Question 1

In the long run, all of a firm's costs are variable.In this case the exit criterion for a profit-maximising firm is:

Accepted Answer

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

Question 2

The Wheeler Wheat Farm sells wheat to a grain broker.Since the market for wheat is generally considered to be competitive, the Wheeler Farm:

Accepted Answer

A) does not choose the quantity of wheat to produce 
B) does not have any fixed costs of production 
C) is not able to earn an accounting profit 
D) does not choose the price at which it sells its wheat 
A) does not choose the quantity of wheat to produce 
B) does not have any fixed costs of production 
C) is not able to earn an accounting profit 
D) does not choose the price at which it sells its wheat

Question 3

By comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit-maximising level of production.

Accepted Answer

A) True 
 B)False

Question 4

When firms in a competitive market have different costs, it is likely that:

Accepted Answer

A) the market will no longer be considered competitive 
B) free entry and exit in the market is likely to be violated 
C) some firms will earn economic profits in the long run 
D) long-run market supply will be downward-sloping 
A) the market will no longer be considered competitive 
B) free entry and exit in the market is likely to be violated 
C) some firms will earn economic profits in the long run 
D) long-run market supply will be downward-sloping

Question 5

All of the following conditions are consistent with a firm's decision to shut down:
TR < VC, TR/Q < VC/Q, and P < MR.(TR = total revenue, VC = variable cost, Q = level of production, P = price and MR = marginal revenue.)

Accepted Answer

A) True 
 B)False

Question 6

Choose the correct statement.In the long-run, each firm in a competitive market with identical firms will:
i. operate at the firm's efficient scale
ii. produce at a point where Marginal Cost and Average Total Cost are equal
iii. will earn zero economic profit

Accepted Answer

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

Question 7

Regardless of the time horizon considered, firms in a competitive market will never earn positive economic profit.

Accepted Answer

A) True 
 B)False

Question 8

A profit-maximising firm should always increase the level of production if marginal cost exceeds marginal revenue.

Accepted Answer

A) True 
 B)False

Question 9

When entry and exit behaviour of firms in an industry does not affect a firm's cost structure:

Accepted Answer

A) the long-run market supply curve must be upward-sloping 
B) the long-run market supply curve must be downward-sloping 
C) the long-run market supply curve must be horizontal 
D) we can't tell anything about the shape of the long-run market supply curve 
A) the long-run market supply curve must be upward-sloping 
B) the long-run market supply curve must be downward-sloping 
C) the long-run market supply curve must be horizontal 
D) we can't tell anything about the shape of the long-run market supply curve

Question 10

At the end of the process of entry and exit, it is possible that some firms in a competitive market are making positive economic profit.

Accepted Answer

A) True 
 B)False

Question 11

Graph 14-9  
-Refer to Graph 14-9.When a firm in a competitive market, like the one depicted in panel (a), observes market price rising from P₁ to P₂, it is most likely the result of:

Accepted Answer

A) an increase in market supply from Supply0 to Supply1 
B) an increase in market demand from DemanD₀ to DemanD₁ 
C) entrance of new firms into the market 
D) the exit of existing firms in the market 
A) an increase in market supply from Supply0 to Supply1 
B) an increase in market demand from DemanD₀ to DemanD₁ 
C) entrance of new firms into the market 
D) the exit of existing firms in the market

Question 12

Graph 14-9  
-Refer to Graph 14-9.Assume that the market starts in equilibrium at point A in panel (b).An increase in demand from DemanD₀ to DemanD₁ will result in:

Accepted Answer

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

Question 13

There are 500 profit-maximising firms in a competitive market.When market price is $10 per unit, each firm produces exactly 20 units of output.What are the total quantity supplied to the market, the total revenue, average revenue and marginal revenue of each firm?

