Question 1

A firm will shut down in the short run if revenue is not sufficient to cover all of its fixed costs of production.

Accepted Answer

A) True 
 B)False

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 rises from P2 to P3,the firm finds that

Accepted Answer

A)  marginal cost exceeds marginal revenue at a production level of Q2. 
B)  if it produces at output level Q3 it will earn a positive profit. 
C)  expanding output to Q4 would leave the firm with losses. 
D)  it could increase profits by lowering output from Q3 to Q2. 
A)  marginal cost exceeds marginal revenue at a production level of Q2. 
B)  if it produces at output level Q3 it will earn a positive profit. 
C)  expanding output to Q4 would leave the firm with losses. 
D)  it could increase profits by lowering output from Q3 to Q2.

Question 3

A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin.

Accepted Answer

A) True 
 B)False

Question 4

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics,which states that rational people

Accepted Answer

A)  consider sunk costs. 
B)  equate prices to the average costs of production. 
C)  prefer to purchase products from smaller rather than larger firms. 
D)  think at the margin. 
A)  consider sunk costs. 
B)  equate prices to the average costs of production. 
C)  prefer to purchase products from smaller rather than larger firms. 
D)  think at the margin.

Question 5

The entry of new firms into a competitive market will

Accepted Answer

A)  increase market supply and increase market price. 
B)  increase market supply and decrease market price. 
C)  decrease market supply and increase market price. 
D)  decrease market supply and decrease market price. 
A)  increase market supply and increase market price. 
B)  increase market supply and decrease market price. 
C)  decrease market supply and increase market price. 
D)  decrease market supply and decrease market price.

Question 6

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves:
  
-Refer to Figure 14-6.Firms will be earn losses in the short run but will remain in business if the market price

Accepted Answer

A)  exceeds P3. 
B)  is less than P1. 
C)  is greater than P1 but less than P3. 
D)  exceeds P2. 
A)  exceeds P3. 
B)  is less than P1. 
C)  is greater than P1 but less than P3. 
D)  exceeds P2.

Question 7

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 total revenue from selling 4 units?

Accepted Answer

A)  $120 
B)  $257 
C)  $317 
D)  $480 
A)  $120 
B)  $257 
C)  $317 
D)  $480

Question 8

Which of the following statements is not correct about competitive firms?

Accepted Answer

A)  In a long-run equilibrium, firms must be operating at their efficient scale. 
B)  In the short run, the number of firms in an industry may be fixed. 
C)  In the long run, the number of firms can adjust to changing market conditions. 
D)  In the short run, firms must be operating at a level of output where price equals average variable cost. 
A)  In a long-run equilibrium, firms must be operating at their efficient scale. 
B)  In the short run, the number of firms in an industry may be fixed. 
C)  In the long run, the number of firms can adjust to changing market conditions. 
D)  In the short run, firms must be operating at a level of output where price equals average variable cost.

Question 9

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)  positive, negative, or zero economic profits. 
A)  zero accounting profits. 
B)  zero economic profits. 
C)  positive economic profits. 
D)  positive, negative, or zero economic profits.

Question 10

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000,total variable cost to be $130,000,and total revenue to be $145,000.Because of this information,in the short run,the Brookside Racquet Club should

Accepted Answer

A)  shut down. 
B)  exit the industry. 
C)  stay open because shutting down would be more expensive. 
D)  stay open because the firm is making an economic profit. 
A)  shut down. 
B)  exit the industry. 
C)  stay open because shutting down would be more expensive. 
D)  stay open because the firm is making an economic profit.

Question 11

Which of the following is not a characteristic of a competitive market?

Accepted Answer

A)  Buyers and sellers are price takers. 
B)  Each firm sells a virtually identical product. 
C)  Entry is limited. 
D)  Each firm chooses an output level that maximizes profits. 
A)  Buyers and sellers are price takers. 
B)  Each firm sells a virtually identical product. 
C)  Entry is limited. 
D)  Each firm chooses an output level that maximizes profits.

Question 12

Christopher is a professional tennis player who gives tennis lessons.The industry is competitive.Christopher hires a business consultant to analyze his financial records.The consultant recommends that Christopher give fewer tennis lessons.The consultant must have concluded that Christopher'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 13

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves:
  
-Refer to Figure 14-1.If the market price rises above $6.30,the firm will earn

Accepted Answer

A)  positive economic profits in the short run. 
B)  negative economic profits in the short run but remain in business. 
C)  negative economic profits and shut down. 
D)  zero economic profits in the short run. 
A)  positive economic profits in the short run. 
B)  negative economic profits in the short run but remain in business. 
C)  negative economic profits and shut down. 
D)  zero economic profits in the short run.

