Question 1

A firm's short-run supply curve is part of which of the following curves?

Accepted Answer

A) marginal cost 
B) average variable cost 
C) marginal revenue 
D) average total cost 
A) marginal cost 
B) average variable cost 
C) marginal revenue 
D) average total cost

Question 2

If a firm in a competitive market increases production and its marginal revenue remains greater than its marginal cost, raising production will:

Accepted Answer

A) be profitable 
B) cause the firm to incur losses 
C) leave profit unchanged 
D) It is impossible to tell from the information provided 
A) be profitable 
B) cause the firm to incur losses 
C) leave profit unchanged 
D) It is impossible to tell from the information provided

Question 3

Which of the following statements best reflects the production decision of a profit-maximising firm in a competitive market when price falls below the minimum of average variable cost?

Accepted Answer

A) the firm will immediately stop production to minimise its losses 
B) the firm will continue to produce to attempt to pay fixed costs 
C) the firm will stop production as soon as it is able to pay its sunk costs 
D) the firm will continue to produce in the short run but will likely exit the market in the long run 
A) the firm will immediately stop production to minimise its losses 
B) the firm will continue to produce to attempt to pay fixed costs 
C) the firm will stop production as soon as it is able to pay its sunk costs 
D) the firm will continue to produce in the short run but will likely exit the market in the long run

Question 4

Table 14-2
The price of each butterfly that David Butterfly, a butterfly farmer in Greytown, sells is:
 
-Refer to Table 14-2.Price equals average revenue over the range of:

Accepted Answer

A) one to three 
B) three to six 
C) six to nine 
D) over the whole range of output 
A) one to three 
B) three to six 
C) six to nine 
D) over the whole range of output

Question 5

To maximise profit, a firm should operate at the minimum of average total cost.

Accepted Answer

A) True 
 B)False

Question 6

When a firm has little ability to influence market prices, it is said to be in what kind of a market?

Accepted Answer

A) a strategic market 
B) a competitive market 
C) a power market 
D) a thin market 
A) a strategic market 
B) a competitive market 
C) a power market 
D) a thin market

Question 7

Table 14-1
This table shows the revenue and costs of a parrot farmer.  
-Refer to Table 14-1.If the farmer is harvesting three parrots, the best response would be to:

Accepted Answer

A) increase production to maximise profit 
B) plant more vines for the parrots to feed on 
C) maintain its current level of production to maximise profit 
D) decrease production to maximise profit 
A) increase production to maximise profit 
B) plant more vines for the parrots to feed on 
C) maintain its current level of production to maximise profit 
D) decrease production to maximise profit

Question 8

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.Suppose the current market price is $2.What is the output of each individual firm?

Accepted Answer

A) two units 
B) three units 
C) four units 
D) five units 
A) two units 
B) three units 
C) four units 
D) five units

Question 9

In the long-run, a profit-maximising firm will choose to exit a market when:

Accepted Answer

A) fixed costs exceed sunk costs 
B) revenue from production is less than total costs 
C) average fixed cost is rising 
D) marginal cost exceeds marginal revenue at the current level of production 
A) fixed costs exceed sunk costs 
B) revenue from production is less than total costs 
C) average fixed cost is rising 
D) marginal cost exceeds marginal revenue at the current level of production

Question 10

If, at a given output, the marginal cost curve lies below the marginal revenue curve but above the average total cost curve, then the firm can increase its profit by decreasing output.

Accepted Answer

A) True 
 B)False

Question 11

When a firm experiences zero-profit equilibrium, the firm's revenue must be sufficient to cover all opportunity costs.

