Question 1

In the short run, a firm should exit the industry if its marginal cost exceeds its marginal revenue.

Accepted Answer

A) True 
 B)False

Question 2

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 3

The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.

Accepted Answer

A) True 
 B)False

Question 4

Figure 14-7
​
  
-Refer to Figure 14-7. Assume that the market starts in equilibrium at point W in graph (b). An increase in demand from D0 to D1 will result in

Accepted Answer

A) a new market equilibrium at point X. 
B) an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z. 
C) rising prices and falling profits for existing firms in the market. 
D) falling prices and falling profits for existing firms in the market. 
A) a new market equilibrium at point X. 
B) an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z. 
C) rising prices and falling profits for existing firms in the market. 
D) falling prices and falling profits for existing firms in the market.

Question 5

Table 14-7
A firm in a competitive market has the following cost structure:
​
​
 $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Quantity } \
\text { (Units) }
\end{array} & \begin{array} { c } 
\text { Total Cost } \
\text { (Dollars) }
\end{array} \
\hline 0 & 5 \
\hline 1 & 10 \
\hline 2 & 12 \
\hline 3 & 15 \
\hline 4 & 24 \
\hline 5 & 40 \
\hline
\end{array}$$
-Refer to Table 14-7. If the market price is $16, this firm will

Accepted Answer

A) produce 4 units of output in the short run and exit in the long run. 
B) produce 5 units of output in the short run and exit in the long run. 
C) produce 5 units of output in the short run and face competition from new market entrants in the long run. 
D) shut down in the short run and exit in the long run. 
A) produce 4 units of output in the short run and exit in the long run. 
B) produce 5 units of output in the short run and exit in the long run. 
C) produce 5 units of output in the short run and face competition from new market entrants in the long run. 
D) shut down in the short run and exit in the long run.

Question 6

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 7

When economic profits are zero in equilibrium, the firm's revenue must be sufficient to cover all opportunity costs.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is

Accepted Answer

A) −$1,600. 
B) $1,600. 
C) $3,200. 
D) $8,000. 
A) −$1,600. 
B) $1,600. 
C) $3,200. 
D) $8,000.

Question 10

Because nothing can be done about sunk costs, they are irrelevant to decisions about business strategy.

Accepted Answer

A) True 
 B)False

Question 11

Scenario 14-2
The information below applies to a competitive firm that sells its output for $45 per unit.
• When the firm produces and sells 120 units of output, its average total cost is $23.5.
• When the firm produces and sells 121 units of output, its average total cost is $23.65.
-Refer to Scenario 14-2. When the firm increases its output from 120 units to 121 units, its profit

Accepted Answer

A) decreases by $3.35. 
B) decreases by $45.00. 
C) increases by $45.00. 
D) increases by $3.35. 
A) decreases by $3.35. 
B) decreases by $45.00. 
C) increases by $45.00. 
D) increases by $3.35.

Question 12

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 13

​All firms operating in a perfectly competitive market produce unique goods.

Accepted Answer

A) True 
 B)False

Question 14

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 15

The accountants hired by Forever Fitness 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, Forever Fitness 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.

Question 16

In the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

Accepted Answer

A) True 
 B)False

Question 17

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 unit for $6. The firm should produce more than 100 units in order to maximize its profits (or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 18

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 19

A competitive firm sells its output for $30 per unit. Is the firm's marginal revenue less than, equal to, or greater than $30?

Accepted Answer

For a competitive firm, price

Question 20

Scenario 14-3
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 14-3. 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

Exam 14: Firms in Competitive Markets

In the short run, a firm should exit the industry if its marginal cost exceeds its marginal revenue.

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

The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.

Figure 14-7 ​ -Refer to Figure 14-7. Assume that the market starts in equilibrium at point W in graph (b). An increase in demand from D0 to D1 will result in

Table 14-7 A firm in a competitive market has the following cost structure: ​ ​ Quantity (Units) Total Cost (Dollars) 0 5 1 10 2 12 3 15 4 24 5 40 -Refer to Table 14-7. If the market price is $16, this firm will

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

When economic profits are zero in equilibrium, the firm's revenue must be sufficient to cover all opportunity costs.

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

Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is

Because nothing can be done about sunk costs, they are irrelevant to decisions about business strategy.

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

​All firms operating in a perfectly competitive market produce unique goods.

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.

The accountants hired by Forever Fitness 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, Forever Fitness should

In the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

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 unit for $6. The firm should produce more than 100 units in order to maximize its profits (or minimize its losses).

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

A competitive firm sells its output for $30 per unit. Is the firm's marginal revenue less than, equal to, or greater than $30?

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 Nations 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

Figure 14-7 -Refer to Figure 14-7. Assume that the market starts in equilibrium at point W in graph (b). An increase in demand from D₀ to D₁ will result in

Table 14-7 A firm in a competitive market has the following cost structure: Quantity (Units) Total Cost (Dollars) 0 5 1 10 2 12 3 15 4 24 5 40 -Refer to Table 14-7. If the market price is $16, this firm will

All firms operating in a perfectly competitive market produce unique goods.