Question 1

When entry and exit behavior of firms in an industry does not affect a firm's cost structure,

Accepted Answer

A) the long-run market supply curve must be horizontal. 
B) the long-run market supply curve must be upward-sloping. 
C) the long-run market supply curve must be downward-sloping. 
D) we do not have sufficient information to determine the shape of the long-run market supply curve. 
A) the long-run market supply curve must be horizontal. 
B) the long-run market supply curve must be upward-sloping. 
C) the long-run market supply curve must be downward-sloping. 
D) we do not have sufficient information to determine the shape of the long-run market supply curve.

Question 2

For any competitive market, the supply curve is closely related to the

Accepted Answer

A) preferences of consumers who purchase products in that market. 
B) income tax rates of consumers in that market. 
C) firms' costs of production in that market. 
D) interest rates on government bonds. 
A) preferences of consumers who purchase products in that market. 
B) income tax rates of consumers in that market. 
C) firms' costs of production in that market. 
D) interest rates on government bonds.

Question 3

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 4

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 $16, this firm will

Accepted Answer

A) produce 4 units of output in the short run and exit in the long run. 
B) produce 5 units of output in the short run and exit in the long run. 
C) produce 5 units of output in the short run and face competition from new market entrants in the long run. 
D) shut down in the short run and exit in the long run. 
A) produce 4 units of output in the short run and exit in the long run. 
B) produce 5 units of output in the short run and exit in the long run. 
C) produce 5 units of output in the short run and face competition from new market entrants in the long run. 
D) shut down in the short run and exit in the long run.

Question 5

Table 14-2
The table represents a demand curve faced by a firm in a competitive market.  
-Refer to Table 14-2. This firm maximizes total revenue by producing

Accepted Answer

A) 1 units. 
B) 3 units. 
C) 5 units. 
D) as many units as possible. 
A) 1 units. 
B) 3 units. 
C) 5 units. 
D) as many units as possible.

Question 6

Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them. He rents each boat for $200 per month. The variable cost for each boat rental is $50. In the off season, Bill should

Accepted Answer

A) operate his business as long as he rents at least 7 boats per month. 
B) operate his business as long as he rents at least 1 boat per month. 
C) operate his business as long as he rents all 10 boats each month. 
D) raise the price he charges per boat rental. 
A) operate his business as long as he rents at least 7 boats per month. 
B) operate his business as long as he rents at least 1 boat per month. 
C) operate his business as long as he rents all 10 boats each month. 
D) raise the price he charges per boat rental.

Question 7

Figure 14-14    
-Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b) and that panel (a) illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is not correct?

Accepted Answer

A) Point W is a long-run equilibrium point. 
B) Points W, Y, and Z are short-run equilibria points. 
C) Point Y is a long-run equilibrium point. 
D) Point Z is a long-run equilibrium point. 
A) Point W is a long-run equilibrium point. 
B) Points W, Y, and Z are short-run equilibria points. 
C) Point Y is a long-run equilibrium point. 
D) Point Z is a long-run equilibrium point.

Question 8

One of the defining characteristics of a perfectly competitive market is

Accepted Answer

A) a small number of sellers. 
B) a large number of buyers and a small number of sellers. 
C) a similar product. 
D) significant advertising by firms to promote their products. 
A) a small number of sellers. 
B) a large number of buyers and a small number of sellers. 
C) a similar product. 
D) significant advertising by firms to promote their products.

Question 9

Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's

Accepted Answer

A) total revenue. 
B) marginal revenue. 
C) average revenue. 
D) All of the above are correct. 
A) total revenue. 
B) marginal revenue. 
C) average revenue. 
D) All of the above are correct.

Question 10

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

Accepted Answer

A) $3. 
B) $4. 
C) $5. 
D) $6. 
A) $3. 
B) $4. 
C) $5. 
D) $6.

Question 11

Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In long-run equilibrium, market price is determined by

Accepted Answer

A) the minimum point on the firms' average variable cost curve. 
B) the minimum point on the firms' average total cost curve. 
C) the portion of the marginal cost curve below average variable cost. 
D) a firm's level of sunk costs. 
A) the minimum point on the firms' average variable cost curve. 
B) the minimum point on the firms' average total cost curve. 
C) the portion of the marginal cost curve below average variable cost. 
D) a firm's level of sunk costs.

Question 12

Which of the following statements best expresses a firm's profit-maximizing decision rule?

