Question 1

Marginal adjustments to production end when firms in competitive markets experience a price equal to marginal revenue.

Accepted Answer

A) True 
 B)False

Question 2

Table 14-1
This table shows the revenue and costs of a parrot farmer.  
-Refer to Table 14-1.If the farmer determines that marginal cost is $14, a harvest of parrots should:

Accepted Answer

A) increase production to maximise profit 
B) decrease production to maximise profit 
C) maintain its current level of production to maximise profit 
D) stop the farm and exit the industry 
A) increase production to maximise profit 
B) decrease production to maximise profit 
C) maintain its current level of production to maximise profit 
D) stop the farm and exit the industry

Question 3

A profit-maximising firm in a competitive market will always make marginal adjustments to production as long as:

Accepted Answer

A) average revenue is greater than average total cost 
B) price is above or below marginal cost 
C) average revenue is equal to marginal cost 
D) marginal cost is greater than average total cost 
A) average revenue is greater than average total cost 
B) price is above or below marginal cost 
C) average revenue is equal to marginal cost 
D) marginal cost is greater than average total cost

Question 4

Table 14-1
This table shows the revenue and costs of a parrot farmer.  
-Refer to Table 14-1.If the farmer chooses to maximise profit, the appropriate output level is where marginal cost is equal to:

Accepted Answer

A) $5 
B) $10 
C) $11 
D) $33 
A) $5 
B) $10 
C) $11 
D) $33

Question 5

Because the goods offered for sale in a competitive market are largely the same:

Accepted Answer

A) there will be few sellers in the market 
B) there will be few buyers in the market 
C) sellers will have little reason to charge less than the going market price 
D) buyers will have market power 
A) there will be few sellers in the market 
B) there will be few buyers in the market 
C) sellers will have little reason to charge less than the going market price 
D) buyers will have market power

Question 6

Which of the following are true of comparing marginal revenue to marginal cost?
(i) it reveals the contribution of the last unit of production to total profit
(ii) it is helpful in making profit-maximising production decisions
(iii) it always reveals whether a firm is making an economic profit
(iv) it tells a firm whether its fixed costs are too high

Accepted Answer

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

Question 7

If all firms in a market are identical, have upward sloping marginal cost curves, and input prices are perfectly elastic, then the competitive long-run market supply curve will be:

Accepted Answer

A) upward sloping 
B) downward sloping 
C) horizontal 
D) we cannot say without more information 
A) upward sloping 
B) downward sloping 
C) horizontal 
D) we cannot say without more information

Question 8

Graph 14-6   This graph depicts the cost structure of a firm in a competitive market.Use the graph to answer the following question(s).
-Refer to Graph 14-6.When market price is P₄, a profit-maximising firm's total cost can be represented by the area:

Accepted Answer

A) P₄ *Q₁ 
B) P₂ * Q₄ 
C) P₄ * Q₄ 
D) total costs cannot be determined from the information in the graph 
A) P₄ *Q₁ 
B) P₂ * Q₄ 
C) P₄ * Q₄ 
D) total costs cannot be determined from the information in the graph

Question 9

The production decisions of perfectly competitive firms follow the principle of economics that states that rational people:

Accepted Answer

A) consider sunk costs 
B) think at the margin 
C) equate prices to the average costs of production 
D) will eventually leave markets that experience zero profit 
A) consider sunk costs 
B) think at the margin 
C) equate prices to the average costs of production 
D) will eventually leave markets that experience zero profit

Question 10

When new entrants to a competitive market have higher costs than existing firms:

Accepted Answer

A) market price must be rising 
B) accounting profits will be the primary signal for entrance 
C) sunk costs become an important determinant of short-run entrance strategy 
D) none of the above are true 
A) market price must be rising 
B) accounting profits will be the primary signal for entrance 
C) sunk costs become an important determinant of short-run entrance strategy 
D) none of the above are true

Question 11

Regardless of the cost structure of firms in a competitive market, in the long run:

Accepted Answer

A) firms will experience rising demand for their products 
B) firms will experience a less competitive market environment 
C) exit and entry is likely to lead to a horizontal long-run supply curve 
D) the marginal firm will earn zero economic profit 
A) firms will experience rising demand for their products 
B) firms will experience a less competitive market environment 
C) exit and entry is likely to lead to a horizontal long-run supply curve 
D) the marginal firm will earn zero economic profit

Question 12

In a competitive market, individual buyers and sellers have little ability to influence price.

Accepted Answer

A) True 
 B)False

Question 13

When a firm in a competitive market produces 10 units of output, it has marginal revenue of $8.What is the firm's total revenue when it produces nine units of output?