Accepted Answer

Total quantity supplied to the

Question 14

Suppose a movie theatre stays open late at night even though few people attend screenings this late.Which of the following principles are being demonstrated?
(i) fixed costs are sunk in the short-run
(ii) in the short-run, only variable costs are important to the decision to stay open for late evening showings
(iii) if variable exceeds revenue, the theatre owner is making a profitable strategic decision to remain open late into the night

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 15

A long-run supply curve that is more elastic than a short-run supply curve results from which of the following circumstances?

Accepted Answer

A) competitive firms have more control over demand in the long run 
B) firms in a competitive market face identical cost structures 
C) firms can enter and exit a market more easily in the long run than in the short run 
D) long-run supply curves are sometimes downward-sloping 
A) competitive firms have more control over demand in the long run 
B) firms in a competitive market face identical cost structures 
C) firms can enter and exit a market more easily in the long run than in the short run 
D) long-run supply curves are sometimes downward-sloping

Question 16

For a firm in a perfectly competitive market, the price of the good is always equal to:

Accepted Answer

A) marginal revenue 
B) average revenue 
C) equilibrium market price. 
D) all of the above 
A) marginal revenue 
B) average revenue 
C) equilibrium market price. 
D) all of the above

Question 17

Which of the following statements are most likely to be true for the air transportation industry?
(i) in the short run, the cost of the airplane is sunk
(ii) the opportunity cost of a flight is the variable cost
(iii) as long as total revenue exceeds fixed cost, the airlines should continue operating

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 18

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

Accepted Answer

A) none; marginal revenue is constant over the whole range of output 
B) one to three 
C) three to six 
D) three to nine 
A) none; marginal revenue is constant over the whole range of output 
B) one to three 
C) three to six 
D) three to nine

Question 19

When calculating economic profit, total costs include:

Accepted Answer

A) opportunity costs 
B) fixed costs 
C) variable costs 
D) all of the above 
A) opportunity costs 
B) fixed costs 
C) variable costs 
D) all of the above

Question 20

If it is optimal for a firm to exit in the short-run, then it will also be optimal for the firm to exit in the long-run, all else equal.

Accepted Answer

A) True 
 B)False

Exam 14: Firms in Competitive Markets

In the long run, all of a firm's costs are variable.In this case the exit criterion for a profit-maximising firm is:

The Wheeler Wheat Farm sells wheat to a grain broker.Since the market for wheat is generally considered to be competitive, the Wheeler Farm:

By comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit-maximising level of production.

When firms in a competitive market have different costs, it is likely that:

All of the following conditions are consistent with a firm's decision to shut down: TR < VC, TR/Q < VC/Q, and P < MR.(TR = total revenue, VC = variable cost, Q = level of production, P = price and MR = marginal revenue.)

Choose the correct statement.In the long-run, each firm in a competitive market with identical firms will: i. operate at the firm's efficient scale ii. produce at a point where Marginal Cost and Average Total Cost are equal iii. will earn zero economic profit

Regardless of the time horizon considered, firms in a competitive market will never earn positive economic profit.

A profit-maximising firm should always increase the level of production if marginal cost exceeds marginal revenue.

When entry and exit behaviour of firms in an industry does not affect a firm's cost structure:

At the end of the process of entry and exit, it is possible that some firms in a competitive market are making positive economic profit.

Graph 14-9 -Refer to Graph 14-9.When a firm in a competitive market, like the one depicted in panel (a), observes market price rising from P₁ to P₂, it is most likely the result of:

Graph 14-9 -Refer to Graph 14-9.Assume that the market starts in equilibrium at point A in panel (b).An increase in demand from DemanD₀ to DemanD₁ will result in:

There are 500 profit-maximising firms in a competitive market.When market price is $10 per unit, each firm produces exactly 20 units of output.What are the total quantity supplied to the market, the total revenue, average revenue and marginal revenue of each firm?

A long-run supply curve that is more elastic than a short-run supply curve results from which of the following circumstances?

For a firm in a perfectly competitive market, the price of the good is always equal to:

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

When calculating economic profit, total costs include:

If it is optimal for a firm to exit in the short-run, then it will also be optimal for the firm to exit in the long-run, all else equal.

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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