Question 1

A firm will shut down in the short run if,for all positive levels of output,

Accepted Answer

A)  its losses exceed its fixed costs. 
B)  its total revenue is less than its variable costs. 
C)  the price of its product is less than its average variable cost. 
D)  All of the above are correct. 
A)  its losses exceed its fixed costs. 
B)  its total revenue is less than its variable costs. 
C)  the price of its product is less than its average variable cost. 
D)  All of the above are correct.

Question 2

When new entrants into a competitive market have higher costs than existing firms,

Accepted Answer

A)  accounting profits will be the primary determinant of entry into the market. 
B)  sunk costs become an important determinant of the short-run entry strategy. 
C)  market price will rise. 
D)  long-run supply is constant. 
A)  accounting profits will be the primary determinant of entry into the market. 
B)  sunk costs become an important determinant of the short-run entry strategy. 
C)  market price will rise. 
D)  long-run supply is constant.

Question 3

Suppose that some firms in a competitive industry are earning zero economic profits,while others are experiencing losses.All else equal,in the long run,we would expect the number of firms in the industry to

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  We do not have enough information with which to answer this question. 
A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  We do not have enough information with which to answer this question.

Question 4

Suppose a firm is considering producing zero units of output.We call this exiting an industry in the short run and shutting down in the long run.

Accepted Answer

A) True 
 B)False

Question 5

When a perfectly competitive firm decides to shut down,it is most likely that

Accepted Answer

A)  marginal cost is above average variable cost. 
B)  marginal cost is above average total cost. 
C)  price is below the firm's average variable cost. 
D)  fixed costs exceed variable costs. 
A)  marginal cost is above average variable cost. 
B)  marginal cost is above average total cost. 
C)  price is below the firm's average variable cost. 
D)  fixed costs exceed variable costs.

Question 6

You purchase a $30,nonrefundable ticket to a play at a local theater.Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show.Alternatively you could leave the theater and go home and watch TV or read a book.You place an $8 value on watching TV and a $12 value on reading a book.

Accepted Answer

A)  You should stay and watch the remainder of the show. 
B)  You should go home and watch TV. 
C)  You should go home and read a book. 
D)  You should go home and either watch TV or read a book. 
A)  You should stay and watch the remainder of the show. 
B)  You should go home and watch TV. 
C)  You should go home and read a book. 
D)  You should go home and either watch TV or read a book.

Question 7

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each.Which of the following statements is correct?
(i)Marginal revenue equals $4.
(ii)Average revenue equals $100.
(iii)Total revenue equals $1,600.

Accepted Answer

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

Question 8

When managers of firms in a competitive market observe falling profits,they may infer that the market is experiencing

Accepted Answer

A)  a violation of conventional market forces. 
B)  over-investment. 
C)  the entry of new firms. 
D)  too few firms in the market. 
A)  a violation of conventional market forces. 
B)  over-investment. 
C)  the entry of new firms. 
D)  too few firms in the market.

Question 9

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves:
  
-Refer to Figure 14-6.When market price is P3,a profit-maximizing firm's profit

Accepted Answer

A)  can be represented by the area P3 * Q3. 
B)  can be represented by the area P3 * Q2. 
C)  can be represented by the area (P3-P2) * Q3. 
D)  is zero. 
A)  can be represented by the area P3 * Q3. 
B)  can be represented by the area P3 * Q2. 
C)  can be represented by the area (P3-P2) * Q3. 
D)  is zero.

Question 10

Table 14-12
Bill's Birdhouses
  
-Refer to Table 14-12.What is the marginal cost of the 8th unit?

Accepted Answer

A)  $0 
B)  $72.75 
C)  $120 
D)  $502 
A)  $0 
B)  $72.75 
C)  $120 
D)  $502

Question 11

Total profit for a firm is calculated as

Accepted Answer

A)  marginal revenue minus average total cost. 
B)  average revenue minus average total cost. 
C)  marginal revenue minus marginal cost. 
D)  (price minus average cost) times quantity of output. 
A)  marginal revenue minus average total cost. 
B)  average revenue minus average total cost. 
C)  marginal revenue minus marginal cost. 
D)  (price minus average cost) times quantity of output.

Question 12

When determining whether to shut down in the short run,a competitive firm should ignore
(i)fixed costs.
(ii)variable costs.
(iii)sunk costs.

Accepted Answer

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

Question 13

A firm in a competitive market has the following cost structure:  
If the market price is $8,how many units of output should the firm produce to maximize profit?

Accepted Answer

A)  5 units 
B)  6 units 
C)  7 units 
D)  8 units 
A)  5 units 
B)  6 units 
C)  7 units 
D)  8 units

Question 14

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves:
  
-Refer to Figure 14-2.If the market price is P3,in the short run the firm will earn

Accepted Answer

A)  positive economic profits. 
B)  negative economic profits but will try to remain open. 
C)  negative economic profits and will shut down. 
D)  zero economic profits. 
A)  positive economic profits. 
B)  negative economic profits but will try to remain open. 
C)  negative economic profits and will shut down. 
D)  zero economic profits.

Question 15

If a profit-maximizing firm in a competitive market discovers that,at its current level of production,price is greater than marginal cost,it should

Accepted Answer

A)  shut down. 
B)  reduce its output but continue operating. 
C)  continue to produce at the current levels. 
D)  increase its output. 
A)  shut down. 
B)  reduce its output but continue operating. 
C)  continue to produce at the current levels. 
D)  increase its output.

