Question 1

Table 14-13  
-Refer to Table 14-13. What is the marginal cost of the 1st unit?

Accepted Answer

A) $50 
B) $75 
C) $80 
D) $150 
A) $50 
B) $75 
C) $80 
D) $150

Question 2

Figure 14-9
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 14-9. If there are 400 identical firms in this market, what level of output will be supplied to the market when price is $2.00?

Accepted Answer

A) 10,000 
B) 20,000 
C) 40,000 
D) 80,000 
A) 10,000 
B) 20,000 
C) 40,000 
D) 80,000

Question 3

When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch, which of the following principles is (are) best demonstrated?
(i)Fixed costs are sunk in the short run.
(ii)In the short run, only fixed costs are important to the decision to stay open for lunch.
(iii)If revenue exceeds variable cost, the restaurant owner is making a smart decision to remain open for lunch.

Accepted Answer

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

Question 4

Table 14-12  
-Refer to Table 14-12. What is the marginal revenue from selling the 5th unit?

Accepted Answer

A) $12 
B) $68 
C) $80 
D) $480 
A) $12 
B) $68 
C) $80 
D) $480

Question 5

A competitive firm is producing 1,000 units of output with average total cost equal to $35 and marginal cost equal to $40. 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 6

Which of the following expressions is correct for a competitive firm?

Accepted Answer

A) profit = (quantity of output) x (price - average total cost) 
B) marginal revenue = (change in total revenue)/(quantity of output) 
C) average total cost = total variable cost/quantity of output 
D) average revenue = (marginal revenue) x (quantity of output) 
A) profit = (quantity of output) x (price - average total cost) 
B) marginal revenue = (change in total revenue)/(quantity of output) 
C) average total cost = total variable cost/quantity of output 
D) average revenue = (marginal revenue) x (quantity of output)

Question 7

If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, we would expect that

Accepted Answer

A) the demand for products in this industry would increase. 
B) the market price of products in this industry would decrease in the short run but not in the long run. 
C) the firms in the industry would make a long-run economic profit. 
D) competition would force producers to pass the lower production costs on to consumers in the long run. 
A) the demand for products in this industry would increase. 
B) the market price of products in this industry would decrease in the short run but not in the long run. 
C) the firms in the industry would make a long-run economic profit. 
D) competition would force producers to pass the lower production costs on to consumers in the long run.

Question 8

In the long-run equilibrium of a market with free entry and exit, if all firms have the same cost structure, then

Accepted Answer

A) marginal cost exceeds average total cost. 
B) the price of the good exceeds average total cost. 
C) average total cost exceeds the price of the good. 
D) firms are operating at their efficient scale. 
A) marginal cost exceeds average total cost. 
B) the price of the good exceeds average total cost. 
C) average total cost exceeds the price of the good. 
D) firms are operating at their efficient scale.

Question 9

In the long-run equilibrium of a competitive market, the number of firms in the market adjusts until the market demand is satisfied at a price equal to the minimum of

Accepted Answer

A) average fixed cost for the marginal firm. 
B) marginal cost of the marginal firm. 
C) average total cost of the marginal firm. 
D) average variable cost of the marginal firm. 
A) average fixed cost for the marginal firm. 
B) marginal cost of the marginal firm. 
C) average total cost of the marginal firm. 
D) average variable cost of the marginal firm.

Question 10

A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its

Accepted Answer

A) opportunity costs. 
B) fixed costs. 
C) variable costs. 
D) total costs. 
A) opportunity costs. 
B) fixed costs. 
C) variable costs. 
D) total costs.

Question 11

Scenario 14-4
Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year.
-Refer to Scenario 14-4. At the end of the first year of operating his new business, Victor's accountant reported an accounting profit of $150,000. What was Victor's economic profit?

Accepted Answer

A) -$150,000 
B) -$50,000 
C) -$25,000 
D) $25,000 
A) -$150,000 
B) -$50,000 
C) -$25,000 
D) $25,000

Question 12

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

Accepted Answer

A) fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
B) fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
C) fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
D) not fall in the short run because firms will exit to maintain the price. 
A) fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
B) fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
C) fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
D) not fall in the short run because firms will exit to maintain the price.

Question 13

Cold Duck Airlines flies between Tacoma and Portland. The company leases planes on a year-long contract at a cost that averages $600 per flight. Other costs (fuel, flight attendants, etc.) amount to $550 per flight. Currently, Cold Duck's revenues are $1,000 per flight. All prices and costs are expected to continue at their present levels. If it wants to maximize profit, Cold Duck Airlines should

Accepted Answer

A) drop the flight immediately. 
B) continue the flight. 
C) continue flying until the lease expires and then drop the run. 
D) drop the flight now but renew the lease if conditions improve. 
A) drop the flight immediately. 
B) continue the flight. 
C) continue flying until the lease expires and then drop the run. 
D) drop the flight now but renew the lease if conditions improve.

Question 14

Explain the difference between the short run and the long run in terms of the number of firms in a competitive market.

Accepted Answer

In the short run, the number o

Question 15

In a perfectly competitive market,

Accepted Answer

A) no one seller can influence the price of the product. 
B) price exceeds marginal revenue for each unit sold. 
C) average revenue exceeds marginal revenue for each unit sold. 
D) All of the above are correct. 
A) no one seller can influence the price of the product. 
B) price exceeds marginal revenue for each unit sold. 
C) average revenue exceeds marginal revenue for each unit sold. 
D) All of the above are correct.

Question 16

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 17

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 18

A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as

Accepted Answer

A) average revenue is greater than average total cost. 
B) average revenue is equal to marginal cost. 
C) marginal cost is greater than average total cost. 
D) price is above or below marginal cost. 
A) average revenue is greater than average total cost. 
B) average revenue is equal to marginal cost. 
C) marginal cost is greater than average total cost. 
D) price is above or below marginal cost.

Question 19

When an individual firm in a competitive market decreases its production, it is likely that the market price will rise.

Accepted Answer

A) True 
 B)False

Question 20

Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company's financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger's

Accepted Answer

A) total revenues equal his total economic costs. 
B) marginal revenue exceeds his total cost. 
C) marginal revenue exceeds his marginal cost. 
D) marginal cost exceeds his marginal revenue. 
A) total revenues equal his total economic costs. 
B) marginal revenue exceeds his total cost. 
C) marginal revenue exceeds his marginal cost. 
D) marginal cost exceeds his marginal revenue.

Exam 14: Firms in Competitive Markets

Table 14-13 -Refer to Table 14-13. What is the marginal cost of the 1st unit?

Table 14-12 -Refer to Table 14-12. What is the marginal revenue from selling the 5th unit?

A competitive firm is producing 1,000 units of output with average total cost equal to $35 and marginal cost equal to $40. Can the market in which this firm operates be in a long-run equilibrium? Briefly explain.

Which of the following expressions is correct for a competitive firm?

If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, we would expect that

In the long-run equilibrium of a market with free entry and exit, if all firms have the same cost structure, then

In the long-run equilibrium of a competitive market, the number of firms in the market adjusts until the market demand is satisfied at a price equal to the minimum of

A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

Explain the difference between the short run and the long run in terms of the number of firms in a competitive market.

In a perfectly competitive market,

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

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

A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as

When an individual firm in a competitive market decreases its production, it is likely that the market price will rise.

Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company's financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger's

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

Applications: 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

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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