Question 1

In a long-run equilibrium,the marginal firm has

Accepted Answer

A)  price equal to minimum marginal cost. 
B)  total revenue equal to total cost. 
C)  accounting profit equal to zero. 
D)  All of the above are correct. 
A)  price equal to minimum marginal cost. 
B)  total revenue equal to total cost. 
C)  accounting profit equal to zero. 
D)  All of the above are correct.

Question 2

Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves:
  
-Refer to Figure 14-4.When price falls from P3 to P1,the firm finds that it

Accepted Answer

A)  decreases its fixed costs. 
B)  should produce Q1 units of output. 
C)  should produce Q3 units of output. 
D)  should shut down immediately. 
A)  decreases its fixed costs. 
B)  should produce Q1 units of output. 
C)  should produce Q3 units of output. 
D)  should shut down immediately.

Question 3

Max sells maps.The map industry is competitive.Max hires a business consultant to analyze his company's financial records.The consultant recommends that Max increase his production.The consultant must have concluded that Max's

Accepted Answer

A)  total revenues exceed his total accounting costs. 
B)  marginal revenue exceeds his total cost. 
C)  marginal revenue exceeds his marginal cost. 
D)  marginal cost exceeds his marginal revenue. 
A)  total revenues exceed his total accounting costs. 
B)  marginal revenue exceeds his total cost. 
C)  marginal revenue exceeds his marginal cost. 
D)  marginal cost exceeds his marginal revenue.

Question 4

Table 14-13
Diana's Dress Emporium
  
-Refer to Table 14-13.In order to maximize profits,how many units should Diana's Dress Emporium produce?

Accepted Answer

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

Question 5

When marginal revenue equals marginal cost,the firm

Accepted Answer

A)  should increase the level of production to maximize its profit. 
B)  may be minimizing its losses rather than maximizing its profit. 
C)  must be generating positive economic profits. 
D)  must be generating positive accounting profits. 
A)  should increase the level of production to maximize its profit. 
B)  may be minimizing its losses rather than maximizing its profit. 
C)  must be generating positive economic profits. 
D)  must be generating positive accounting profits.

Question 6

In a competitive market,

Accepted Answer

A)  no single buyer or seller can influence the price of the product. 
B)  there are only a small number of sellers. 
C)  the goods offered by the different sellers are unique. 
D)  accounting profit is driven to zero as firms freely enter and exit the market. 
A)  no single buyer or seller can influence the price of the product. 
B)  there are only a small number of sellers. 
C)  the goods offered by the different sellers are unique. 
D)  accounting profit is driven to zero as firms freely enter and exit the market.

Question 7

A competitive market is in long-run equilibrium.If demand increases,we can be certain that price will

Accepted Answer

A)  rise in the short run. Some firms will enter the industry. Price will then rise to reach the new long-run equilibrium. 
B)  rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium. 
C)  fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
D)  not rise in the short run because firms will enter to maintain the price. 
A)  rise in the short run. Some firms will enter the industry. Price will then rise to reach the new long-run equilibrium. 
B)  rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium. 
C)  fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
D)  not rise in the short run because firms will enter to maintain the price.

Question 8

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 total costs

Accepted Answer

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

Question 9

For any competitive market,the supply curve is closely related to the

Accepted Answer

A)  preferences of consumers who purchase products in that market. 
B)  income tax rates of consumers in that market. 
C)  firms' costs of production in that market. 
D)  interest rates on government bonds. 
A)  preferences of consumers who purchase products in that market. 
B)  income tax rates of consumers in that market. 
C)  firms' costs of production in that market. 
D)  interest rates on government bonds.

Question 10

Figure 14-7
Suppose a firm operating in a competitive market has the following cost curves:
  
-Refer to Figure 14-7.Which line segment best reflects the short-run supply curve for this firm?

Accepted Answer

A)  ABCF 
B)  CD 
C)  DF 
D)  BCD 
A)  ABCF 
B)  CD 
C)  DF 
D)  BCD

Question 11

In a competitive market the price is $8.A typical firm in the market has ATC = $6,AVC = $5,and MC = $8.How much economic profit is the firm earning in the short run?

Accepted Answer

A)  $0 per unit 
B)  $1 per unit 
C)  $2 per unit 
D)  $3 per unit 
A)  $0 per unit 
B)  $1 per unit 
C)  $2 per unit 
D)  $3 per unit

Question 12

Table 14-12
Bill's Birdhouses
  
-Refer to Table 14-12.What is the total revenue from selling 7 units?

