Question 1

The long-run supply curve for a competitive industry

Accepted Answer

A)  may be horizontal if entry into the industry lowers average total cost. 
B)  may be upward-sloping if higher-cost firms enter the industry. 
C)  will be horizontal if there is free entry into the industry. 
D)  will be upward-sloping if there are barriers to entry into the industry. 
A)  may be horizontal if entry into the industry lowers average total cost. 
B)  may be upward-sloping if higher-cost firms enter the industry. 
C)  will be horizontal if there is free entry into the industry. 
D)  will be upward-sloping if there are barriers to entry into the industry.

Question 2

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

Question 3

Bill operates a boat rental business in a competitive industry.He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them.He rents each boat for $200 per month.The variable cost for each boat rental is $50.In the off season,Bill should

Accepted Answer

A)  operate his business as long as he rents at least 7 boats per month. 
B)  operate his business as long as he rents at least 1 boat per month. 
C)  operate his business as long as he rents all 10 boats each month. 
D)  raise the price he charges per boat rental. 
A)  operate his business as long as he rents at least 7 boats per month. 
B)  operate his business as long as he rents at least 1 boat per month. 
C)  operate his business as long as he rents all 10 boats each month. 
D)  raise the price he charges per boat rental.

Question 4

In a market with 1,000 identical firms,the short-run market supply is the

Accepted Answer

A)  marginal cost curve above average variable cost for a typical firm in the market. 
B)  quantity supplied by the typical firm in the market at each price. 
C)  sum of the prices charged by each of the 1,000 individual firms at each quantity. 
D)  sum of the quantities supplied by each of the 1,000 individual firms at each price. 
A)  marginal cost curve above average variable cost for a typical firm in the market. 
B)  quantity supplied by the typical firm in the market at each price. 
C)  sum of the prices charged by each of the 1,000 individual firms at each quantity. 
D)  sum of the quantities supplied by each of the 1,000 individual firms at each price.

Question 5

By comparing marginal revenue and marginal cost,a firm in a competitive market is able to adjust production to the level that achieves its objective,which we assume to be

Accepted Answer

A)  maximizing total revenue. 
B)  maximizing profit. 
C)  minimizing variable cost. 
D)  minimizing average total cost. 
A)  maximizing total revenue. 
B)  maximizing profit. 
C)  minimizing variable cost. 
D)  minimizing average total cost.

Question 6

When fixed costs are ignored because they are irrelevant to a business's production decision,they are called

Accepted Answer

A)  explicit costs. 
B)  implicit costs. 
C)  sunk costs. 
D)  opportunity costs. 
A)  explicit costs. 
B)  implicit costs. 
C)  sunk costs. 
D)  opportunity costs.

Question 7

Figure 14-14

-Refer to Figure 14-14.Suppose a firm in a competitive market,like the one depicted in panel (a),observes market price rising from P1 to P2.Which of the following could explain this observation?

Accepted Answer

A)  The entry of new firms into the market. 
B)  The exit of existing consumers from the market. 
C)  An increase in market supply from S0 to S1. 
D)  An increase in market demand from D0 to D1. 
A)  The entry of new firms into the market. 
B)  The exit of existing consumers from the market. 
C)  An increase in market supply from S0 to S1. 
D)  An increase in market demand from D0 to D1.

Question 8

Suppose a profit-maximizing firm in a competitive market produces rubber bands.When the market price for rubber bands rises above the minimum of its average variable cost,but still lies below the minimum of average total cost,in the short run the firm will

Accepted Answer

A)  experience losses but will continue to produce rubber bands. 
B)  shut down. 
C)  earn both economic and accounting profits. 
D)  raise the price of its product. 
A)  experience losses but will continue to produce rubber bands. 
B)  shut down. 
C)  earn both economic and accounting profits. 
D)  raise the price of its product.

Question 9

Mrs.Smith operates a business in a competitive market.The current market price is $8.10.At her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Mrs.Smith should

Accepted Answer

A)  shut down her business in the short run but continue to operate in the long run. 
B)  continue to operate in the short run but shut down in the long run. 
C)  continue to operate in both the short run and long run. 
D)  shut down in both the short run and long run. 
A)  shut down her business in the short run but continue to operate in the long run. 
B)  continue to operate in the short run but shut down in the long run. 
C)  continue to operate in both the short run and long run. 
D)  shut down in both the short run and long run.

