Question 1

When profit-maximizing firms in competitive markets are earning profits,

Accepted Answer

A) market demand must exceed market supply at the market equilibrium price. 
B) market supply must exceed market demand at the market equilibrium price. 
C) new firms will enter the market. 
D) the most inefficient firms will be encouraged to leave the market. 
A) market demand must exceed market supply at the market equilibrium price. 
B) market supply must exceed market demand at the market equilibrium price. 
C) new firms will enter the market. 
D) the most inefficient firms will be encouraged to leave the market.

Question 2

Scenario 14-1
Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.
-Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

Accepted Answer

A) -$200. 
B) $1,000. 
C) $3,000. 
D) $4,000. 
A) -$200. 
B) $1,000. 
C) $3,000. 
D) $4,000.

Question 3

Because there are many buyers and sellers in a perfectly competitive market, no one seller can influence the market price.

Accepted Answer

A) True 
 B)False

Question 4

A corporation has been steadily losing money on one of its product lines, plastic flamingo lawn ornaments. The firm produces plastic flamingos in a factory that cost $20 million to build 10 years ago. The firm is now considering an offer to buy that factory for $15 million. Which of the following statements about the decision to sell or not to sell is correct?

Accepted Answer

A) The firm should turn down the purchase offer because the factory cost more than $15 million to build. 
B) The $20 million spent on the factory is a sunk cost; that cost should not affect the decision. 
C) The $20 million spent on the factory is an implicit cost, which should be included in the decision. 
D) The firm should sell the factory only if it can reduce its costs elsewhere by $5 million. 
A) The firm should turn down the purchase offer because the factory cost more than $15 million to build. 
B) The $20 million spent on the factory is a sunk cost; that cost should not affect the decision. 
C) The $20 million spent on the factory is an implicit cost, which should be included in the decision. 
D) The firm should sell the factory only if it can reduce its costs elsewhere by $5 million.

Question 5

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 positive economic profit if the market price is

Accepted Answer

A) positive. 
B) $6. 
C) above $6. 
D) There is no price at which the firm earns positive economic profits. 
A) positive. 
B) $6. 
C) above $6. 
D) There is no price at which the firm earns positive economic profits.

Question 6

Figure 14-9
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-9. The firm will exit the market for any price on the line segment

Accepted Answer

A) ABCD. 
B) AB. 
C) CD. 
D) None of the above is correct. 
A) ABCD. 
B) AB. 
C) CD. 
D) None of the above is correct.

Question 7

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

Accepted Answer

A) increases in production costs resulting from more firms coming into the market. 
B) a breakdown of the "free entry and exit" feature of competition. 
C) a breakdown of the "price taking" feature of competition. 
D) a stable demand curve for the good, that is, a demand curve that never shifts. 
A) increases in production costs resulting from more firms coming into the market. 
B) a breakdown of the "free entry and exit" feature of competition. 
C) a breakdown of the "price taking" feature of competition. 
D) a stable demand curve for the good, that is, a demand curve that never shifts.

Question 8

When firms have an incentive to exit a competitive market, their exit will

Accepted Answer

A) lower the market price. 
B) necessarily raise the costs for the firms that remain in the market. 
C) raise the profits of the firms that remain in the market. 
D) shift the demand for the product to the left. 
A) lower the market price. 
B) necessarily raise the costs for the firms that remain in the market. 
C) raise the profits of the firms that remain in the market. 
D) shift the demand for the product to the left.

Question 9

A profit-maximizing firm in a competitive market will decrease production when marginal cost exceeds average revenue.

Accepted Answer

A) True 
 B)False

Question 10

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves:  
-Refer to Figure 14-1. If the market price is $4.00, the firm will earn

Accepted Answer

A) positive economic profits in the short run. 
B) negative economic profits in the short run but remain in business. 
C) negative economic profits and shut down. 
D) zero economic profits in the short run. 
A) positive economic profits in the short run. 
B) negative economic profits in the short run but remain in business. 
C) negative economic profits and shut down. 
D) zero economic profits in the short run.

Question 11

The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following industries is least likely to exhibit the characteristic of free entry?

