200 units, because this maximizes profits. 
B) ​Increase output beyond 200 units, since a higher output will yield the profit maximizing output level. 
C) ​Decrease output below 200 units, since a lower output will result in the profit maximizing output level. 
D) ​More information is needed to determine the firm's next step. 
A) ​Continue to produce 200 units, because this maximizes profits. 
B) ​Increase output beyond 200 units, since a higher output will yield the profit maximizing output level. 
C) ​Decrease output below 200 units, since a lower output will result in the profit maximizing output level. 
D) ​More information is needed to determine the firm's next step.

Question 13

In the short run, a market consists of 100 identical firms. The market price is $8, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market?

Accepted Answer

A) 200 units 
B) 300 units 
C) 400 units 
D) 500 units 
A) 200 units 
B) 300 units 
C) 400 units 
D) 500 units

Question 14

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people

Accepted Answer

A) consider sunk costs. 
B) equate prices to the average costs of production. 
C) prefer to purchase products from smaller rather than larger firms. 
D) think at the margin. 
A) consider sunk costs. 
B) equate prices to the average costs of production. 
C) prefer to purchase products from smaller rather than larger firms. 
D) think at the margin.

Question 15

The supply curve of a firm in a competitive market is the average variable cost curve above the minimum of marginal cost.

Accepted Answer

A) True 
 B)False

Question 16

For a competitive firm,

Accepted Answer

A) total revenue equals average revenue. 
B) total revenue equals marginal revenue. 
C) total cost equals marginal revenue. 
D) average revenue equals marginal revenue. 
A) total revenue equals average revenue. 
B) total revenue equals marginal revenue. 
C) total cost equals marginal revenue. 
D) average revenue equals marginal revenue.

Question 17

Table 14-1  
-Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will

Accepted Answer

A) increase by less than $15. 
B) increase by exactly $15. 
C) increase by more than $15. 
D) Total revenue cannot be determined from the information provided. 
A) increase by less than $15. 
B) increase by exactly $15. 
C) increase by more than $15. 
D) Total revenue cannot be determined from the information provided.

Question 18

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 positive economic profit if the market price is

Accepted Answer

A) positive. 
B) $6. 
C) above $6. 
D) There is no price at which the firm earns positive economic profits. 
A) positive. 
B) $6. 
C) above $6. 
D) There is no price at which the firm earns positive economic profits.

Question 19

For a firm operating in a perfectly competitive industry, marginal revenue and average revenue are equal.

Accepted Answer

A) True 
 B)False

Question 20

Figure 14-7  
-Refer to Figure 14-7. The firm will shut down in the short run if the price of the good is

Accepted Answer

A) $75. 
B) $85. 
C) $95. 
D) All of the above are correct. 
A) $75. 
B) $85. 
C) $95. 
D) All of the above are correct.

Exam 14: Firms in Competitive Markets

Suppose a firm is considering producing zero units of output. We call this exiting an industry in the short run and shutting down in the long run.

Why does a firm in a competitive industry charge the market price?

A golf course in Fargo, North Dakota - where it is very cold in the winter - is closed between November 1 and April 1. If the owner of the golf course is rational, what criterion does he or she use in deciding to close the course for this extended period of time?

When new firms enter a perfectly competitive market,

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

In the short run, a firm operating in a competitive industry will shut down if price is

A dairy farmer must be able to calculate sunk costs in order to determine how much revenue the farm receives for the typical gallon of milk.

Table 14-2 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-2. For this firm, the average revenue from selling 3 units is

Firms in a competitive market are said to be price takers because there are many sellers in the market, and the goods offered by the firms are very similar if not identical.

Figure 14-14 -Refer to Figure 14-14. Suppose a firm in a competitive market, like the one depicted in panel (a), observes market price rising from P1 to P2. Which of the following could explain this observation?

A profit-maximizing firm will shut down in the short run when

​Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $25. At this output, average total cost is decreasing and equals $22. Given this information, what should the firm do?

In the short run, a market consists of 100 identical firms. The market price is $8, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market?

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people

The supply curve of a firm in a competitive market is the average variable cost curve above the minimum of marginal cost.

For a competitive firm,

Table 14-1 -Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will

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 positive economic profit if the market price is

For a firm operating in a perfectly competitive industry, marginal revenue and average revenue are equal.

Figure 14-7 -Refer to Figure 14-7. The firm will shut down in the short run if the price of the good is

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

Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $25. At this output, average total cost is decreasing and equals $22. Given this information, what should the firm do?