Question 10

The long-run market supply curve in a competitive market will

Accepted Answer

A)  always be horizontal. 
B)  be the portion of the MC that lies above the minimum of AVC for the marginal firm. 
C)  typically be more elastic than the short-run supply curve. 
D)  be above the competitive firm's efficient scale. 
A)  always be horizontal. 
B)  be the portion of the MC that lies above the minimum of AVC for the marginal firm. 
C)  typically be more elastic than the short-run supply curve. 
D)  be above the competitive firm's efficient scale.

Question 11

Which of the following statements best expresses a firm's profit-maximizing decision rule?

Accepted Answer

A)  If marginal revenue is greater than marginal cost, the firm should increase its output. 
B)  If marginal revenue is less than marginal cost, the firm should shut down in the short run. 
C)  If marginal revenue equals marginal cost, the firm should produce exactly one more unit of output. 
D)  All of the above are correct. 
A)  If marginal revenue is greater than marginal cost, the firm should increase its output. 
B)  If marginal revenue is less than marginal cost, the firm should shut down in the short run. 
C)  If marginal revenue equals marginal cost, the firm should produce exactly one more unit of output. 
D)  All of the above are correct.

Question 12

Table 14-12
Bill's Birdhouses
  
-Refer to Table 14-12.What is the marginal revenue from selling the 5th unit?

Accepted Answer

A)  $12 
B)  $68 
C)  $80 
D)  $480 
A)  $12 
B)  $68 
C)  $80 
D)  $480

Question 13

A profit-maximizing firm in a competitive market is able to sell its product for $7.At its current level of output,the firm's average total cost is $10.The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units.The firm experiences a

Accepted Answer

A)  profit of more than $27. 
B)  profit of exactly $27. 
C)  loss of more than $27. 
D)  loss of exactly $27. 
A)  profit of more than $27. 
B)  profit of exactly $27. 
C)  loss of more than $27. 
D)  loss of exactly $27.

Question 14

Figure 14-10
In the figure below, 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.

-Refer to Figure 14-10.If there are 700 identical firms in this market,what is the value of Q1?

Accepted Answer

A)  140,000 
B)  210,000 
C)  280,000 
D)  420,000 
A)  140,000 
B)  210,000 
C)  280,000 
D)  420,000

Question 15

Use a graph to demonstrate the circumstances that would prevail in a perfectly competitive market where firms are experiencing economic losses.Identify costs,revenue,and the economic losses on your graph.Using your graph,determine whether an individual firm will shut down in the short run,or choose to remain in the market.Explain your answer.

Accepted Answer

The losses and revenues are identified o

Question 16

If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market,then the individual farmer's elasticity of demand

Accepted Answer

A)  will also be -0.3. 
B)  depends on how large a crop the farmer produces. 
C)  will range between -0.3 and -1.0. 
D)  will be infinite. 
A)  will also be -0.3. 
B)  depends on how large a crop the farmer produces. 
C)  will range between -0.3 and -1.0. 
D)  will be infinite.

Question 17

The assumption of a fixed number of firms is appropriate for analysis of

Accepted Answer

A)  the short run but not the long run. 
B)  the long run but not the short run. 
C)  both the short run and the long run. 
D)  neither the short run nor the long run. 
A)  the short run but not the long run. 
B)  the long run but not the short run. 
C)  both the short run and the long run. 
D)  neither the short run nor the long run.

Question 18

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:
  
-Refer to Table 14-11.Marginal revenue equals marginal cost when the firm produces

Accepted Answer

A)  2 units. 
B)  3 units. 
C)  4 units. 
D)  5 units. 
A)  2 units. 
B)  3 units. 
C)  4 units. 
D)  5 units.

Question 19

Suppose that you value a hat from your favorite university at $20.The university bookstore has the hat on sale for $15.You purchase the hat but lose it on the way home.What should you do? Assume that losing the hat does not alter how you value it.

Accepted Answer

A)  Go back to the bookstore and purchase another hat. 
B)  Wait until the cost of the hat falls to $15 or less before purchasing another hat. 
C)  Wait until the cost of the hat falls to $5 or less before purchasing another hat. 
D)  Do not purchase another hat regardless of the price. 
A)  Go back to the bookstore and purchase another hat. 
B)  Wait until the cost of the hat falls to $15 or less before purchasing another hat. 
C)  Wait until the cost of the hat falls to $5 or less before purchasing another hat. 
D)  Do not purchase another hat regardless of the price.

