Exam 14: Firms in Competitive Markets

Scenario 14-1 As part of an estate settlement Mary received $1 million. She decided to use the money to purchase a small business in Anywhere, USA. If Mary would have invested the $1 million in a risk-free bond fund she could have made $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 14-1.How large would Mary's accounting profits need to be to allow her to attain zero economic profit?

The marginal firm in a competitive market will earn zero economic profit in the long run.

In the long-run equilibrium of a competitive market,the number of firms in the market adjusts until the market demand is satisfied at a price equal to

The short-run market supply curve in a perfectly competitive industry

At its current level of production a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces and faces an average total cost of $10.At the market price of $12.50 per unit,the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1,000 units.What is the firm's current profit? What is likely to occur in this market and why?

One of the most important determinants of the success of free-market capitalism is

Table 14-2 The following table presents cost and revenue information for Soper's Port Vineyard. -Refer to Table 14-2.Consumers are willing to pay $120 per unit of port wine.What is the marginal cost of the 8th unit?

In the long-run equilibrium of a market with free entry and exit,if all firms have the same cost structure,then

When economic profits are zero in equilibrium,the firm's revenue must be sufficient to cover all opportunity costs.

As a general rule,profit-maximizing producers in a competitive market produce output at a point where

Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8.00.What would be the firm's total revenue if it instead produced and sold 4 units of output?

Scenario 14-3 In March of 2000 a study sponsored by the Food Consumer Safety Board found that consumption of irradiated grapefruit increased the health of laboratory rats. As a result of national press coverage of the report, the demand for irradiated grapefruit increased dramatically. Organic farmers were able to switch from organic production of grapefruit to irradiated production with no additional cost. Assume that the grapefruit market satisfies all of the attributes of perfect competition. -Refer to Scenario 14-3.If the increased production of irradiated grapefruit caused a rise in the marginal transportation costs of moving irradiated grapefruit to market,the

When all firms and potential firms in a market have the same cost curves,the long-run equilibrium of a competitive market with free entry and exit will be characterized by firms

Which of the following is NOT a characteristic of a perfectly competitive market?

In a competitive market,

When marginal revenue equals marginal cost,the firm

In making a short-run profit-maximizing production decision,the firm must consider both fixed and variable cost.

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

Which of the following statements is false?

Refer to Figure 14-6.When 100 identical firms participate in this market,at what price will 15,000 units be supplied to this market?