Accepted Answer

A) True 
 B)False

Question 12

Suppose a competitive market consists of identical firms.The long-run and short-run supply curves will be identical when:

Accepted Answer

A) price equals the minimum of 'average total cost' in the short-run 
B) the firms' marginal cost curves are constant (horizontal) 
C) there is free entry and exit in the marketplace 
D) they will never be identical, the short- and long-run supply curves always differ 
A) price equals the minimum of 'average total cost' in the short-run 
B) the firms' marginal cost curves are constant (horizontal) 
C) there is free entry and exit in the marketplace 
D) they will never be identical, the short- and long-run supply curves always differ

Question 13

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is:

Accepted Answer

A) upward-sloping 
B) vertical 
C) downward-sloping 
D) horizontal 
A) upward-sloping 
B) vertical 
C) downward-sloping 
D) horizontal

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) most likely reflects:

Accepted Answer

A) perfectly inelastic long-run market supply 
B) the product of individual firm supply curves for all firms in the market 
C) the idea that free entry and exit of firms in the market lead to only one market price in the long run 
D) zero profits cannot be sustained in the long run 
A) perfectly inelastic long-run market supply 
B) the product of individual firm supply curves for all firms in the market 
C) the idea that free entry and exit of firms in the market lead to only one market price in the long run 
D) zero profits cannot be sustained in the long run

Question 15

Sunk costs are relevant to decisions about business strategy, as huge amounts of time have been invested in ensuring that the business is set up for success.

Accepted Answer

A) True 
 B)False

Question 16

Give two reasons why the long-run industry supply curve may slope upward.Use an example to demonstrate your reasons.

Accepted Answer

Some resources used in production may be

Question 17

When a firm has market power, it can:

Accepted Answer

A) sell as much as it wants at any market price 
B) control the number of firms that will operate in an industry 
C) influence the market price of the good it sells 
D) choose to disregard government regulation 
A) sell as much as it wants at any market price 
B) control the number of firms that will operate in an industry 
C) influence the market price of the good it sells 
D) choose to disregard government regulation

Question 18

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.When market price is at MC4, a profit-maximising firm will produce what level of output?

Accepted Answer

A) Q₁ 
B) Q₂ 
C) Q₃ 
D) Q₄ 
A) Q₁ 
B) Q₂ 
C) Q₃ 
D) Q₄

Question 19

When firms in a perfectly competitive market face the same costs, in the long-run they must be operating:

Accepted Answer

A) under economies of scale 
B) at their efficient scale 
C) with marginal profitability 
D) under all of the above conditions 
A) under economies of scale 
B) at their efficient scale 
C) with marginal profitability 
D) under all of the above conditions

Question 20

If a firm is making zero economic profit, it can still be making a positive accounting profit.

Accepted Answer

A) True 
 B)False

Exam 14: Firms in Competitive Markets

A firm's short-run supply curve is part of which of the following curves?

If a firm in a competitive market increases production and its marginal revenue remains greater than its marginal cost, raising production will:

Which of the following statements best reflects the production decision of a profit-maximising firm in a competitive market when price falls below the minimum of average variable cost?

Table 14-2 The price of each butterfly that David Butterfly, a butterfly farmer in Greytown, sells is: -Refer to Table 14-2.Price equals average revenue over the range of:

To maximise profit, a firm should operate at the minimum of average total cost.

When a firm has little ability to influence market prices, it is said to be in what kind of a market?

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1.If the farmer is harvesting three parrots, the best response would be to:

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.Suppose the current market price is $2.What is the output of each individual firm?

In the long-run, a profit-maximising firm will choose to exit a market when:

If, at a given output, the marginal cost curve lies below the marginal revenue curve but above the average total cost curve, then the firm can increase its profit by decreasing output.

When a firm experiences zero-profit equilibrium, the firm's revenue must be sufficient to cover all opportunity costs.

Suppose a competitive market consists of identical firms.The long-run and short-run supply curves will be identical when:

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is:

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) most likely reflects:

Sunk costs are relevant to decisions about business strategy, as huge amounts of time have been invested in ensuring that the business is set up for success.

Give two reasons why the long-run industry supply curve may slope upward.Use an example to demonstrate your reasons.

When a firm has market power, it can:

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.When market price is at MC4, a profit-maximising firm will produce what level of output?

When firms in a perfectly competitive market face the same costs, in the long-run they must be operating:

If a firm is making zero economic profit, it can still be making a positive accounting profit.

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

Filters

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.When market price is at MC₄, a profit-maximising firm will produce what level of output?