Question 20

When a profit-maximizing competitive firm finds itself minimizing losses because it is unable to earn a positive profit,this task is accomplished by producing the quantity at which price is equal to

Accepted Answer

A)  sunk cost. 
B)  average fixed cost. 
C)  average variable cost. 
D)  marginal cost. 
A)  sunk cost. 
B)  average fixed cost. 
C)  average variable cost. 
D)  marginal cost.

The long-run supply curve for a competitive industry

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

Bill operates a boat rental business in a competitive industry.He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them.He rents each boat for $200 per month.The variable cost for each boat rental is $50.In the off season,Bill should

In a market with 1,000 identical firms,the short-run market supply is the

By comparing marginal revenue and marginal cost,a firm in a competitive market is able to adjust production to the level that achieves its objective,which we assume to be

When fixed costs are ignored because they are irrelevant to a business's production decision,they are called

Figure 14-14 -Refer to Figure 14-14.Suppose a firm in a competitive market,like the one depicted in panel (a),observes market price rising from P1 to P2.Which of the following could explain this observation?

Suppose a profit-maximizing firm in a competitive market produces rubber bands.When the market price for rubber bands rises above the minimum of its average variable cost,but still lies below the minimum of average total cost,in the short run the firm will

Mrs.Smith operates a business in a competitive market.The current market price is $8.10.At her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Mrs.Smith should

The long-run market supply curve in a competitive market will

Which of the following statements best expresses a firm's profit-maximizing decision rule?

Table 14-12 Bill's Birdhouses -Refer to Table 14-12.What is the marginal revenue from selling the 5th unit?

A profit-maximizing firm in a competitive market is able to sell its product for $7.At its current level of output,the firm's average total cost is $10.The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units.The firm experiences a

If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market,then the individual farmer's elasticity of demand

The assumption of a fixed number of firms is appropriate for analysis of

Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11.Marginal revenue equals marginal cost when the firm produces

Suppose that you value a hat from your favorite university at $20.The university bookstore has the hat on sale for $15.You purchase the hat but lose it on the way home.What should you do? Assume that losing the hat does not alter how you value it.

When a profit-maximizing competitive firm finds itself minimizing losses because it is unable to earn a positive profit,this task is accomplished by producing the quantity at which price is equal to

Ten Principles of 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.

Oligopoly.

The Market For the Factors of Production.

Earnings and Discrimination.

Income Inequality and Poverty.

The Theory of Consumer Choice.

Frontiers in Microeconomics.

Filters

Exam 14: Firms in Competitive Markets.

The long-run supply curve for a competitive industry

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

Bill operates a boat rental business in a competitive industry.He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them.He rents each boat for $200 per month.The variable cost for each boat rental is $50.In the off season,Bill should

In a market with 1,000 identical firms,the short-run market supply is the

By comparing marginal revenue and marginal cost,a firm in a competitive market is able to adjust production to the level that achieves its objective,which we assume to be

When fixed costs are ignored because they are irrelevant to a business's production decision,they are called

Figure 14-14 -Refer to Figure 14-14.Suppose a firm in a competitive market,like the one depicted in panel (a),observes market price rising from P1 to P2.Which of the following could explain this observation?

Suppose a profit-maximizing firm in a competitive market produces rubber bands.When the market price for rubber bands rises above the minimum of its average variable cost,but still lies below the minimum of average total cost,in the short run the firm will

Mrs.Smith operates a business in a competitive market.The current market price is $8.10.At her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Mrs.Smith should

The long-run market supply curve in a competitive market will

Which of the following statements best expresses a firm's profit-maximizing decision rule?

Table 14-12 Bill's Birdhouses -Refer to Table 14-12.What is the marginal revenue from selling the 5th unit?

A profit-maximizing firm in a competitive market is able to sell its product for $7.At its current level of output,the firm's average total cost is $10.The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units.The firm experiences a

If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market,then the individual farmer's elasticity of demand

The assumption of a fixed number of firms is appropriate for analysis of

Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11.Marginal revenue equals marginal cost when the firm produces

Suppose that you value a hat from your favorite university at $20.The university bookstore has the hat on sale for $15.You purchase the hat but lose it on the way home.What should you do? Assume that losing the hat does not alter how you value it.

When a profit-maximizing competitive firm finds itself minimizing losses because it is unable to earn a positive profit,this task is accomplished by producing the quantity at which price is equal to

Ten Principles of 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.

Oligopoly.

The Market For the Factors of Production.

Earnings and Discrimination.

Income Inequality and Poverty.

The Theory of Consumer Choice.

Frontiers in Microeconomics.

Filters