Question 1

A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements regarding a competitive firm is correct?

Accepted Answer

A) Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output. 
B) If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. 
C) By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price. 
D) For all firms, average revenue equals the price of the good. 
A) Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output. 
B) If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. 
C) By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price. 
D) For all firms, average revenue equals the price of the good.

Question 3

For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price.

Accepted Answer

A) True 
 B)False

Question 4

The short-run supply curve for a firm in a perfectly competitive market is

Accepted Answer

A) horizontal. 
B) likely to slope downward. 
C) determined by forces external to the firm. 
D) the portion of its marginal cost curve that lies above its average variable cost. 
A) horizontal. 
B) likely to slope downward. 
C) determined by forces external to the firm. 
D) the portion of its marginal cost curve that lies above its average variable cost.

Question 5

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. How does the firm's marginal revenue (MR) compare to its marginal cost (MC) when it increases its output from 150 units to 151 units?

Accepted Answer

A) MR exceeds MC by $7.95. 
B) MR exceeds MC by $11.05. 
C) MC exceeds MR by $11.05. 
D) MC exceeds MR by $13.50. 
A) MR exceeds MC by $7.95. 
B) MR exceeds MC by $11.05. 
C) MC exceeds MR by $11.05. 
D) MC exceeds MR by $13.50.

Question 6

The exit of existing firms from a competitive market will

Accepted Answer

A) increase market supply and increase market price. 
B) increase market supply and decrease market price. 
C) decrease market supply and increase market price. 
D) decrease market supply and decrease market price. 
A) increase market supply and increase market price. 
B) increase market supply and decrease market price. 
C) decrease market supply and increase market price. 
D) decrease market supply and decrease market price.

Question 7

In a competitive market, firms are unable to differentiate their product from that of other producers.

Accepted Answer

A) True 
 B)False

Question 8

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 currently producing and selling 150 units of output. Should the firm increase its output to 151 units?

Accepted Answer

A) Yes, because the marginal revenue exceeds the marginal cost. 
B) Yes, because the marginal revenue exceeds the average total cost. 
C) No, because the marginal cost exceeds the marginal revenue. 
D) No, because the average total cost exceeds the marginal revenue. 
A) Yes, because the marginal revenue exceeds the marginal cost. 
B) Yes, because the marginal revenue exceeds the average total cost. 
C) No, because the marginal cost exceeds the marginal revenue. 
D) No, because the average total cost exceeds the marginal revenue.

Question 9

A competitive firm currently produces and sells 800 units of output at a price of $10 per unit. The firm's fixed cost is $4,000 and its variable cost is $8,300. In the short run, should the firm continue to operate?

Accepted Answer

No, the firm should shut down,

Question 10

A profit-maximizing competitive firm is earning a profit of $24,000. Its marginal cost is $17 and its average total cost is $13. How many units of output is the firm producing and selling?

Accepted Answer

Profit = (

Question 11

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the

Accepted Answer

A) production of the 100th unit of output increases the firm's profit by $3. 
B) production of the 100th unit of output increases the firm's average total cost by $7. 
C) firm's profit-maximizing level of output is less than 100 units. 
D) production of the101st unit of output must increase the firm's profit by more than $3. 
A) production of the 100th unit of output increases the firm's profit by $3. 
B) production of the 100th unit of output increases the firm's average total cost by $7. 
C) firm's profit-maximizing level of output is less than 100 units. 
D) production of the101st unit of output must increase the firm's profit by more than $3.

Question 12

For a firm operating in a perfectly competitive industry, marginal revenue and average revenue are equal.

Accepted Answer

A) True 
 B)False

Question 13

Figure 14-14    
-Refer to Figure 14-14. When the market is in long-run equilibrium at point W in panel (b), the firm represented in panel (a) will

Accepted Answer

A) have a zero economic profit. 
B) have a negative accounting profit. 
C) exit the market. 
D) choose to increase production to increase profit. 
A) have a zero economic profit. 
B) have a negative accounting profit. 
C) exit the market. 
D) choose to increase production to increase profit.

Question 14

In a long-run equilibrium where firms have identical costs, it is possible that some firms in a competitive market are making a positive economic profit.

Accepted Answer

A) True 
 B)False

Question 15

Suppose you value a special watch at $100. You purchase it for $75. On your way home from class one day, you lose the watch. The store is still selling the same watch, but the price has risen to $85. Assume that losing the watch has not altered how you value it. What should you do?