Accepted Answer

A)  $80 
B)  $382 
C)  $540 
D)  $560 
A)  $80 
B)  $382 
C)  $540 
D)  $560

Question 13

Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:
  
-Refer to Table 14-9.In order to maximize profit,the firm will produce a level of output where marginal revenue is equal to

Accepted Answer

A)  $6. 
B)  $7. 
C)  $8. 
D)  $9. 
A)  $6. 
B)  $7. 
C)  $8. 
D)  $9.

Question 14

Entry into a market by new firms will increase the

Accepted Answer

A)  supply of the good. 
B)  profits of existing firms. 
C)  price of the good. 
D)  marginal cost of producing the good. 
A)  supply of the good. 
B)  profits of existing firms. 
C)  price of the good. 
D)  marginal cost of producing the good.

Question 15

Table 14-6
The following table presents cost and revenue information for a firm operating in a competitive industry.
  
-Refer to Table 14-6.What is the marginal revenue from selling the 3rd unit?

Accepted Answer

A)  $55 
B)  $120 
C)  $137 
D)  $140 
A)  $55 
B)  $120 
C)  $137 
D)  $140

Question 16

Scenario 14-4
As part of an estate settlement Mary received $1 million. She decided to use the money to purchase a small business in Anywhere, USA. Her business operates in a perfectly competitive industry. If Mary would have invested the $1 million in a risk-free bond fund she could have earned $100,000 each year. She also quit her job with Lucky.Com Inc. to devote all of her time to her new business. Her salary at Lucky.Com Inc. was $75,000 per year.
-Refer to Scenario 14-4.At the end of the first year of operating her new business,Mary's accountant reported an accounting profit of $150,000.What was Mary's economic profit?

Accepted Answer

A)  -$150,000 
B)  -$50,000 
C)  -$25,000 
D)  $25,000 
A)  -$150,000 
B)  -$50,000 
C)  -$25,000 
D)  $25,000

Question 17

Timmy's Trophies operates in a perfectly competitive market.If trophies sell for $20 each and average total cost per trophy is $15 at the profit-maximizing output level,then in the long run

Accepted Answer

A)  more firms will enter the market. 
B)  some firms will exit from the market. 
C)  the equilibrium price per trophy will rise. 
D)  average total costs will fall. 
A)  more firms will enter the market. 
B)  some firms will exit from the market. 
C)  the equilibrium price per trophy will rise. 
D)  average total costs will fall.

Question 18

A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost.

Accepted Answer

A) True 
 B)False

Question 19

In the long run,each firm in a competitive industry earns

Accepted Answer

A)  zero accounting profits. 
B)  zero economic profits. 
C)  positive economic profits. 
D)  Both a and b are correct. 
A)  zero accounting profits. 
B)  zero economic profits. 
C)  positive economic profits. 
D)  Both a and b are correct.

Question 20

In the short run,if the market price is below the firm's average total cost of production,the firm will always shut down.

Accepted Answer

A) True 
 B)False

Exam 14: Firms in Competitive Markets.

In a long-run equilibrium,the marginal firm has

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4.When price falls from P3 to P1,the firm finds that it

Max sells maps.The map industry is competitive.Max hires a business consultant to analyze his company's financial records.The consultant recommends that Max increase his production.The consultant must have concluded that Max's

Table 14-13 Diana's Dress Emporium -Refer to Table 14-13.In order to maximize profits,how many units should Diana's Dress Emporium produce?

When marginal revenue equals marginal cost,the firm

In a competitive market,

A competitive market is in long-run equilibrium.If demand increases,we can be certain that price will

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 total costs

For any competitive market,the supply curve is closely related to the

Figure 14-7 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-7.Which line segment best reflects the short-run supply curve for this firm?

In a competitive market the price is $8.A typical firm in the market has ATC = $6,AVC = $5,and MC = $8.How much economic profit is the firm earning in the short run?

Table 14-12 Bill's Birdhouses -Refer to Table 14-12.What is the total revenue from selling 7 units?

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9.In order to maximize profit,the firm will produce a level of output where marginal revenue is equal to

Entry into a market by new firms will increase the

Table 14-6 The following table presents cost and revenue information for a firm operating in a competitive industry. -Refer to Table 14-6.What is the marginal revenue from selling the 3rd unit?

Timmy's Trophies operates in a perfectly competitive market.If trophies sell for $20 each and average total cost per trophy is $15 at the profit-maximizing output level,then in the long run

A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost.

In the long run,each firm in a competitive industry earns

In the short run,if the market price is below the firm's average total cost of production,the firm will always shut down.

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.

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