Question 16

Suppose a profit-maximizing firm in a competitive market produces rubber bands.When the market price for rubber bands falls below the minimum of its average total cost,but still lies above the minimum of average variable 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 17

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

Accepted Answer

A)  continue to operate as long as average revenue exceeds marginal cost. 
B)  continue to operate as long as average revenue exceeds average fixed cost. 
C)  shut down. 
D)  raise its price. 
A)  continue to operate as long as average revenue exceeds marginal cost. 
B)  continue to operate as long as average revenue exceeds average fixed cost. 
C)  shut down. 
D)  raise its price.

Question 18

Susan quit her job as a teacher,which paid her $36,000 per year,in order to start her own catering business.She spent $12,000 of her savings,which had been earning 10 percent interest per year,on equipment for her business.She also borrowed $12,000 from her bank at 10 percent interest,which she also spent on equipment.For the past several months she has spent $1,000 per month on ingredients and other variable costs.Also for the past several months she has earned $4,500 in monthly revenue.

Accepted Answer

A)  In the short run, Susan should shut down her business, and in the long run she should exit the industry. 
B)  In the short run, Susan should continue to operate her business, but in the long run she should exit the industry. 
C)  In the short run, Susan should continue to operate her business, but in the long run she will probably face competition from newly entering firms. 
D)  In the short run, Susan should continue to operate her business, and she is also in long-run equilibrium. 
A)  In the short run, Susan should shut down her business, and in the long run she should exit the industry. 
B)  In the short run, Susan should continue to operate her business, but in the long run she should exit the industry. 
C)  In the short run, Susan should continue to operate her business, but in the long run she will probably face competition from newly entering firms. 
D)  In the short run, Susan should continue to operate her business, and she is also in long-run equilibrium.

Question 19

If there is an increase in market demand in a perfectly competitive market,then in the short run

Accepted Answer

A)  there will be no change in the demand curves faced by individual firms in the market. 
B)  the demand curves for firms will shift downward. 
C)  the demand curves for firms will become more elastic. 
D)  profits will rise. 
A)  there will be no change in the demand curves faced by individual firms in the market. 
B)  the demand curves for firms will shift downward. 
C)  the demand curves for firms will become more elastic. 
D)  profits will rise.

Question 20

For a firm operating in a competitive industry,which of the following statements is not correct?

Accepted Answer

A)  Price equals average revenue. 
B)  Price equals marginal revenue. 
C)  Total revenue is constant. 
D)  Marginal revenue is constant. 
A)  Price equals average revenue. 
B)  Price equals marginal revenue. 
C)  Total revenue is constant. 
D)  Marginal revenue is constant.

A firm will shut down in the short run if,for all positive levels of output,

When new entrants into a competitive market have higher costs than existing firms,

Suppose that some firms in a competitive industry are earning zero economic profits,while others are experiencing losses.All else equal,in the long run,we would expect the number of firms in the industry to

Suppose a firm is considering producing zero units of output.We call this exiting an industry in the short run and shutting down in the long run.

When a perfectly competitive firm decides to shut down,it is most likely that

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each.Which of the following statements is correct? (i)Marginal revenue equals $4. (ii)Average revenue equals $100. (iii)Total revenue equals $1,600.

When managers of firms in a competitive market observe falling profits,they may infer that the market is experiencing

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6.When market price is P3,a profit-maximizing firm's profit

Table 14-12 Bill's Birdhouses -Refer to Table 14-12.What is the marginal cost of the 8th unit?

Total profit for a firm is calculated as

When determining whether to shut down in the short run,a competitive firm should ignore (i)fixed costs. (ii)variable costs. (iii)sunk costs.

A firm in a competitive market has the following cost structure: If the market price is $8,how many units of output should the firm produce to maximize profit?

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2.If the market price is P3,in the short run the firm will earn

If a profit-maximizing firm in a competitive market discovers that,at its current level of production,price is greater than marginal cost,it should

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

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

If there is an increase in market demand in a perfectly competitive market,then in the short run

For a firm operating in a competitive industry,which of the following statements is not correct?

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.

A firm will shut down in the short run if,for all positive levels of output,

When new entrants into a competitive market have higher costs than existing firms,

Suppose that some firms in a competitive industry are earning zero economic profits,while others are experiencing losses.All else equal,in the long run,we would expect the number of firms in the industry to

Suppose a firm is considering producing zero units of output.We call this exiting an industry in the short run and shutting down in the long run.

When a perfectly competitive firm decides to shut down,it is most likely that

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each.Which of the following statements is correct? (i)Marginal revenue equals $4. (ii)Average revenue equals $100. (iii)Total revenue equals $1,600.

When managers of firms in a competitive market observe falling profits,they may infer that the market is experiencing

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6.When market price is P3,a profit-maximizing firm's profit

Table 14-12 Bill's Birdhouses -Refer to Table 14-12.What is the marginal cost of the 8th unit?

Total profit for a firm is calculated as

When determining whether to shut down in the short run,a competitive firm should ignore (i)fixed costs. (ii)variable costs. (iii)sunk costs.

A firm in a competitive market has the following cost structure: If the market price is $8,how many units of output should the firm produce to maximize profit?

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2.If the market price is P3,in the short run the firm will earn

If a profit-maximizing firm in a competitive market discovers that,at its current level of production,price is greater than marginal cost,it should

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

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

If there is an increase in market demand in a perfectly competitive market,then in the short run

For a firm operating in a competitive industry,which of the following statements is not correct?

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