Question 1

A profit-maximising firm's short-run shut down criterion is:

Accepted Answer

A) average revenue > marginal cost 
B) price  average fixed cost 
A) average revenue > marginal cost 
B) price  average fixed cost

Question 2

Choose the correct statement.A competitive market is where:
(i) there are many buyers and sellers in a market
(ii) a single firm does not have a significant impact on the market price
(iii) the goods offered for sale are largely the same

Accepted Answer

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

Question 3

The entry and exit decisions of firms in a competitive market are signalled by:

Accepted Answer

A) high capital costs 
B) profits and losses 
C) low capital costs 
D) high or low demand for a firm's product 
A) high capital costs 
B) profits and losses 
C) low capital costs 
D) high or low demand for a firm's product

Question 4

Explain what it means if a firm in a competitive market is labelled as a price-taker.

Accepted Answer

A price-taker is a firm whose production

Question 5

Suppose a firm in a competitive market receives $1000 in total revenue and it has a marginal revenue of $20.What is the average revenue, and how many units were sold?

Accepted Answer

A) $20 and 50 
B) $20 and 500 
C) $10 and 100 
D) $10 and 50 
A) $20 and 50 
B) $20 and 500 
C) $10 and 100 
D) $10 and 50

Question 6

Graph 14-4   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 14-4.Which line segment best reflects the long-run supply curve for this firm?

Accepted Answer

A) AB 
B) CD 
C) DE 
D) none of the above; the long-run supply curve requires knowledge of the average variable cost structure 
A) AB 
B) CD 
C) DE 
D) none of the above; the long-run supply curve requires knowledge of the average variable cost structure

Question 7

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

Accepted Answer

A) is mainly made up of labour costs 
B) is equivalent to its marginal cost curve (above average variable cost) 
C) will shift if the fixed costs increase 
D) is likely to slope downward 
A) is mainly made up of labour costs 
B) is equivalent to its marginal cost curve (above average variable cost) 
C) will shift if the fixed costs increase 
D) is likely to slope downward

Question 8

If P < AVC, P < ATC, and marginal costs are increasing, then:

Accepted Answer

A) the firm should produce in the short-run 
B) the firm should shut down in the short-run 
C) the firm should shut down in the long-run 
D) we cannot say anything about the firm's production without more information 
A) the firm should produce in the short-run 
B) the firm should shut down in the short-run 
C) the firm should shut down in the long-run 
D) we cannot say anything about the firm's production without more information

Question 9

When business managers of firms in a competitive market observe falling profits, they are likely to infer that the market is characterised by:

Accepted Answer

A) a violation of conventional market forces 
B) rising prices 
C) too few firms in the market 
D) over-investment 
A) a violation of conventional market forces 
B) rising prices 
C) too few firms in the market 
D) over-investment

Question 10

The exit of firms from a competitive market will:

Accepted Answer

A) decrease market supply and increase market prices 
B) increase market supply and increase market prices 
C) increase market supply and decrease market prices 
D) decrease market supply and decrease market prices 
A) decrease market supply and increase market prices 
B) increase market supply and increase market prices 
C) increase market supply and decrease market prices 
D) decrease market supply and decrease market prices

Question 11

Suppose a firm in a competitive market increase its output by 25 per cent, the price of its output is likely to:

Accepted Answer

A) decrease by more than 25 per cent 
B) increase by more than 25 per cent 
C) remain unchanged 
D) this cannot be determined without information on the firm's costs 
A) decrease by more than 25 per cent 
B) increase by more than 25 per cent 
C) remain unchanged 
D) this cannot be determined without information on the firm's costs

Question 12

When a perfectly competitive firm makes a decision to shut down, it is most likely that:

Accepted Answer

A) price is below the minimum of average variable cost 
B) marginal cost is above average variable cost 
C) fixed costs exceed variable costs 
D) average fixed costs are rising 
A) price is below the minimum of average variable cost 
B) marginal cost is above average variable cost 
C) fixed costs exceed variable costs 
D) average fixed costs are rising

Question 13

Discuss the process that induces firms to operate at efficient scale in the long run in a competitive market with free entry and exit.

Accepted Answer

If all firms in a competitive industry f

Question 14

If identical firms that remain in a competitive market over the long run make zero economic profit, why do these firms choose to remain in the market?

