Question 1

In the long-run equilibrium of a market with free entry and exit, marginal firms are operating

Accepted Answer

A) at the point where average variable cost equals marginal cost. 
B) at the minimum point on their marginal cost curves. 
C) at their efficient scale. 
D) where accounting profit is zero. 
A) at the point where average variable cost equals marginal cost. 
B) at the minimum point on their marginal cost curves. 
C) at their efficient scale. 
D) where accounting profit is zero.

Question 2

Competitive markets are characterized by

Accepted Answer

A) a small number of buyers and sellers. 
B) unique products. 
C) the interdependence of firms. 
D) free entry and exit by firms. 
A) a small number of buyers and sellers. 
B) unique products. 
C) the interdependence of firms. 
D) free entry and exit by firms.

Question 3

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML

Accepted Answer

A) can choose the price at which it sells its butter but not the quantity of butter that it produces. 
B) can choose quantity of butter that it produces but not the price at which it sells its butter. 
C) can choose both the price at which it sells its butter and the quantity of butter that it produces. 
D) cannot choose either the price at which it sells it butter or the quantity of butter that it produces. 
A) can choose the price at which it sells its butter but not the quantity of butter that it produces. 
B) can choose quantity of butter that it produces but not the price at which it sells its butter. 
C) can choose both the price at which it sells its butter and the quantity of butter that it produces. 
D) cannot choose either the price at which it sells it butter or the quantity of butter that it produces.

Question 4

Table 14-5
The table represents a demand curve faced by a firm in a competitive market.  
-Refer to Table 14-5. For this firm, the marginal revenue of the 12th unit is

Accepted Answer

A) $9. 
B) $10. 
C) $11 
D) The marginal revenue cannot be determined without knowing the total revenue when 11 units are sold. 
A) $9. 
B) $10. 
C) $11 
D) The marginal revenue cannot be determined without knowing the total revenue when 11 units are sold.

Question 5

Robin owns a horse stables and riding academy and gives riding lessons for children at "pony camp." Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $100 per child. In order to maximize profits, Robin should

Accepted Answer

A) give riding lessons to more than 20 children per month. 
B) give riding lessons to fewer than 20 children per month. 
C) continue to give riding lessons to 20 children per month. 
D) We do not have enough information to answer the question. 
A) give riding lessons to more than 20 children per month. 
B) give riding lessons to fewer than 20 children per month. 
C) continue to give riding lessons to 20 children per month. 
D) We do not have enough information to answer the question.

Question 6

For a particular competitive firm, the minimum value of average variable cost (AVC) is $12 and is reached when 200 units of output are produced. For the same firm, the minimum value of average total cost (ATC) is $15 and is reached when 230 units of output are produced. Which of the following statements is correct?

Accepted Answer

A) In the short run, the firm will shut down if the price of its product is $11. 
B) In the long run, the firm will shut down if the price of its product is $14. 
C) If the price of its product is $12, then the firm's loss if it produces 200 units of output is the same as its loss if it shuts down. 
D) All of the above are correct. 
A) In the short run, the firm will shut down if the price of its product is $11. 
B) In the long run, the firm will shut down if the price of its product is $14. 
C) If the price of its product is $12, then the firm's loss if it produces 200 units of output is the same as its loss if it shuts down. 
D) All of the above are correct.

Question 7

Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should

Accepted Answer

A) make more than 20 wedding cakes per month. 
B) make fewer than 20 wedding cakes per month. 
C) continue to make 20 wedding cakes per month. 
D) We do not have enough information to answer the question. 
A) make more than 20 wedding cakes per month. 
B) make fewer than 20 wedding cakes per month. 
C) continue to make 20 wedding cakes per month. 
D) We do not have enough information to answer the question.

Question 8

If a competitive firm is currently producing a level of output at which profit is not maximized, then it must be true that

Accepted Answer

A) marginal revenue exceeds marginal cost. 
B) marginal cost exceeds marginal revenue. 
C) total cost exceeds total revenue. 
D) None of the above is correct. 
A) marginal revenue exceeds marginal cost. 
B) marginal cost exceeds marginal revenue. 
C) total cost exceeds total revenue. 
D) None of the above is correct.

Question 9

In a shopping mall in a large city, the Rudolph the Reindeer store sells only merchandise for the Christmas holiday season. Most of the store's revenue and profit are attributable to the months of October, November, and December. However, the store is open throughout the year. If the owner of the store is rational, what criterion does he or she use in deciding to keep the store open year-round?

Accepted Answer

The owner has determined that

Question 10

By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that achieves its objective, which we assume to be

Accepted Answer

A) maximizing total revenue. 
B) maximizing profit. 
C) minimizing variable cost. 
D) minimizing average total cost. 
A) maximizing total revenue. 
B) maximizing profit. 
C) minimizing variable cost. 
D) minimizing average total cost.

