Question 1

When a forester is making a long-run decision about whether or not to exit an industry, the cost of the land used for the plantation:

Accepted Answer

A) will be considered as part of the forester's fixed cost 
B) is treated differently than the cost of sawmill 
C) is not considered a sunk cost 
D) will be ignored as irrelevant 
A) will be considered as part of the forester's fixed cost 
B) is treated differently than the cost of sawmill 
C) is not considered a sunk cost 
D) will be ignored as irrelevant

Question 2

When total revenue is less than total variable cost, a firm in a competitive market will:

Accepted Answer

A) shut down 
B) continue to operate as long as average revenue exceeds marginal cost 
C) continue to operate as long as average revenue exceeds average fixed cost 
D) always exit the industry 
A) shut down 
B) continue to operate as long as average revenue exceeds marginal cost 
C) continue to operate as long as average revenue exceeds average fixed cost 
D) always exit the industry

Question 3

When all firms and potential firms in a market have the same cost curves, the long-run equilibrium of a competitive market with free entry and exit will be characterised by firms:

Accepted Answer

A) operating at efficient scale 
B) earning small levels of profit 
C) facing the prospect of future losses 
D) that band together to raise market prices 
A) operating at efficient scale 
B) earning small levels of profit 
C) facing the prospect of future losses 
D) that band together to raise market prices

Question 4

Suppose a firm in a competitive market notices that its marginal cost is greater than its price.This means that:

Accepted Answer

A) there are opportunities to increase profit or reduce losses by increasing production 
B) there are opportunities to increase profit or reduce losses by decreasing production 
C) marginal cost must be falling 
D) the firm should increase its marketing budget 
A) there are opportunities to increase profit or reduce losses by increasing production 
B) there are opportunities to increase profit or reduce losses by decreasing production 
C) marginal cost must be falling 
D) the firm should increase its marketing budget

Question 5

For any given price, a firm in a competitive market will maximise profit by selecting the level of output in which price intersects the:

Accepted Answer

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

Question 6

Graph 14-9  
-Refer to Graph 14-9.An increase in market supply from Supply0 to Supply1 is most likely the result of:

Accepted Answer

A) existing firms changing their cost structure 
B) existing firms in the market increasing their level of production beyond Q₁ 
C) the entrance of new firms in the market 
D) all of the above 
A) existing firms changing their cost structure 
B) existing firms in the market increasing their level of production beyond Q₁ 
C) the entrance of new firms in the market 
D) all of the above

Question 7

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.When 200 identical firms participate in this market, at what price will 25 000 units be supplied to this market?

Accepted Answer

A) $1.00 
B) $1.25 
C) $2.00 
D) this cannot be determined from the information provided 
A) $1.00 
B) $1.25 
C) $2.00 
D) this cannot be determined from the information provided

Question 8

What are the three assumptions that are made about a competitive market?

Accepted Answer

1- there are many buyers and s

Question 9

The market for arts and crafts used in home decoration is a very competitive market.In this market, costs vary since some people work faster than others and have more artistic talent in producing arts and crafts.In this competitive market, we would expect to observe:

Accepted Answer

A) a short-run supply curve more elastic than the market's long-run supply curve 
B) an upward-sloping long-run supply curve 
C) firms that are generally unresponsive to change in demand 
D) little exit and entry 
A) a short-run supply curve more elastic than the market's long-run supply curve 
B) an upward-sloping long-run supply curve 
C) firms that are generally unresponsive to change in demand 
D) little exit and entry

Question 10

If a price-taking firm doubles its output, it will also double its revenue.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) are making zero economic profit 
B) are operating with excess capacity 
C) capture market power 
D) experience decreasing marginal revenue 
A) are making zero economic profit 
B) are operating with excess capacity 
C) capture market power 
D) experience decreasing marginal revenue

Question 12

In a competitive market, firms that increase prices experience increases in sales.

