Question 1

​For firms operating in a perfectly competitive market, price must always be greater than marginal revenue.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following represents the firm's short-run condition for shutting down?

Accepted Answer

A) shut down if TR < TC 
B) shut down if TR < FC 
C) shut down if P < ATC 
D) shut down if TR < VC 
A) shut down if TR < TC 
B) shut down if TR < FC 
C) shut down if P < ATC 
D) shut down if TR < VC

Question 3

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

Accepted Answer

A) more than triple. 
B) less than triple. 
C) exactly triple. 
D) Any of the above may be true depending on the firm's labor productivity. 
A) more than triple. 
B) less than triple. 
C) exactly triple. 
D) Any of the above may be true depending on the firm's labor productivity.

Question 4

In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

Accepted Answer

A) True 
 B)False

Question 5

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

Accepted Answer

A) shut down her business in the short run but continue to operate in the long run. 
B) continue to operate in the short run but shut down in the long run. 
C) continue to operate in both the short run and long run. 
D) shut down in both the short run and long run. 
A) shut down her business in the short run but continue to operate in the long run. 
B) continue to operate in the short run but shut down in the long run. 
C) continue to operate in both the short run and long run. 
D) shut down in both the short run and long run.

Question 6

Scenario 14-4
The information below applies to a competitive firm that sells its output for $40 per unit.
• When the firm produces and sells 150 units of output, its average total cost is $24.50.
• When the firm produces and sells 151 units of output, its average total cost is $24.55.
-Refer to Scenario 14-4. Suppose the firm is producing 150 units of output and its fixed cost is $975. Then its variable cost amounts to

Accepted Answer

A) $2,360.25. 
B) $2,500.00. 
C) $2,612.75. 
D) $2,700.00. 
A) $2,360.25. 
B) $2,500.00. 
C) $2,612.75. 
D) $2,700.00.

Question 7

Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

Accepted Answer

A) shut down her business in the short run but continue to operate in the long run. 
B) continue to operate in the short run but shut down in the long run. 
C) continue to operate in both the short run and long run. 
D) shut down in both the short run and long run. 
A) shut down her business in the short run but continue to operate in the long run. 
B) continue to operate in the short run but shut down in the long run. 
C) continue to operate in both the short run and long run. 
D) shut down in both the short run and long run.

Question 8

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves:  
-Refer to Figure 14-13. If the price is $6 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 9

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

Accepted Answer

A) fixed cost. 
B) variable cost. 
C) total cost. 
D) revenue. 
A) fixed cost. 
B) variable cost. 
C) total cost. 
D) revenue.

Question 10

Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-4. When price falls from P3 to P1, the firm finds that it

Accepted Answer

A) decreases its fixed costs. 
B) should produce Q1 units of output. 
C) should produce Q3 units of output. 
D) should shut down immediately. 
A) decreases its fixed costs. 
B) should produce Q1 units of output. 
C) should produce Q3 units of output. 
D) should shut down immediately.

Question 11

In the short run, if the market price is below the firm's average total cost of production, the firm will always shut down.

Accepted Answer

A) True 
 B)False

Question 12

Firms operating in perfectly competitive markets try to maximize profits.

Accepted Answer

A) True 
 B)False

Question 13

The long-run supply curve for a competitive industry

Accepted Answer

A) may be horizontal if entry into the industry lowers average total cost. 
B) may be upward-sloping if higher-cost firms enter the industry. 
C) will be horizontal if there is free entry into the industry. 
D) will be upward-sloping if there are barriers to entry into the industry. 
A) may be horizontal if entry into the industry lowers average total cost. 
B) may be upward-sloping if higher-cost firms enter the industry. 
C) will be horizontal if there is free entry into the industry. 
D) will be upward-sloping if there are barriers to entry into the industry.

Question 14

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the short run but trying to remain open?

Accepted Answer

A) Pa 
B) Pb 
C) Pc 
D) Pd 
A) Pa 
B) Pb 
C) Pc 
D) Pd

Question 15

The long-run supply curve for a competitive industry may be upward sloping if

Accepted Answer

A) there are barriers to entry. 
B) firms that enter the industry are able to do so at lower average total costs than the existing firms in the industry. 
C) some resources are available only in limited quantities. 
D) accounting profits are positive. 
A) there are barriers to entry. 
B) firms that enter the industry are able to do so at lower average total costs than the existing firms in the industry. 
C) some resources are available only in limited quantities. 
D) accounting profits are positive.

Question 16

Suppose a firm is considering producing zero units of output. We call this exiting an industry in the short run and shutting down in the long run.

Accepted Answer

A) True 
 B)False

Question 17

Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct?
(i)Marginal revenue equals $3.
(ii)Average revenue equals $3.
(iii)Total revenue equals $900.

Accepted Answer

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

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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 $200. 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 20

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run

Accepted Answer

A) more firms will enter the market. 
B) some firms will exit from the market. 
C) the equilibrium price per bottle will rise 
D) average total costs will rise. 
A) more firms will enter the market. 
B) some firms will exit from the market. 
C) the equilibrium price per bottle will rise 
D) average total costs will rise.

Exam 14: Firms in Competitive Markets

​For firms operating in a perfectly competitive market, price must always be greater than marginal revenue.

Which of the following represents the firm's short-run condition for shutting down?

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run?

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. When price falls from P3 to P1, the firm finds that it

In the short run, if the market price is below the firm's average total cost of production, the firm will always shut down.

Firms operating in perfectly competitive markets try to maximize profits.

The long-run supply curve for a competitive industry

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the short run but trying to remain open?

The long-run supply curve for a competitive industry may be upward sloping if

Suppose a firm is considering producing zero units of output. We call this exiting an industry in the short run and shutting down in the long run.

Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? (i)Marginal revenue equals $3. (ii)Average revenue equals $3. (iii)Total revenue equals $900.

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

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run

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

Filters

For firms operating in a perfectly competitive market, price must always be greater than marginal revenue.