Accepted Answer

A) Pay the $85 to buy the watch. 
B) Wait to see if the watch goes on sale. If the price drops to $75 or less, buy the watch. 
C) Wait to see if the watch goes on sale. If the price drops to $25 or less, buy the watch. 
D) Do not buy the watch. 
A) Pay the $85 to buy the watch. 
B) Wait to see if the watch goes on sale. If the price drops to $75 or less, buy the watch. 
C) Wait to see if the watch goes on sale. If the price drops to $25 or less, buy the watch. 
D) Do not buy the watch.

Question 16

A certain competitive firm sells its output for $20 per unit. The 50th unit of output that the firm produces has a marginal cost of $22. Production of the 50th unit of output does not necessarily

Accepted Answer

A) increase the firm's total revenue by $20. 
B) increase the firm's total cost by $22. 
C) decrease the firm's profit by $2. 
D) increase the firm's average variable cost by $0.44. 
A) increase the firm's total revenue by $20. 
B) increase the firm's total cost by $22. 
C) decrease the firm's profit by $2. 
D) increase the firm's average variable cost by $0.44.

Question 17

Suppose a competitive market has a horizontal long-run supply curve and is in long-run equilibrium. If demand decreases, we can be certain that in the short-run,

Accepted Answer

A) at least some firms will shut down. 
B) price will fall below marginal cost for some firms. 
C) price will fall below average total cost for some firms. 
D) at least some firms will enter the industry. 
A) at least some firms will shut down. 
B) price will fall below marginal cost for some firms. 
C) price will fall below average total cost for some firms. 
D) at least some firms will enter the industry.

Question 18

In the long run the market supply

Accepted Answer

A) must always be horizontal. 
B) could be upward sloping if the cost of production falls as new firms enter the market. 
C) could be upward sloping if the cost of production rises as new firms enter the market. 
D) could be upward sloping if technological improvements lower the cost of producing in the market. 
A) must always be horizontal. 
B) could be upward sloping if the cost of production falls as new firms enter the market. 
C) could be upward sloping if the cost of production rises as new firms enter the market. 
D) could be upward sloping if technological improvements lower the cost of producing in the market.

Question 19

When market conditions in a competitive industry are such that firms cannot cover their total production costs, then

Accepted Answer

A) the firms will suffer long-run economic losses. 
B) the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. 
C) some firms will exit the market, causing prices to rise until the remaining firms can cover their total production costs. 
D) all firms will go out of business, since consumers will not pay prices that enable firms to cover their total production costs. 
A) the firms will suffer long-run economic losses. 
B) the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. 
C) some firms will exit the market, causing prices to rise until the remaining firms can cover their total production costs. 
D) all firms will go out of business, since consumers will not pay prices that enable firms to cover their total production costs.

Question 20

If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market, then the individual farmer's elasticity of demand

Accepted Answer

A) will also be -0.3. 
B) depends on how large a crop the farmer produces. 
C) will range between -0.3 and -1.0. 
D) will be infinite. 
A) will also be -0.3. 
B) depends on how large a crop the farmer produces. 
C) will range between -0.3 and -1.0. 
D) will be infinite.

Exam 14: Firms in Competitive Markets

A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

Which of the following statements regarding a competitive firm is correct?

For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price.

The short-run supply curve for a firm in a perfectly competitive market is

The exit of existing firms from a competitive market will

In a competitive market, firms are unable to differentiate their product from that of other producers.

A competitive firm currently produces and sells 800 units of output at a price of $10 per unit. The firm's fixed cost is $4,000 and its variable cost is $8,300. In the short run, should the firm continue to operate?

A profit-maximizing competitive firm is earning a profit of $24,000. Its marginal cost is $17 and its average total cost is $13. How many units of output is the firm producing and selling?

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the

For a firm operating in a perfectly competitive industry, marginal revenue and average revenue are equal.

Figure 14-14 -Refer to Figure 14-14. When the market is in long-run equilibrium at point W in panel (b), the firm represented in panel (a) will

In a long-run equilibrium where firms have identical costs, it is possible that some firms in a competitive market are making a positive economic profit.

Suppose you value a special watch at $100. You purchase it for $75. On your way home from class one day, you lose the watch. The store is still selling the same watch, but the price has risen to $85. Assume that losing the watch has not altered how you value it. What should you do?

A certain competitive firm sells its output for $20 per unit. The 50th unit of output that the firm produces has a marginal cost of $22. Production of the 50th unit of output does not necessarily

Suppose a competitive market has a horizontal long-run supply curve and is in long-run equilibrium. If demand decreases, we can be certain that in the short-run,

In the long run the market supply

When market conditions in a competitive industry are such that firms cannot cover their total production costs, then

If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market, then the individual farmer's elasticity of demand

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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