Accepted Answer

Because a normal rate of return on their

Question 15

When profit-maximising firms in competitive markets are making losses:

Accepted Answer

A) there must be a shortage of skilled labour 
B) market demand must exceed market supply at the market equilibrium price 
C) the most inefficient firms will be encouraged to leave the market 
D) new firms will enter the market 
A) there must be a shortage of skilled labour 
B) market demand must exceed market supply at the market equilibrium price 
C) the most inefficient firms will be encouraged to leave the market 
D) new firms will enter the market

Question 16

According to the information provided, if the increased production of farmed abalone caused a rise in the marginal transportation costs of moving abalone to market, the:

Accepted Answer

A) long-run market supply of farmed abalone would be downward-sloping 
B) long-run market supply of farmed abalone would be upward-sloping 
C) short-run market supply curve for farmed abalone would be affected but not the long-run market supply 
D) long-run market supply curve for farmed abalone would be perfectly elastic 
A) long-run market supply of farmed abalone would be downward-sloping 
B) long-run market supply of farmed abalone would be upward-sloping 
C) short-run market supply curve for farmed abalone would be affected but not the long-run market supply 
D) long-run market supply curve for farmed abalone would be perfectly elastic

Question 17

Table 14-3
The market for Whizzly Jigs consists of many identical firms, each with the cost structure below.Suppose the current market price is $2.    
-Refer to table 14-3.With free entry and exit, what will be the long run price of Whizzly Jigs?

Accepted Answer

A) $1.50 
B) $2.00 
C) $4.00 
D) $4.33 
A) $1.50 
B) $2.00 
C) $4.00 
D) $4.33

Question 18

If a profit-maximising firm in a competitive market discovers that at its current level of production, price is less than marginal cost, it should:

Accepted Answer

A) exit the industry 
B) increase its output 
C) keep output the same 
D) reduce its output 
A) exit the industry 
B) increase its output 
C) keep output the same 
D) reduce its output

Question 19

According to the information provided, at the end of the first year of operating her new business, Lee's accountant reported an accounting profit of $70 000.What was Lee's economic profit?

Accepted Answer

A) -$130 000 profit 
B) $20 000 profit 
C) $35 000 profit 
D) $55 000 profit 
A) -$130 000 profit 
B) $20 000 profit 
C) $35 000 profit 
D) $55 000 profit

Question 20

As a general rule, when accountants calculate profit they account for explicit costs but miss:

Accepted Answer

A) sunk costs 
B) goodwill costs 
C) operating costs 
D) implicit costs 
A) sunk costs 
B) goodwill costs 
C) operating costs 
D) implicit costs

Exam 14: Firms in Competitive Markets

A profit-maximising firm's short-run shut down criterion is:

Choose the correct statement.A competitive market is where: (i) there are many buyers and sellers in a market (ii) a single firm does not have a significant impact on the market price (iii) the goods offered for sale are largely the same

The entry and exit decisions of firms in a competitive market are signalled by:

Explain what it means if a firm in a competitive market is labelled as a price-taker.

Suppose a firm in a competitive market receives $1000 in total revenue and it has a marginal revenue of $20.What is the average revenue, and how many units were sold?

Graph 14-4 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 14-4.Which line segment best reflects the long-run supply curve for this firm?

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

If P < AVC, P < ATC, and marginal costs are increasing, then:

When business managers of firms in a competitive market observe falling profits, they are likely to infer that the market is characterised by:

The exit of firms from a competitive market will:

Suppose a firm in a competitive market increase its output by 25 per cent, the price of its output is likely to:

When a perfectly competitive firm makes a decision to shut down, it is most likely that:

Discuss the process that induces firms to operate at efficient scale in the long run in a competitive market with free entry and exit.

If identical firms that remain in a competitive market over the long run make zero economic profit, why do these firms choose to remain in the market?

When profit-maximising firms in competitive markets are making losses:

According to the information provided, if the increased production of farmed abalone caused a rise in the marginal transportation costs of moving abalone to market, the:

Table 14-3 The market for Whizzly Jigs consists of many identical firms, each with the cost structure below.Suppose the current market price is $2. -Refer to table 14-3.With free entry and exit, what will be the long run price of Whizzly Jigs?

If a profit-maximising firm in a competitive market discovers that at its current level of production, price is less than marginal cost, it should:

According to the information provided, at the end of the first year of operating her new business, Lee's accountant reported an accounting profit of $70 000.What was Lee's economic profit?

As a general rule, when accountants calculate profit they account for explicit costs but miss:

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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