Question 1

A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

Accepted Answer

A) True 
 B)False

Question 2

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 $4.75. 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 3

When a resource used in the production of a good sold in a competitive market is available in only limited quantities, the long-run supply curve is likely to be upward sloping.

Accepted Answer

A) True 
 B)False

Question 4

You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $12 value on reading a book.

Accepted Answer

A) You should stay and watch the remainder of the show. 
B) You should go home and watch TV. 
C) You should go home and read a book. 
D) You should go home and either watch TV or read a book. 
A) You should stay and watch the remainder of the show. 
B) You should go home and watch TV. 
C) You should go home and read a book. 
D) You should go home and either watch TV or read a book.

Question 5

A firm that has little ability to influence market prices operates in a

Accepted Answer

A) competitive market. 
B) strategic market. 
C) thin market. 
D) power market. 
A) competitive market. 
B) strategic market. 
C) thin market. 
D) power market.

Question 6

In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is

Accepted Answer

A) zero. 
B) equal to the industry profits. 
C) the market supply curve. 
D) a horizontal line. 
A) zero. 
B) equal to the industry profits. 
C) the market supply curve. 
D) a horizontal line.

Question 7

Profit-maximizing firms enter a competitive market when existing firms in that market have

Accepted Answer

A) total revenues that exceed fixed costs. 
B) total revenues that exceed total variable costs. 
C) average total costs that exceed average revenue. 
D) average total costs less than market price. 
A) total revenues that exceed fixed costs. 
B) total revenues that exceed total variable costs. 
C) average total costs that exceed average revenue. 
D) average total costs less than market price.

Question 8

A competitive firm's short-run supply curve intersects its average-total-cost curve at the point   
What is the value of marginal cost at Q = 450?

Accepted Answer

The firm's

Question 9

If a firm notices that its average revenue equals the current market price, that firm must be participating in a competitive market.

Accepted Answer

A) True 
 B)False

Question 10

Table 14-1  
-Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will

Accepted Answer

A) increase by less than $15. 
B) increase by exactly $15. 
C) increase by more than $15. 
D) Total revenue cannot be determined from the information provided. 
A) increase by less than $15. 
B) increase by exactly $15. 
C) increase by more than $15. 
D) Total revenue cannot be determined from the information provided.

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 this market, an increase in demand will

Accepted Answer

A) increase price in the short run but not in the long run. 
B) increase price in the long run but not in the short run. 
C) increase price both in the short and the long run. 
D) not affect price in either the short or the long run. 
A) increase price in the short run but not in the long run. 
B) increase price in the long run but not in the short run. 
C) increase price both in the short and the long run. 
D) not affect price in either the short or the long run.

Question 12

Table 14-2
The table represents a demand curve faced by a firm in a competitive market.  
-Refer to Table 14-2. For this firm, the marginal revenue from selling the 3rd unit is

Accepted Answer

A) $12. 
B) $4. 
C) $3. 
D) $1. 
A) $12. 
B) $4. 
C) $3. 
D) $1.

Question 13

Use a graph to demonstrate the circumstances that would prevail in a perfectly competitive market where firms are experiencing economic losses. Identify costs, revenue, and the economic losses on your graph. Using your graph, determine whether an individual firm will shut down in the short run, or choose to remain in the market. Explain your answer.

Accepted Answer

The losses and revenues are identified o

Question 14

The firm will make the most profits if it produces the quantity of output at which

Accepted Answer

A) marginal cost equals average cost. 
B) profit per unit is greatest. 
C) marginal revenue equals total revenue. 
D) marginal revenue equals marginal cost. 
A) marginal cost equals average cost. 
B) profit per unit is greatest. 
C) marginal revenue equals total revenue. 
D) marginal revenue equals marginal cost.

Question 15

Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-3. The firm will earn zero economic profit if the market price is

Accepted Answer

A) $0. 
B) $6. 
C) $7. 
D) $10. 
A) $0. 
B) $6. 
C) $7. 
D) $10.

Question 16

If Bradley's Butcher Shop sells its product in a competitive market, then

Accepted Answer

A) the price of that product depends on the quantity of the product that Bradley's Butcher Shop produces and sells because the firm's demand curve is downward sloping. 
B) Bradley's Butcher Shop's total cost must be a constant multiple of its quantity of output. 
C) Bradley's Butcher Shop's total revenue must be proportional to its quantity of output. 
D) Bradley's Butcher Shop's total revenue must be equal to its average revenue. 
A) the price of that product depends on the quantity of the product that Bradley's Butcher Shop produces and sells because the firm's demand curve is downward sloping. 
B) Bradley's Butcher Shop's total cost must be a constant multiple of its quantity of output. 
C) Bradley's Butcher Shop's total revenue must be proportional to its quantity of output. 
D) Bradley's Butcher Shop's total revenue must be equal to its average revenue.

Question 17

If all firms have the same costs of production, then in long-run equilibrium,

Accepted Answer

A) price exceeds average total cost for all firms. 
B) price exceeds marginal cost for all firms. 
C) some firms may earn positive economic profits. 
D) all firms have zero economic profits and just cover their opportunity costs. 
A) price exceeds average total cost for all firms. 
B) price exceeds marginal cost for all firms. 
C) some firms may earn positive economic profits. 
D) all firms have zero economic profits and just cover their opportunity costs.

Question 18

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Explain your answer.

Accepted Answer

In a competitive market where firms are

Question 19

The term shutdown

Accepted Answer

A) and the term exit both refer to short-run decisions that a firm might make. 
B) and the term exit both refer to long-run decisions that a firm might make. 
C) refers to a short-run decision that a firm might make, whereas the term exit refers to a long-run decision that a firm might make. 
D) refers to a long-run decision that a firm might make, whereas the term exit refers to a short-run decision that a firm might make. 
A) and the term exit both refer to short-run decisions that a firm might make. 
B) and the term exit both refer to long-run decisions that a firm might make. 
C) refers to a short-run decision that a firm might make, whereas the term exit refers to a long-run decision that a firm might make. 
D) refers to a long-run decision that a firm might make, whereas the term exit refers to a short-run decision that a firm might make.

Question 20

When a firm sells 1 million coat hangers, its total revenue is $2 million. When it sells 2 million coat hangers, its total revenue is $3.5 million. Is this firm a price taker? Explain.

Accepted Answer

No. When the firm sells 1 million coat h

Exam 14: Firms in Competitive Markets

A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

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 $4.75. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

When a resource used in the production of a good sold in a competitive market is available in only limited quantities, the long-run supply curve is likely to be upward sloping.

A firm that has little ability to influence market prices operates in a

In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is

Profit-maximizing firms enter a competitive market when existing firms in that market have

A competitive firm's short-run supply curve intersects its average-total-cost curve at the point What is the value of marginal cost at Q = 450?

If a firm notices that its average revenue equals the current market price, that firm must be participating in a competitive market.

Table 14-1 -Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will

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 this market, an increase in demand will

Table 14-2 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-2. For this firm, the marginal revenue from selling the 3rd unit is

The firm will make the most profits if it produces the quantity of output at which

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. The firm will earn zero economic profit if the market price is

If Bradley's Butcher Shop sells its product in a competitive market, then

If all firms have the same costs of production, then in long-run equilibrium,

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Explain your answer.

The term shutdown

When a firm sells 1 million coat hangers, its total revenue is $2 million. When it sells 2 million coat hangers, its total revenue is $3.5 million. Is this firm a price taker? Explain.

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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