Accepted Answer

A) bookstores 
B) hairstyling salons 
C) yoga studios 
D) satellite radio 
A) bookstores 
B) hairstyling salons 
C) yoga studios 
D) satellite radio

Question 13

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves:  
-Refer to Figure 14-1. The firm should shut down if the market price is

Accepted Answer

A) above $8. 
B) above $6.30 but less than $8. 
C) above $4.50 but less than $6.30. 
D) less than $4.50. 
A) above $8. 
B) above $6.30 but less than $8. 
C) above $4.50 but less than $6.30. 
D) less than $4.50.

Question 14

Phil sells duck calls in a perfectly competitive market. If duck calls sell for $10 each and average total cost per unit is $11 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 duck call will fall. 
D) average total costs will fall. 
A) more firms will enter the market. 
B) some firms will exit from the market. 
C) the equilibrium price per duck call will fall. 
D) average total costs will fall.

Question 15

In the long run, a firm should exit the industry if its total costs exceed its total revenues.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following industries is least likely to exhibit the characteristic of free entry?

Accepted Answer

A) ethnic restaurants 
B) municipal water and sewer 
C) corn farming 
D) grocery stores 
A) ethnic restaurants 
B) municipal water and sewer 
C) corn farming 
D) grocery stores

Question 17

Figure 14-7  
-Refer to Figure 14-7. The firm will shut down in the short run if the price of the good is

Accepted Answer

A) $75. 
B) $85. 
C) $95. 
D) All of the above are correct. 
A) $75. 
B) $85. 
C) $95. 
D) All of the above are correct.

Question 18

When price is below average variable cost, a firm in a competitive market will

Accepted Answer

A) shut down and incur fixed costs. 
B) shut down and incur both variable and fixed costs. 
C) continue to operate as long as average revenue exceeds marginal cost. 
D) continue to operate as long as average revenue exceeds average fixed cost. 
A) shut down and incur fixed costs. 
B) shut down and incur both variable and fixed costs. 
C) continue to operate as long as average revenue exceeds marginal cost. 
D) continue to operate as long as average revenue exceeds average fixed cost.

Question 19

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:  
-Refer to Table 14-11. In order to maximize profits, the firm should stop producing after it makes the

Accepted Answer

A) first unit. 
B) second unit. 
C) fourth unit. 
D) fifth unit. 
A) first unit. 
B) second unit. 
C) fourth unit. 
D) fifth unit.

Question 20

In a perfectly competitive market, the process of entry and exit will end when firms face

Accepted Answer

A) marginal revenue equal to long-run average total cost. 
B) total revenue equal to average total cost. 
C) average revenue greater than marginal cost. 
D) accounting profits equal to zero. 
A) marginal revenue equal to long-run average total cost. 
B) total revenue equal to average total cost. 
C) average revenue greater than marginal cost. 
D) accounting profits equal to zero.

Exam 14: Firms in Competitive Markets

When profit-maximizing firms in competitive markets are earning profits,

Scenario 14-1 Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. -Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

Because there are many buyers and sellers in a perfectly competitive market, no one seller can influence the market price.

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 positive economic profit if the market price is

Figure 14-9 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-9. The firm will exit the market for any price on the line segment

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

When firms have an incentive to exit a competitive market, their exit will

A profit-maximizing firm in a competitive market will decrease production when marginal cost exceeds average revenue.

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price is $4.00, the firm will earn

The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.

Which of the following industries is least likely to exhibit the characteristic of free entry?

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. The firm should shut down if the market price is

Phil sells duck calls in a perfectly competitive market. If duck calls sell for $10 each and average total cost per unit is $11 at the profit-maximizing output level, then in the long run

In the long run, a firm should exit the industry if its total costs exceed its total revenues.

Which of the following industries is least likely to exhibit the characteristic of free entry?

Figure 14-7 -Refer to Figure 14-7. The firm will shut down in the short run if the price of the good is

When price is below average variable cost, a firm in a competitive market will

Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11. In order to maximize profits, the firm should stop producing after it makes the

In a perfectly competitive market, the process of entry and exit will end when firms face

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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