Question 1

Which of the following firms is the closest to being a perfectly competitive firm?

Accepted Answer

A) a hot dog vendor in New York 
B) Microsoft Corporation 
C) Ford Motor Company 
D) the campus bookstore 
A) a hot dog vendor in New York 
B) Microsoft Corporation 
C) Ford Motor Company 
D) the campus bookstore

Question 2

Table 14-12
Bill's Birdhouses  
-Refer to Table 14-12. What is Bill's economic profit at the profit-maximizing output level?

Accepted Answer

A) $25 
B) $75 
C) $115 
D) $225 
A) $25 
B) $75 
C) $115 
D) $225

Question 3

Which of the following is a characteristic of a competitive market?

Accepted Answer

A) There are many buyers but few sellers. 
B) Firms sell differentiated products. 
C) There are many barriers to entry. 
D) Buyers and sellers are price takers. 
A) There are many buyers but few sellers. 
B) Firms sell differentiated products. 
C) There are many barriers to entry. 
D) Buyers and sellers are price takers.

Question 4

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 total cost but greater than the firm's average variable cost.

Accepted Answer

A) True 
 B)False

Question 5

The long-run market supply curve in a competitive market will

Accepted Answer

A) always be horizontal. 
B) be the portion of the MC that lies above the minimum of AVC for the marginal firm. 
C) typically be more elastic than the short-run supply curve. 
D) be above the competitive firm's efficient scale. 
A) always be horizontal. 
B) be the portion of the MC that lies above the minimum of AVC for the marginal firm. 
C) typically be more elastic than the short-run supply curve. 
D) be above the competitive firm's efficient scale.

Question 6

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 marginal revenue from selling the 3rd unit is

Accepted Answer

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

Question 7

A firm operating in a competitive market will stay in business in the short run so long as the market price exceeds the firm's average total cost; otherwise, the firm will shut down.

Accepted Answer

A) True 
 B)False

Question 8

Suppose a firm in each of the two markets listed below were to increase its price by 25 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

Accepted Answer

A) restaurants and MP3 players 
B) electricity and natural gas 
C) corn and satellite radio 
D) rice and soybeans 
A) restaurants and MP3 players 
B) electricity and natural gas 
C) corn and satellite radio 
D) rice and soybeans

Question 9

Firms that operate in perfectly competitive markets try to

Accepted Answer

A) maximize revenues. 
B) maximize profits. 
C) equate marginal revenue with average total cost. 
D) All of the above are correct. 
A) maximize revenues. 
B) maximize profits. 
C) equate marginal revenue with average total cost. 
D) All of the above are correct.

Question 10

The entry of new firms into a competitive market will

Accepted Answer

A) increase market supply and increase market price. 
B) increase market supply and decrease market price. 
C) decrease market supply and increase market price. 
D) decrease market supply and decrease market price. 
A) increase market supply and increase market price. 
B) increase market supply and decrease market price. 
C) decrease market supply and increase market price. 
D) decrease market supply and decrease market price.

Question 11

Consider a firm that operates in a perfectly competitive market. The firm is producing at its profit maximizing output level. If this is true, then

Accepted Answer

A) ​average revenue is maximized. 
B) ​the firm must be earning a positive economic profit. 
C) ​marginal revenue is greater than the market price. 
D) ​price must be equal to marginal cost. 
A) ​average revenue is maximized. 
B) ​the firm must be earning a positive economic profit. 
C) ​marginal revenue is greater than the market price. 
D) ​price must be equal to marginal cost.

Question 12

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-6. Firms will be encouraged to enter this market for all prices that exceed

Accepted Answer

A) P1. 
B) P2. 
C) P3. 
D) None of the above is correct. 
A) P1. 
B) P2. 
C) P3. 
D) None of the above is correct.

Question 13

If Bradley's Butcher Shop sells its product in a competitive market, then

Accepted Answer

A) the price of that product depends on the quantity of the product that Bradley's Butcher Shop produces and sells because the firm's demand curve is downward sloping. 
B) Bradley's Butcher Shop's total cost must be a constant multiple of its quantity of output. 
C) Bradley's Butcher Shop's total revenue must be proportional to its quantity of output. 
D) Bradley's Butcher Shop's total revenue must be equal to its average revenue. 
A) the price of that product depends on the quantity of the product that Bradley's Butcher Shop produces and sells because the firm's demand curve is downward sloping. 
B) Bradley's Butcher Shop's total cost must be a constant multiple of its quantity of output. 
C) Bradley's Butcher Shop's total revenue must be proportional to its quantity of output. 
D) Bradley's Butcher Shop's total revenue must be equal to its average revenue.

Question 14

In the short run, a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the

Accepted Answer

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

Question 15

Suppose a firm in each of the two markets listed below were to increase its price by 15 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

Accepted Answer

A) cotton and soybeans 
B) gasoline and corn 
C) #2 lead pencils and college textbooks 
D) electricity and cable television 
A) cotton and soybeans 
B) gasoline and corn 
C) #2 lead pencils and college textbooks 
D) electricity and cable television

Question 16

Which of the following is not a characteristic of a perfectly competitive market?

Accepted Answer

A) Firms are price takers. 
B) Firms have difficulty entering the market. 
C) There are many sellers in the market. 
D) Goods offered for sale are largely the same. 
A) Firms are price takers. 
B) Firms have difficulty entering the market. 
C) There are many sellers in the market. 
D) Goods offered for sale are largely the same.

Question 17

When a firm produces 2,000 units of output, its average total cost is $3.00 and its average revenue is $2.90. What is the firm's profit or loss?

Accepted Answer

The firm's

Question 18

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-2. Which of the four prices corresponds to a firm earning positive economic profits in the short run?

Accepted Answer

A) Pa 
B) Pb 
C) Pc 
D) Pd 
A) Pa 
B) Pb 
C) Pc 
D) Pd

Question 19

Which of the following industries is most likely to exhibit the characteristic of free entry?

Accepted Answer

A) nuclear power 
B) municipal water and sewer 
C) dairy farming 
D) airport security 
A) nuclear power 
B) municipal water and sewer 
C) dairy farming 
D) airport security

Question 20

Firms operating in perfectly competitive markets try to maximize profits.

Accepted Answer

A) True 
 B)False

Exam 14: Firms in Competitive Markets

Which of the following firms is the closest to being a perfectly competitive firm?

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is Bill's economic profit at the profit-maximizing output level?

Which of the following is a characteristic of a competitive market?

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 total cost but greater than the firm's average variable cost.

The long-run market supply curve in a competitive market will

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 marginal revenue from selling the 3rd unit is

A firm operating in a competitive market will stay in business in the short run so long as the market price exceeds the firm's average total cost; otherwise, the firm will shut down.

Suppose a firm in each of the two markets listed below were to increase its price by 25 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

Firms that operate in perfectly competitive markets try to

The entry of new firms into a competitive market will

Consider a firm that operates in a perfectly competitive market. The firm is producing at its profit maximizing output level. If this is true, then

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. Firms will be encouraged to enter this market for all prices that exceed

If Bradley's Butcher Shop sells its product in a competitive market, then

In the short run, a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the

Suppose a firm in each of the two markets listed below were to increase its price by 15 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

Which of the following is not a characteristic of a perfectly competitive market?

When a firm produces 2,000 units of output, its average total cost is $3.00 and its average revenue is $2.90. What is the firm's profit or loss?

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. Which of the four prices corresponds to a firm earning positive economic profits in the short run?

Which of the following industries is most likely to exhibit the characteristic of free entry?

Firms operating in perfectly competitive markets try to maximize profits.

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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