Accepted Answer

A) $18 
B) $60 
C) $72 
D) this cannot be determined from the information given 
A) $18 
B) $60 
C) $72 
D) this cannot be determined from the information given

Question 14

Profit-maximising firms enter a competitive market when:

Accepted Answer

A) total revenue for existing firms in the market exceeds their total fixed costs 
B) total revenue for existing firms in the market exceeds their total variable costs 
C) price exceeds average total cost for existing firms in the market 
D) average revenue is less than average total cost for existing firms in the market 
A) total revenue for existing firms in the market exceeds their total fixed costs 
B) total revenue for existing firms in the market exceeds their total variable costs 
C) price exceeds average total cost for existing firms in the market 
D) average revenue is less than average total cost for existing firms in the market

Question 15

In a competitive market, the price line also represents a firm's:

Accepted Answer

A) marginal revenue curve 
B) average revenue curve 
C) marginal profit curve 
D) both the marginal revenue and average revenue curves 
A) marginal revenue curve 
B) average revenue curve 
C) marginal profit curve 
D) both the marginal revenue and average revenue curves

Question 16

A firm in a competitive market produces and sells 500 door knobs at a price of $10 each.It then chooses to increase its output to 1000 door knobs.After the increase in output, its average revenue will:

Accepted Answer

A) decrease 
B) increase 
C) equal $10 
D) fall below marginal revenue 
A) decrease 
B) increase 
C) equal $10 
D) fall below marginal revenue

Question 17

In calculating accounting profit, accountants normally do not include:

Accepted Answer

A) explicit costs of production 
B) opportunity costs that do not involve an outflow of money 
C) long-run costs 
D) sunk costs 
A) explicit costs of production 
B) opportunity costs that do not involve an outflow of money 
C) long-run costs 
D) sunk costs

Question 18

When firms already in a competitive market are profitable, an incentive exists for:

Accepted Answer

A) existing firms to increase production 
B) new firms to seek government subsidies that would allow them to enter the market 
C) existing firms to raise prices 
D) new firms to enter the market 
A) existing firms to increase production 
B) new firms to seek government subsidies that would allow them to enter the market 
C) existing firms to raise prices 
D) new firms to enter the market

Question 19

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 there are 40 identical firms in this market, what level of output will be supplied to the market when the price is $2.00?

Accepted Answer

A) 200 
B) 800 
C) 8000 
D) 20 000 
A) 200 
B) 800 
C) 8000 
D) 20 000

Question 20

Graph 14-9  
-Refer to Graph 14-9.If the market starts in equilibrium at point C in panel (b), a decrease in demand will ultimately lead to:

Accepted Answer

A) more firms in the industry, but lower levels of production for each firm 
B) a new long-run equilibrium at point D in panel (b) 
C) fewer firms in the market 
D) none of the above 
A) more firms in the industry, but lower levels of production for each firm 
B) a new long-run equilibrium at point D in panel (b) 
C) fewer firms in the market 
D) none of the above

Exam 14: Firms in Competitive Markets

Marginal adjustments to production end when firms in competitive markets experience a price equal to marginal revenue.

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1.If the farmer determines that marginal cost is $14, a harvest of parrots should:

A profit-maximising firm in a competitive market will always make marginal adjustments to production as long as:

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1.If the farmer chooses to maximise profit, the appropriate output level is where marginal cost is equal to:

Because the goods offered for sale in a competitive market are largely the same:

If all firms in a market are identical, have upward sloping marginal cost curves, and input prices are perfectly elastic, then the competitive long-run market supply curve will be:

Graph 14-6 This graph depicts the cost structure of a firm in a competitive market.Use the graph to answer the following question(s). -Refer to Graph 14-6.When market price is P₄, a profit-maximising firm's total cost can be represented by the area:

The production decisions of perfectly competitive firms follow the principle of economics that states that rational people:

When new entrants to a competitive market have higher costs than existing firms:

Regardless of the cost structure of firms in a competitive market, in the long run:

In a competitive market, individual buyers and sellers have little ability to influence price.

When a firm in a competitive market produces 10 units of output, it has marginal revenue of $8.What is the firm's total revenue when it produces nine units of output?

Profit-maximising firms enter a competitive market when:

In a competitive market, the price line also represents a firm's:

A firm in a competitive market produces and sells 500 door knobs at a price of $10 each.It then chooses to increase its output to 1000 door knobs.After the increase in output, its average revenue will:

In calculating accounting profit, accountants normally do not include:

When firms already in a competitive market are profitable, an incentive exists for:

Graph 14-9 -Refer to Graph 14-9.If the market starts in equilibrium at point C in panel (b), a decrease in demand will ultimately lead to:

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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