Question 1

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

Accepted Answer

A) If the firm were to charge more than the going price, it would sell none of its goods. 
B) The firm has an incentive to charge less than the market price to earn higher revenue. 
C) The firm can sell only a limited amount of output at the market price before the market price will fall. 
D) Price-taking firms maximize profits by charging a price above marginal cost. 
A) If the firm were to charge more than the going price, it would sell none of its goods. 
B) The firm has an incentive to charge less than the market price to earn higher revenue. 
C) The firm can sell only a limited amount of output at the market price before the market price will fall. 
D) Price-taking firms maximize profits by charging a price above marginal cost.

Question 2

A competitive firm sells its output for $10 per unit. Is the firm's average revenue less than, equal to, or greater than $10?

Accepted Answer

For a competitive firm, price

Question 3

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves:  
-Refer to Figure 14-13. If the price is $3.50 in the short run, what will happen in the long run?

Accepted Answer

A) Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. 
B) Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. 
C) Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. 
D) Because the price is below the firm's average variable costs, the firms will shut down. 
A) Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. 
B) Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. 
C) Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. 
D) Because the price is below the firm's average variable costs, the firms will shut down.

Question 4

In a competitive market with identical firms,

Accepted Answer

A) an increase in demand in the short run will result in a new price above the minimum of average total cost, allowing firms to earn a positive economic profit in both the short run and the long run. 
B) firms cannot earn positive economic profit in either the short run or long run. 
C) firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping. 
D) free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run. 
A) an increase in demand in the short run will result in a new price above the minimum of average total cost, allowing firms to earn a positive economic profit in both the short run and the long run. 
B) firms cannot earn positive economic profit in either the short run or long run. 
C) firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping. 
D) free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.

Question 5

Table 14-7
Suppose that a firm in a competitive market faces the following revenues and costs:  
-Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners?

Accepted Answer

A) decrease quantity to 13 units 
B) increase quantity to 15 units 
C) continue to operate at 14 units 
D) increase quantity to 16 units 
A) decrease quantity to 13 units 
B) increase quantity to 15 units 
C) continue to operate at 14 units 
D) increase quantity to 16 units

Question 6

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 7

When a profit-maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production.

Accepted Answer

A) True 
 B)False

Question 8

In a competitive market, the actions of any single buyer or seller will

Accepted Answer

A) discourage entry by competitors. 
B) influence the profits of other firms in the market. 
C) have a negligible impact on the market price. 
D) Both a and b are correct. 
A) discourage entry by competitors. 
B) influence the profits of other firms in the market. 
C) have a negligible impact on the market price. 
D) Both a and b are correct.

Question 9

In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if

Accepted Answer

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

Question 10

When it produces 500 units of output, a firm earns a profit of $20,000. If the firm sells its output for $65 per unit, then what is its average total cost?

Accepted Answer

Profit @#IMG-DLM& ,

Question 11

A dairy farmer must be able to calculate sunk costs in order to determine how much revenue the farm receives for the typical gallon of milk.

Accepted Answer

A) True 
 B)False

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 earn losses in the short run but will remain in business if the market price

Accepted Answer

A) exceeds P3. 
B) is less than P1. 
C) is greater than P1 but less than P3. 
D) exceeds P2. 
A) exceeds P3. 
B) is less than P1. 
C) is greater than P1 but less than P3. 
D) exceeds P2.

Question 13

A competitive firm currently produces and sells 500 units of output. Its total revenue is $3,500; the marginal cost of producing the 500th unit of output is $5.75; and the average total cost of producing the 500th unit of output is $4.00. Is the firm maximizing its profit, or should it increase or decrease output in order to increase its profit?

Accepted Answer

For this firm, price = margina

Question 14

When firms are said to be price takers, it implies that if a firm raises its price,

Accepted Answer

A) buyers will go elsewhere. 
B) buyers will pay the higher price in the short run. 
C) competitors will also raise their prices. 
D) firms in the industry will exercise market power. 
A) buyers will go elsewhere. 
B) buyers will pay the higher price in the short run. 
C) competitors will also raise their prices. 
D) firms in the industry will exercise market power.

Question 15

Table 14-4
The table represents a demand curve faced by a firm in a competitive market.  
-Refer to Table 14-4. For this firm, the price is

Accepted Answer

A) $0. 
B) $5. 
C) $10. 
D) $15. 
A) $0. 
B) $5. 
C) $10. 
D) $15.

Question 16

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

Accepted Answer

A) Buyers and sellers are price takers. 
B) Each firm sells a virtually identical product. 
C) Entry is limited. 
D) Each firm chooses an output level that maximizes profits. 
A) Buyers and sellers are price takers. 
B) Each firm sells a virtually identical product. 
C) Entry is limited. 
D) Each firm chooses an output level that maximizes profits.

Question 17

In a perfectly competitive market, the market supply curve is

Accepted Answer

A) the marginal cost curve above average total cost for a representative firm. 
B) the horizontal sum of all the individual firms' supply curves. 
C) the vertical sum of all the individual firms' supply curves. 
D) always a horizontal line. 
A) the marginal cost curve above average total cost for a representative firm. 
B) the horizontal sum of all the individual firms' supply curves. 
C) the vertical sum of all the individual firms' supply curves. 
D) always a horizontal line.

Question 18

In a competitive market, the actions of any single buyer or seller will

Accepted Answer

A) discourage entry by competitors. 
B) influence the profits of other firms in the market. 
C) have a negligible impact on the market price. 
D) None of the above is correct. 
A) discourage entry by competitors. 
B) influence the profits of other firms in the market. 
C) have a negligible impact on the market price. 
D) None of the above is correct.

Question 19

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $5. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 20

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 variable cost.

Accepted Answer

A) True 
 B)False

Exam 14: Firms in Competitive Markets

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

A competitive firm sells its output for $10 per unit. Is the firm's average revenue less than, equal to, or greater than $10?

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $3.50 in the short run, what will happen in the long run?

In a competitive market with identical firms,

Table 14-7 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners?

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.

When a profit-maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production.

In a competitive market, the actions of any single buyer or seller will

In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if

When it produces 500 units of output, a firm earns a profit of $20,000. If the firm sells its output for $65 per unit, then what is its average total cost?

A dairy farmer must be able to calculate sunk costs in order to determine how much revenue the farm receives for the typical gallon of milk.

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. Firms will be earn losses in the short run but will remain in business if the market price

When firms are said to be price takers, it implies that if a firm raises its price,

Table 14-4 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-4. For this firm, the price is

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

In a perfectly competitive market, the market supply curve is

In a competitive market, the actions of any single buyer or seller will

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $5. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

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 variable cost.

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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