Question 1

Which of the following statements best reflects a price-taking firm?

Accepted Answer

A) The firm can sell only a limited amount of output at the market price before the market price will fall. 
B) If the firm were to charge less than the going price, it would maximize its profits and revenues. 
C) If the firm were to charge more than the going price, it would sell none of its goods. 
D) Both b and c are correct. 
A) The firm can sell only a limited amount of output at the market price before the market price will fall. 
B) If the firm were to charge less than the going price, it would maximize its profits and revenues. 
C) If the firm were to charge more than the going price, it would sell none of its goods. 
D) Both b and c are correct.

Question 2

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct?
(i)Marginal revenue equals $4.
(ii)Average revenue equals $100.
(iii)Total revenue equals $1,600.

Accepted Answer

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

Question 3

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

Accepted Answer

1) Some resource used in production may

Question 4

Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

Accepted Answer

The firm selects the level of output at

Question 5

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be

Accepted Answer

A) less than $12. 
B) more than $12. 
C) $12. 
D) Any of the above may be correct depending on the price elasticity of demand for the product. 
A) less than $12. 
B) more than $12. 
C) $12. 
D) Any of the above may be correct depending on the price elasticity of demand for the product.

Question 6

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $4.50.

Accepted Answer

A) In the short run firms will shut down, and in the long run firms will leave the market. 
B) In the short run firms will continue to operate, but in the long run firms will leave the market. 
C) New firms will likely enter this market to capture any remaining economic profits. 
D) The firm will earn zero profits in both the short run and long run. 
A) In the short run firms will shut down, and in the long run firms will leave the market. 
B) In the short run firms will continue to operate, but in the long run firms will leave the market. 
C) New firms will likely enter this market to capture any remaining economic profits. 
D) The firm will earn zero profits in both the short run and long run.

Question 7

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

Accepted Answer

A) $39. 
B) $26. 
C) $13. 
D) $0. 
A) $39. 
B) $26. 
C) $13. 
D) $0.

Question 8

A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has average revenue of $9 and average total cost of $7. It follows that the firm's

Accepted Answer

A) average total cost curve intersects the marginal cost curve at an output level of less than 200 units. 
B) average variable cost curve intersects the marginal cost curve at an output level of less than 200 units. 
C) profit is $400. 
D) All of the above are correct. 
A) average total cost curve intersects the marginal cost curve at an output level of less than 200 units. 
B) average variable cost curve intersects the marginal cost curve at an output level of less than 200 units. 
C) profit is $400. 
D) All of the above are correct.

Question 9

Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has taken in $3,500 in monthly revenue. In the short run, Susan should

Accepted Answer

A) shut down her business, and in the long run she should exit the industry. 
B) continue to operate her business, but in the long run she should exit the industry. 
C) continue to operate her business, but in the long run she will probably face competition from newly entering firms. 
D) continue to operate her business, and she is also in long-run equilibrium. 
A) shut down her business, and in the long run she should exit the industry. 
B) continue to operate her business, but in the long run she should exit the industry. 
C) continue to operate her business, but in the long run she will probably face competition from newly entering firms. 
D) continue to operate her business, and she is also in long-run equilibrium.

Question 10

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 11

A competitive market will typically experience entry and exit until accounting profits are zero.

Accepted Answer

A) True 
 B)False

Question 12

The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.

Accepted Answer

A) True 
 B)False

Question 13

The long-run supply curve in a competitive market is more elastic than the short-run supply curve.

Accepted Answer

A) True 
 B)False

Question 14

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 15

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs:  
-Refer to Table 14-10. This firm should continue to produce and sell units as long as the marginal cost of production is less than or equal to

Accepted Answer

A) $3. 
B) $5. 
C) $7. 
D) $9. 
A) $3. 
B) $5. 
C) $7. 
D) $9.

Question 16

When the process of entry and exit has ended in a competitive market, are firms' profits positive, negative, or zero?

Accepted Answer

At the end of the en

Question 17

In the long run, a profit-maximizing firm will choose to exit a market when

Accepted Answer

A) average fixed cost is falling. 
B) variable costs exceed sunk costs. 
C) marginal cost exceeds marginal revenue at the current level of production. 
D) total revenue is less than total cost. 
A) average fixed cost is falling. 
B) variable costs exceed sunk costs. 
C) marginal cost exceeds marginal revenue at the current level of production. 
D) total revenue is less than total cost.

Question 18

Competitive firms that earn a loss in the short run should

Accepted Answer

A) shut down if P < AVC. 
B) raise their price. 
C) lower their output. 
D) All of the above are correct. 
A) shut down if P < AVC. 
B) raise their price. 
C) lower their output. 
D) All of the above are correct.

Question 19

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 20

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.

Exam 14: Firms in Competitive Markets

Which of the following statements best reflects a price-taking firm?

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct? (i)Marginal revenue equals $4. (ii)Average revenue equals $100. (iii)Total revenue equals $1,600.

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $4.50.

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

A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has average revenue of $9 and average total cost of $7. It follows that the firm's

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

A competitive market will typically experience entry and exit until accounting profits are zero.

The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.

The long-run supply curve in a competitive market is more elastic than the short-run supply curve.

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.

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. This firm should continue to produce and sell units as long as the marginal cost of production is less than or equal to

When the process of entry and exit has ended in a competitive market, are firms' profits positive, negative, or zero?

In the long run, a profit-maximizing firm will choose to exit a market when

Competitive firms that earn a loss in the short run should

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

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

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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