Question 11

A firm in a competitive market has the following cost structure:
Output
Total Cost
0
$5
1
$10
2
$12
3
$15
4
$24
5
$40
If the market price is $4, this firm will

Accepted Answer

A) produce 2 units in the short run and exit in the long run. 
B) produce 3 units in the short run and exit in the long run. 
C) produce 4 units in the short run and exit in the long run. 
D) shut down in the short run and exit in the long run. 
A) produce 2 units in the short run and exit in the long run. 
B) produce 3 units in the short run and exit in the long run. 
C) produce 4 units in the short run and exit in the long run. 
D) shut down in the short run and exit in the long run.

Question 12

Which of the following statements is correct regarding a firm's decision-making?

Accepted Answer

A) The decision to shut down and the decision to exit are both short-run decisions. 
B) The decision to shut down and the decision to exit are both long-run decisions. 
C) The decision to shut down is a short-run decision, whereas the decision to exit is a long-run decision. 
D) The decision to exit is a short-run decision, whereas the decision to shut down is a long-run decision. 
A) The decision to shut down and the decision to exit are both short-run decisions. 
B) The decision to shut down and the decision to exit are both long-run decisions. 
C) The decision to shut down is a short-run decision, whereas the decision to exit is a long-run decision. 
D) The decision to exit is a short-run decision, whereas the decision to shut down is a long-run decision.

Question 13

In a competitive market, is the long-run supply curve typically more elastic than the short-run supply curve, or is it less elastic than the short-run supply curve?

Accepted Answer

The long-run supply

Question 14

Firms in competitive markets can only earn economic profits in the long run, once the market is in equilibrium.

Accepted Answer

A) True 
 B)False

Question 15

Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:  
-Refer to Table 14-9. At which quantity of output is marginal revenue equal to marginal cost?

Accepted Answer

A) 3 units 
B) 5 units 
C) 7 units 
D) 9 units 
A) 3 units 
B) 5 units 
C) 7 units 
D) 9 units

Question 16

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 300 identical firms in this market, what level of output will be supplied to the market when price is $1.00?

Accepted Answer

A) 300 
B) 6,000 
C) 30,000 
D) 60,000 
A) 300 
B) 6,000 
C) 30,000 
D) 60,000

Question 17

Table 14-15-a  
-Refer to Table 14-15-a. What is the lowest price at which this firm would operate in the short run?

Accepted Answer

A) $5. 
B) $6. 
C) $7. 
D) $8. 
A) $5. 
B) $6. 
C) $7. 
D) $8.

Question 18

In a long-run equilibrium, the marginal firm has

Accepted Answer

A) price equal to average total cost. 
B) total revenue equal to total cost. 
C) economic profit equal to zero. 
D) All of the above are correct. 
A) price equal to average total cost. 
B) total revenue equal to total cost. 
C) economic profit equal to zero. 
D) All of the above are correct.

Question 19

Figure 14-11  
-Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were four identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve?
Point
Price
Quantity
A
$4
16
B
$4
32
C
$6
6
D
$8
64

Accepted Answer

A) A only 
B) A and C only 
C) B only 
D) B and D only 
A) A only 
B) A and C only 
C) B only 
D) B and D only

Question 20

When marginal revenue equals marginal cost, the firm

Accepted Answer

A) should increase the level of production to maximize its profit. 
B) may be minimizing its losses rather than maximizing its profit. 
C) must be generating positive economic profits. 
D) must be generating positive accounting profits. 
A) should increase the level of production to maximize its profit. 
B) may be minimizing its losses rather than maximizing its profit. 
C) must be generating positive economic profits. 
D) must be generating positive accounting profits.

Exam 14: Firms in Competitive Markets

In the long-run equilibrium of a market with free entry and exit, marginal firms are operating

Competitive markets are characterized by

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML

Table 14-5 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-5. For this firm, the marginal revenue of the 12th unit is

If a competitive firm is currently producing a level of output at which profit is not maximized, then it must be true that

By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that achieves its objective, which we assume to be

A firm in a competitive market has the following cost structure: Output Total Cost 0 $5 1 $10 2 $12 3 $15 4 $24 5 $40 If the market price is $4, this firm will

Which of the following statements is correct regarding a firm's decision-making?

In a competitive market, is the long-run supply curve typically more elastic than the short-run supply curve, or is it less elastic than the short-run supply curve?

Firms in competitive markets can only earn economic profits in the long run, once the market is in equilibrium.

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. At which quantity of output is marginal revenue equal to marginal cost?

Table 14-15-a -Refer to Table 14-15-a. What is the lowest price at which this firm would operate in the short run?

In a long-run equilibrium, the marginal firm has

Figure 14-11 -Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were four identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve? Point Price Quantity A $4 16 B $4 32 C $6 6 D $8 64

When marginal revenue equals marginal cost, the firm

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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