Accepted Answer

A) True 
 B)False

Question 13

If a business ignores some of its fixed costs as irrelevant to its production decision, this type of cost is termed:

Accepted Answer

A) implicit costs 
B) spilt milk 
C) development costs 
D) sunk costs 
A) implicit costs 
B) spilt milk 
C) development costs 
D) sunk costs

Question 14

In a market with 1000 identical firms, the market supply is equal to the:

Accepted Answer

A) average number of units supplied by each firm in the market 
B) sum of the quantities supplied by each of the 1000 individual firms 
C) marginal cost curve for a representative firm in the market 
D) product of the quantities supplied by all firms in the market 
A) average number of units supplied by each firm in the market 
B) sum of the quantities supplied by each of the 1000 individual firms 
C) marginal cost curve for a representative firm in the market 
D) product of the quantities supplied by all firms in the market

Question 15

Graph 14-5   The graph depicts the cost structure of a firm in a competitive market.Use the graph to answer the following question(s).
-Refer to Graph 14-5.Firms would be encouraged to enter this market for all prices that exceed:

Accepted Answer

A) P₃ 
B) P₄ 
C) P5 
D) all of the above 
A) P₃ 
B) P₄ 
C) P5 
D) all of the above

Question 16

Why would a profit-maximising firm in a competitive market set a price higher than the market price?

Accepted Answer

A) if this would result in higher profits 
B) if the firm's costs had increased 
C) if this would increase the firm's market share 
D) none of the above 
A) if this would result in higher profits 
B) if the firm's costs had increased 
C) if this would increase the firm's market share 
D) none of the above

Question 17

When buyers in a competitive market take the selling price as given, they are said to be:

Accepted Answer

A) free-riders 
B) market entrants 
C) price takers 
D) monopolists 
A) free-riders 
B) market entrants 
C) price takers 
D) monopolists

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 marginal revenue is equal to MC3, the 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 a profit-maximising firm's fixed costs are considered sunk in the short run, it:

Accepted Answer

A) can safely ignore fixed costs when deciding how much to produce 
B) will never show losses 
C) can set its price above marginal cost 
D) maximises profit by choosing an output level where price exceeds marginal cost 
A) can safely ignore fixed costs when deciding how much to produce 
B) will never show losses 
C) can set its price above marginal cost 
D) maximises profit by choosing an output level where price exceeds marginal cost

Question 20

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

Exam 14: Firms in Competitive Markets

When a forester is making a long-run decision about whether or not to exit an industry, the cost of the land used for the plantation:

When total revenue is less than total variable cost, a firm in a competitive market will:

When all firms and potential firms in a market have the same cost curves, the long-run equilibrium of a competitive market with free entry and exit will be characterised by firms:

Suppose a firm in a competitive market notices that its marginal cost is greater than its price.This means that:

For any given price, a firm in a competitive market will maximise profit by selecting the level of output in which price intersects the:

Graph 14-9 -Refer to Graph 14-9.An increase in market supply from Supply0 to Supply1 is most likely the result of:

What are the three assumptions that are made about a competitive market?

The market for arts and crafts used in home decoration is a very competitive market.In this market, costs vary since some people work faster than others and have more artistic talent in producing arts and crafts.In this competitive market, we would expect to observe:

If a price-taking firm doubles its output, it will also double its revenue.

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

In a competitive market, firms that increase prices experience increases in sales.

If a business ignores some of its fixed costs as irrelevant to its production decision, this type of cost is termed:

In a market with 1000 identical firms, the market supply is equal to the:

Graph 14-5 The graph depicts the cost structure of a firm in a competitive market.Use the graph to answer the following question(s). -Refer to Graph 14-5.Firms would be encouraged to enter this market for all prices that exceed:

Why would a profit-maximising firm in a competitive market set a price higher than the market price?

When buyers in a competitive market take the selling price as given, they are said to be:

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 marginal revenue is equal to MC3, the profit-maximising firm will produce what level of output?

When a profit-maximising firm's fixed costs are considered sunk in the short run, it:

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

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 marginal revenue is equal to MC₃, the profit-maximising firm will produce what level of output?