Question 1

Table 14-1  
-Refer to Table 14-1. Over what range of output is marginal revenue declining?

Accepted Answer

A) 1 to 6 units 
B) 3 to 7 units 
C) 7 to 9 units 
D) Marginal revenue is constant over the entire range of output. 
A) 1 to 6 units 
B) 3 to 7 units 
C) 7 to 9 units 
D) Marginal revenue is constant over the entire range of output.

Question 2

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

Accepted Answer

Average revenue is total revenue divided

Question 3

If all existing firms and all potential firms have the same cost curves, there are no inputs in limited quantities, and the market is characterized by free entry and exit, then the long-run market supply curve

Accepted Answer

A) is horizontal and equal to the minimum of long-run marginal cost for each firm. 
B) must slope downward. 
C) must slope upward. 
D) is horizontal and equal to the minimum of long-run average cost for each firm. 
A) is horizontal and equal to the minimum of long-run marginal cost for each firm. 
B) must slope downward. 
C) must slope upward. 
D) is horizontal and equal to the minimum of long-run average cost for each firm.

Question 4

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15.

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 5

In a certain large city there are two firms that supply concrete. The concrete sold by the first firm is indistinguishable from the concrete sold by the second firm. Is the market competitive?

Accepted Answer

The market is not co

Question 6

Mrs. Smith operates a business in a competitive market. The current market price is $7.50. 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 7

All firms maximize profits by producing an output level where marginal revenue equals marginal cost; for firms operating in perfectly competitive industries, maximizing profits also means producing an output level where price equals marginal cost.

Accepted Answer

A) True 
 B)False

Question 8

Figure 14-7  
-Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 514 units of output, its profit is approximately

Accepted Answer

A) $24,995. 
B) $25,550. 
C) $25,750. 
D) $26,025. 
A) $24,995. 
B) $25,550. 
C) $25,750. 
D) $26,025.

Question 9

Table 14-12  
-Refer to Table 14-12. What is Bill's economic profit at the profit-maximizing output level?

Accepted Answer

A) $25 
B) $75 
C) $115 
D) $225 
A) $25 
B) $75 
C) $115 
D) $225

Question 10

A firm has market power if it can

Accepted Answer

A) maximize profits. 
B) minimize costs. 
C) influence the market price of the good it sells. 
D) hire as many workers as it needs at the prevailing wage rate. 
A) maximize profits. 
B) minimize costs. 
C) influence the market price of the good it sells. 
D) hire as many workers as it needs at the prevailing wage rate.

Question 11

Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-3. If the market price is $6, what is the firm's short-run economic profit?

Accepted Answer

A) $0 
B) $12 
C) $15 
D) $18 
A) $0 
B) $12 
C) $15 
D) $18

Question 12

In the short run for a particular market, there are 5,000 firms. Each firm has a marginal cost of $7 when it produces 200 units of output. One point on the market supply curve is

Accepted Answer

A) quantity = 5,000; price = $7. 
B) quantity = 35,000 price = $35,000. 
C) quantity = 1,000,000, price = $7. 
D) quantity = 1,000,000, price = $35,000. 
A) quantity = 5,000; price = $7. 
B) quantity = 35,000 price = $35,000. 
C) quantity = 1,000,000, price = $7. 
D) quantity = 1,000,000, price = $35,000.

Question 13

For a firm, marginal revenue minus marginal cost is equal to

Accepted Answer

A) profit. 
B) average total cost. 
C) change in profit. 
D) change in average revenue. 
A) profit. 
B) average total cost. 
C) change in profit. 
D) change in average revenue.

Question 14

News reports from the western United States occasionally report incidents of cattle ranchers slaughtering a large number of newborn calves and burying them in mass graves rather than transporting them to markets. Assuming that this is rational behavior by profit-maximizing "firms," explain what economic factors may influence such behavior.

Accepted Answer

If the selling price is not su

Question 15

Scenario 14-4
Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year.
-Refer to Scenario 14-4. What is Victor's opportunity costs of operating his new business?

Accepted Answer

A) $25,000 
B) $75,000 
C) $100,000 
D) $175,000 
A) $25,000 
B) $75,000 
C) $100,000 
D) $175,000

Question 16

A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the long run.

Accepted Answer

A) True 
 B)False

Question 17

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

Accepted Answer

A) $5 and 50 units 
B) $5 and 100 units 
C) $10 and 50 units 
D) $10 and 100 units 
A) $5 and 50 units 
B) $5 and 100 units 
C) $10 and 50 units 
D) $10 and 100 units

Question 18

​Whenever firms in a perfectly competitive market produce the output level where marginal revenue equals marginal cost, we know that the firm is earning an economic profit.

Accepted Answer

A) True 
 B)False

Question 19

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 $6 value on reading a book.

Accepted Answer

A) You should leave the theater since the net benefit from seeing the remainder of the show is -$20, while going home will earn you at least $8 of satisfaction. 
B) You should stay and watch the remainder of the show. 
C) You should go home and watch TV. 
D) You should go home and read a book. 
A) You should leave the theater since the net benefit from seeing the remainder of the show is -$20, while going home will earn you at least $8 of satisfaction. 
B) You should stay and watch the remainder of the show. 
C) You should go home and watch TV. 
D) You should go home and read a book.

Question 20

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, the Brookside Racquet Club should

Accepted Answer

A) shut down because staying open would be more expensive. 
B) lower their prices to increase their profits. 
C) stay open because shutting down would be more expensive. 
D) stay open because the firm is making an economic profit. 
A) shut down because staying open would be more expensive. 
B) lower their prices to increase their profits. 
C) stay open because shutting down would be more expensive. 
D) stay open because the firm is making an economic profit.

Exam 14: Firms in Competitive Markets

Table 14-1 -Refer to Table 14-1. Over what range of output is marginal revenue declining?

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

If all existing firms and all potential firms have the same cost curves, there are no inputs in limited quantities, and the market is characterized by free entry and exit, then the long-run market supply curve

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15.

In a certain large city there are two firms that supply concrete. The concrete sold by the first firm is indistinguishable from the concrete sold by the second firm. Is the market competitive?

Mrs. Smith operates a business in a competitive market. The current market price is $7.50. 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

All firms maximize profits by producing an output level where marginal revenue equals marginal cost; for firms operating in perfectly competitive industries, maximizing profits also means producing an output level where price equals marginal cost.

Figure 14-7 -Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 514 units of output, its profit is approximately

Table 14-12 -Refer to Table 14-12. What is Bill's economic profit at the profit-maximizing output level?

A firm has market power if it can

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. If the market price is $6, what is the firm's short-run economic profit?

In the short run for a particular market, there are 5,000 firms. Each firm has a marginal cost of $7 when it produces 200 units of output. One point on the market supply curve is

For a firm, marginal revenue minus marginal cost is equal to

A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the long run.

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

​Whenever firms in a perfectly competitive market produce the output level where marginal revenue equals marginal cost, we know that the firm is earning an economic profit.

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, the Brookside Racquet Club should

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

Whenever firms in a perfectly competitive market produce the output level where marginal revenue equals marginal cost, we know that the firm is earning an economic profit.