Question 14

Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In this market,an increase in demand will

Accepted Answer

A)  increase price in the short run but not in the long run. 
B)  increase price in the long run but not in the short run. 
C)  increase price both in the short and the long run. 
D)  not affect price in either the short or the long run. 
A)  increase price in the short run but not in the long run. 
B)  increase price in the long run but not in the short run. 
C)  increase price both in the short and the long run. 
D)  not affect price in either the short or the long run.

Question 15

A competitive firm would benefit from charging a price below the market price because the firm would achieve
(i)higher average revenue.
(ii)higher profits.
(iii)lower total costs.

Accepted Answer

A)  (i) only 
B)  (ii) and (iii) only 
C)  (i), (ii), and (iii) 
D)  None of the above is correct. 
A)  (i) only 
B)  (ii) and (iii) only 
C)  (i), (ii), and (iii) 
D)  None of the above is correct.

Question 16

Firms operating in perfectly competitive markets produce an output level where marginal revenue equals marginal cost.

Accepted Answer

A) True 
 B)False

Question 17

In a competitive market with free entry and exit,if all firms have the same cost structure,then

Accepted Answer

A)  all firms will operate at their efficient scale in the short run. 
B)  all firms will operate at their efficient scale in the long run. 
C)  the price of the product will differ across firms. 
D)  Both a and b are correct. 
A)  all firms will operate at their efficient scale in the short run. 
B)  all firms will operate at their efficient scale in the long run. 
C)  the price of the product will differ across firms. 
D)  Both a and b are correct.

Question 18

Consider a competitive market with 50 identical firms.Suppose the market demand is given by the equation Qᴰ = 200 - 10P and the market supply is given by the equation Qˢ = 10P.In addition,suppose the following table shows the marginal cost of production for various levels of output for firms in this market.  
How many units should a firm in this market produce to maximize profit?

Accepted Answer

A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units 
A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units

Question 19

Suppose you value a special watch at $100.You purchase it for $75.On your way home from class one day,you lose the watch.The store is still selling the same watch,but the price has risen to $85.Assume that losing the watch has not altered how you value it.What should you do?

Accepted Answer

A)  Pay the $85 to buy the watch. 
B)  Wait to see if the watch goes on sale. If the price drops to $75 or less, buy the watch. 
C)  Wait to see if the watch goes on sale. If the price drops to $25 or less, buy the watch. 
D)  Do not buy the watch. 
A)  Pay the $85 to buy the watch. 
B)  Wait to see if the watch goes on sale. If the price drops to $75 or less, buy the watch. 
C)  Wait to see if the watch goes on sale. If the price drops to $25 or less, buy the watch. 
D)  Do not buy the watch.

Question 20

As a general rule,when accountants calculate profit they account for explicit costs but usually ignore

Accepted Answer

A)  certain outlays of money by the firm. 
B)  implicit costs. 
C)  operating costs. 
D)  fixed costs. 
A)  certain outlays of money by the firm. 
B)  implicit costs. 
C)  operating costs. 
D)  fixed costs.

Exam 14: Firms in Competitive Markets.

A firm will shut down in the short run if revenue is not sufficient to cover all of its fixed costs of production.

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4.When price rises from P2 to P3,the firm finds that

A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin.

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics,which states that rational people

The entry of new firms into a competitive market will

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6.Firms will be earn losses in the short run but will remain in business if the market price

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 total revenue from selling 4 units?

Which of the following statements is not correct about competitive firms?

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

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000,total variable cost to be $130,000,and total revenue to be $145,000.Because of this information,in the short run,the Brookside Racquet Club should

Which of the following is not a characteristic of a competitive market?

Christopher is a professional tennis player who gives tennis lessons.The industry is competitive.Christopher hires a business consultant to analyze his financial records.The consultant recommends that Christopher give fewer tennis lessons.The consultant must have concluded that Christopher's

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1.If the market price rises above $6.30,the firm will earn

Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In this market,an increase in demand will

A competitive firm would benefit from charging a price below the market price because the firm would achieve (i)higher average revenue. (ii)higher profits. (iii)lower total costs.

Firms operating in perfectly competitive markets produce an output level where marginal revenue equals marginal cost.

In a competitive market with free entry and exit,if all firms have the same cost structure,then

Suppose you value a special watch at $100.You purchase it for $75.On your way home from class one day,you lose the watch.The store is still selling the same watch,but the price has risen to $85.Assume that losing the watch has not altered how you value it.What should you do?

As a general rule,when accountants calculate profit they account for explicit costs but usually ignore

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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