Question 1

When marginal revenue equals marginal cost:

Accepted Answer

A) the firm must be generating economic profits 
B) the profit-maximising firm should always increase its level of production 
C) the firm must be generating economic losses 
D) losses may be minimised, rather than profits being maximised 
A) the firm must be generating economic profits 
B) the profit-maximising firm should always increase its level of production 
C) the firm must be generating economic losses 
D) losses may be minimised, rather than profits being maximised

Question 2

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 3

If price is less than marginal cost, then it is optimal for a firm to shut down.

Accepted Answer

A) True 
 B)False

Question 4

The implication of a firm being a price taker is that, if it increases its price then:

Accepted Answer

A) buyers will purchase from other sellers instead 
B) buyers will pay the higher price in the short run 
C) other sellers in the market will increase prices as well 
D) the firm will need to advertise to sell its goods 
A) buyers will purchase from other sellers instead 
B) buyers will pay the higher price in the short run 
C) other sellers in the market will increase prices as well 
D) the firm will need to advertise to sell its goods

Question 5

If a perfectly competitive firm in equilibrium increases output by 25 per cent marginal revenue will fall and marginal costs will rise.

Accepted Answer

A) True 
 B)False

Question 6

In a competitive market, no single producer can influence the market price because:

Accepted Answer

A) many other sellers are offering a product that is essentially identical 
B) consumers have more influence over the market price than producers do 
C) producers agree not to change the price 
D) government intervention prevents firms from influencing price 
A) many other sellers are offering a product that is essentially identical 
B) consumers have more influence over the market price than producers do 
C) producers agree not to change the price 
D) government intervention prevents firms from influencing price

Question 7

The reason why hotels in Cairns operated at a loss rather than shut down when tourism declined sharply is:

Accepted Answer

A) the government offered to subsidise the firms until they were profitable again 
B) the hotels had sunk costs that could not be recovered if they had closed 
C) the banks that financed the hotels wrote off the debt rather than insist it got paid back 
D) tourists donated money to the hotels to keep them in operation 
A) the government offered to subsidise the firms until they were profitable again 
B) the hotels had sunk costs that could not be recovered if they had closed 
C) the banks that financed the hotels wrote off the debt rather than insist it got paid back 
D) tourists donated money to the hotels to keep them in operation

Question 8

A firm in a competitive market will maximise profit when the level of production is such that marginal cost equals price.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) necessarily raise the costs of firms that remain in the market 
B) raise profits for firms that remain in the market 
C) lower market price 
D) do all of the above 
A) necessarily raise the costs of firms that remain in the market 
B) raise profits for firms that remain in the market 
C) lower market price 
D) do all of the above

Question 10

Which of the following statements best reflects a price-taking firm?

Accepted Answer

A) if the firm were to charge more than the going price, it would sell none of its goods 
B) the firm has no incentive to charge less than the going price 
C) the firm can sell as much as it wants at the going price 
D) all of the above are true 
A) if the firm were to charge more than the going price, it would sell none of its goods 
B) the firm has no incentive to charge less than the going price 
C) the firm can sell as much as it wants at the going price 
D) all of the above are true

Question 11

When individual firms in competitive markets increase their production, it is likely that market price will fall.

Accepted Answer

A) True 
 B)False

Question 12

Graph 14-1   
This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s).
-Refer to Graph 14-1.What price level will leave the profit-maximising firm with zero profits?

Accepted Answer

A) MC1 
B) MC2 
C) MC3 
D) MC4 
A) MC1 
B) MC2 
C) MC3 
D) MC4

Question 13

One of the important characteristics of a perfectly competitive market is that there are many buyers and sellers.

Accepted Answer

A) True 
 B)False

Question 14

Graph 14-8  
-Refer to Graph 14-8.If the figure in panel (a) reflects the long-run equilibrium of a profit-maximising firm in a competitive market, the figure in panel (b) is most likely to reflect long-run market:

Accepted Answer

A) demand 
B) supply 
C) strategy 
D) production capacity 
A) demand 
B) supply 
C) strategy 
D) production capacity

Question 15

Graph 14-3   This graph depicts the cost structure of a profit-maximising firm in a competitive market.Use the graph to answer the following question(s).
-Refer to Graph 14-3.If the firm is in a short-run position where P < AVC, it is most likely to be on what segment of its supply curve?