Accepted Answer

A) If marginal revenue is greater than marginal cost, the firm should increase its output. 
B) If marginal revenue is less than marginal cost, the firm should decrease its output. 
C) If marginal revenue equals marginal cost, the firm should continue producing its current level of output. 
D) All of the above are correct. 
A) If marginal revenue is greater than marginal cost, the firm should increase its output. 
B) If marginal revenue is less than marginal cost, the firm should decrease its output. 
C) If marginal revenue equals marginal cost, the firm should continue producing its current level of output. 
D) All of the above are correct.

Question 13

In a perfectly competitive market, the process of entry and exit will end when
(i)accounting profits are zero.
(ii)economic profits are zero.
(iii)price equals minimum marginal cost.
(iv)price equals minimum average total cost.

Accepted Answer

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

Question 14

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales.  
-Refer to Table 14-14. At what quantity will Bob maximize his profit?

Accepted Answer

A) 5 units 
B) 6 units 
C) 7 units 
D) 8 units 
A) 5 units 
B) 6 units 
C) 7 units 
D) 8 units

Question 15

Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:  
-Refer to Table 14-9. If the firm produces 3 units of output,

Accepted Answer

A) marginal cost is $4. 
B) total revenue is greater than variable cost. 
C) marginal revenue is less than marginal cost. 
D) the firm is maximizing profit. 
A) marginal cost is $4. 
B) total revenue is greater than variable cost. 
C) marginal revenue is less than marginal cost. 
D) the firm is maximizing profit.

Question 16

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price?

Accepted Answer

A) $9 
B) $10 
C) $11 
D) $12 
A) $9 
B) $10 
C) $11 
D) $12

Question 17

Which of the following statements is not correct?

Accepted Answer

A) In a long-run equilibrium, marginal firms make zero economic profit. 
B) To maximize profit, firms should produce at a level of output where price equals average variable cost. 
C) The amount of gold in the world is limited. Therefore, the gold jewelry market probably has a long-run supply curve that is upward sloping. 
D) Long-run supply curves are typically more elastic than short-run supply curves. 
A) In a long-run equilibrium, marginal firms make zero economic profit. 
B) To maximize profit, firms should produce at a level of output where price equals average variable cost. 
C) The amount of gold in the world is limited. Therefore, the gold jewelry market probably has a long-run supply curve that is upward sloping. 
D) Long-run supply curves are typically more elastic than short-run supply curves.

Question 18

A competitive firm is maximizing its profit by selling 150 units of output. The firm's marginal cost is $8 and its average total cost is $6. The firm's profit amounts to __________.

Accepted Answer

The answer of A competitive firm is maximizing its profit...

Question 19

Firms operating in competitive markets produce output levels where marginal revenue equals

Accepted Answer

A) price. 
B) average revenue. 
C) total revenue divided by output. 
D) All of the above are correct. 
A) price. 
B) average revenue. 
C) total revenue divided by output. 
D) All of the above are correct.

Question 20

In the long run, each firm in a competitive industry earns

Accepted Answer

A) zero accounting profits. 
B) zero economic profits. 
C) positive economic profits. 
D) Both a and b are correct. 
A) zero accounting profits. 
B) zero economic profits. 
C) positive economic profits. 
D) Both a and b are correct.

Exam 14: Firms in Competitive Markets

When entry and exit behavior of firms in an industry does not affect a firm's cost structure,

For any competitive market, the supply curve is closely related to the

Firms that operate in perfectly competitive markets try to

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 $16, this firm will

Table 14-2 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-2. This firm maximizes total revenue by producing

Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them. He rents each boat for $200 per month. The variable cost for each boat rental is $50. In the off season, Bill should

Figure 14-14 -Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b) and that panel (a) illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is not correct?

One of the defining characteristics of a perfectly competitive market is

Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's

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

Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In long-run equilibrium, market price is determined by

Which of the following statements best expresses a firm's profit-maximizing decision rule?

In a perfectly competitive market, the process of entry and exit will end when (i)accounting profits are zero. (ii)economic profits are zero. (iii)price equals minimum marginal cost. (iv)price equals minimum average total cost.

Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. -Refer to Table 14-14. At what quantity will Bob maximize his profit?

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. If the firm produces 3 units of output,

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price?

Which of the following statements is not correct?

A competitive firm is maximizing its profit by selling 150 units of output. The firm's marginal cost is $8 and its average total cost is $6. The firm's profit amounts to __________.

Firms operating in competitive markets produce output levels where marginal revenue equals

In the long run, each firm in a competitive industry earns

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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