Accepted Answer

A) BC 
B) CD 
C) DE 
D) none of the above 
A) BC 
B) CD 
C) DE 
D) none of the above

Question 16

Table 14-1
This table shows the revenue and costs of a parrot farmer.  
-Refer to Table 14-1.If the farmer harvested three parrots then:

Accepted Answer

A) fixed cost is zero 
B) marginal cost is $8 
C) marginal revenue is less than average variable cost 
D) marginal revenue is less than marginal cost 
A) fixed cost is zero 
B) marginal cost is $8 
C) marginal revenue is less than average variable cost 
D) marginal revenue is less than marginal cost

Question 17

Graph 14-7   In this graph, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms.Use the graph to answer the following question(s).
-Refer to Graph 14-7.If at a market price of $1.50, 18 750 units of output are supplied to this market, how many identical firms are participating in this market?

Accepted Answer

A) 125 
B) 150 
C) 175 
D) 200 
A) 125 
B) 150 
C) 175 
D) 200

Question 18

Table 14-2
The price of each butterfly that David Butterfly, a butterfly farmer in Greytown, sells is:
 
-Refer to Table 14-2.If the firm doubles its output from three to six units, total revenue will:

Accepted Answer

A) increase by less than $45 
B) increase by more than $45 
C) increase by exactly $45 
D) this cannot be determined without data on the farmer's costs 
A) increase by less than $45 
B) increase by more than $45 
C) increase by exactly $45 
D) this cannot be determined without data on the farmer's costs

Question 19

When a competitive market that comprises firms that face identical cost structures experiences an increase in demand, which of the following is most likely to occur?
(i) new firms will enter the market.(ii) in the long run, price will return to the level that existed before the change in demand
(iii) in the long run, all firms will be producing at their efficient scale

Accepted Answer

A) (i) and (ii) only 
B) (i) and (iii) only 
C) (ii) and (iii) only 
D) (i), (ii) and (iii) 
A) (i) and (ii) only 
B) (i) and (iii) only 
C) (ii) and (iii) only 
D) (i), (ii) and (iii)

Question 20

Suppose a perfectly competitive firm reduces its output by 10 per cent.This means that its:

Accepted Answer

A) price will increase 
B) marginal revenue will increase 
C) average revenue decrease 
D) total revenue will decrease 
A) price will increase 
B) marginal revenue will increase 
C) average revenue decrease 
D) total revenue will decrease

Exam 14: Firms in Competitive Markets

When marginal revenue equals marginal cost:

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.

If price is less than marginal cost, then it is optimal for a firm to shut down.

The implication of a firm being a price taker is that, if it increases its price then:

If a perfectly competitive firm in equilibrium increases output by 25 per cent marginal revenue will fall and marginal costs will rise.

In a competitive market, no single producer can influence the market price because:

The reason why hotels in Cairns operated at a loss rather than shut down when tourism declined sharply is:

A firm in a competitive market will maximise profit when the level of production is such that marginal cost equals price.

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

Which of the following statements best reflects a price-taking firm?

When individual firms in competitive markets increase their production, it is likely that market price will fall.

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s). -Refer to Graph 14-1.What price level will leave the profit-maximising firm with zero profits?

One of the important characteristics of a perfectly competitive market is that there are many buyers and sellers.

Graph 14-8 -Refer to Graph 14-8.If the figure in panel (a) reflects the long-run equilibrium of a profit-maximising firm in a competitive market, the figure in panel (b) is most likely to reflect long-run market:

Graph 14-3 This graph depicts the cost structure of a profit-maximising firm in a competitive market.Use the graph to answer the following question(s). -Refer to Graph 14-3.If the firm is in a short-run position where P < AVC, it is most likely to be on what segment of its supply curve?

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1.If the farmer harvested three parrots then:

Table 14-2 The price of each butterfly that David Butterfly, a butterfly farmer in Greytown, sells is: -Refer to Table 14-2.If the firm doubles its output from three to six units, total revenue will:

Suppose a perfectly competitive firm reduces its output by 10 per cent.This means that its:

Ten Lessons From 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

Application: 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

Business Strategy and Oligopoly

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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 Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

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