Question 1

When a profit-maximizing firm in a competitive market experiences rising prices,it will respond with an increase in production.

Accepted Answer

A) True 
 B)False

Question 2

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

Question 3

In the long run,all of a firm's costs are variable.In this case the exit criterion for a profit-maximizing firm is to

Accepted Answer

A) shutdown if price is less than average total cost. 
B) shutdown if price is greater than average total cost. 
C) shutdown if average revenue is greater than average fixed cost. 
D) shutdown if average revenue is greater than marginal cost. 
A) shutdown if price is less than average total cost. 
B) shutdown if price is greater than average total cost. 
C) shutdown if average revenue is greater than average fixed cost. 
D) shutdown if average revenue is greater than marginal cost.

Question 4

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.

Question 5

Comparison of marginal revenue to marginal cost (i)	reveals the contribution of the last unit of production to total profit.
(ii)	is helpful in making profit-maximizing production decisions.
(iii)	tells a firm whether its fixed costs are too high.

Accepted Answer

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

Question 6

A profit-maximizing firm will shut down in the short run when

Accepted Answer

A) price is less than average variable cost. 
B) price is less than average total cost. 
C) average revenue is greater marginal cost. 
D) average revenue is greater than average fixed cost. 
A) price is less than average variable cost. 
B) price is less than average total cost. 
C) average revenue is greater marginal cost. 
D) average revenue is greater than average fixed cost.

Question 7

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 long-run equilibrium,market price

Accepted Answer

A) is determined by demand. 
B) is determined by the minimum point on the firms' average total cost curve. 
C) is determined by the minimum point on the firms' average variable cost curve. 
D) depends on how many firms exist in the industry. 
A) is determined by demand. 
B) is determined by the minimum point on the firms' average total cost curve. 
C) is determined by the minimum point on the firms' average variable cost curve. 
D) depends on how many firms exist in the industry.

Question 8

The Wheeler Wheat Farm sells wheat to a grain broker in Seattle,Washington.Since the market for wheat is generally considered to be competitive,the Wheeler Wheat Farm maximizes its profit by choosing

Accepted Answer

A) to produce the quantity at which average variable cost is minimized. 
B) to produce the quantity at which average fixed cost is minimized. 
C) to sell its wheat at a price where marginal cost is equal to average total cost. 
D) the quantity at which market price is equal to the farm's marginal cost of production. 
A) to produce the quantity at which average variable cost is minimized. 
B) to produce the quantity at which average fixed cost is minimized. 
C) to sell its wheat at a price where marginal cost is equal to average total cost. 
D) the quantity at which market price is equal to the farm's marginal cost of production.

Question 9

When determining whether to shutdown in the short run,a competitive firm should

Accepted Answer

A) ignore fixed costs. 
B) ignore variable costs. 
C) ignore sunk costs. 
D) Both a and c are correct 
A) ignore fixed costs. 
B) ignore variable costs. 
C) ignore sunk costs. 
D) Both a and c are correct

Question 10

Which of the following represents the firm's short-run condition for shutting down?

Accepted Answer

A) Shut down if TR < TC 
B) Shut down if TR < FC 
C) Shut down if P < ATC 
D) Shut down if TR < VC 
A) Shut down if TR < TC 
B) Shut down if TR < FC 
C) Shut down if P < ATC 
D) Shut down if TR < VC

Question 11

When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch,which of the following principles is (are)best demonstrated? (i)	Fixed costs are sunk in the short run.
(ii)	In the short run,only fixed costs are important to the decision to stay open for lunch.
(iii)	If revenue exceeds variable cost,the restaurant owner is making a profitable strategic decision to remain open for lunch.

Accepted Answer

A) (i) and (ii) only 
B) (ii) and (iii) only 
C) (i) and (iii) only 
D) All are demonstrated. 
A) (i) and (ii) only 
B) (ii) and (iii) only 
C) (i) and (iii) only 
D) All are demonstrated.

Question 12

Scenario 14-2
Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.
-Refer to Scenario 14-2.At Q = 999,the firm's profit amounts to

Accepted Answer

A) $993. 
B) $997. 
C) $1,003. 
D) $1,007. 
A) $993. 
B) $997. 
C) $1,003. 
D) $1,007.

Question 13

Table 14-3
Use the information for a competitive firm in the table below to answer the following questions.
  
-Refer to Table 14-3.If the firm finds that its marginal cost is $11,it should

Accepted Answer

A) increase production to maximize profit. 
B) increase the price of the product to maximize profit. 
C) advertise to attract additional buyers to maximize profit. 
D) reduce production to increase profit. 
A) increase production to maximize profit. 
B) increase the price of the product to maximize profit. 
C) advertise to attract additional buyers to maximize profit. 
D) reduce production to increase profit.

Question 14

A competitive firm's marginal cost curve is regarded as its supply curve because

Accepted Answer

A) the position of the marginal cost curve determines the price for which the firm should sell its product. 
B) among the various cost curves, the marginal cost curve is the only one that slopes upward. 
C) the marginal cost curve determines the quantity of output the firm is willing to supply at any price. 
D) the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized. 
A) the position of the marginal cost curve determines the price for which the firm should sell its product. 
B) among the various cost curves, the marginal cost curve is the only one that slopes upward. 
C) the marginal cost curve determines the quantity of output the firm is willing to supply at any price. 
D) the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized.

Question 15

Table 14-1
  
-Refer to Table 14-1.The price and quantity relationship in the table is most likely that faced by a firm in a

Accepted Answer

A) monopoly. 
B) concentrated market. 
C) competitive market. 
D) strategic market. 
A) monopoly. 
B) concentrated market. 
C) competitive market. 
D) strategic market.

Question 16

Free entry means that

Accepted Answer

A) there are no costs of entering into an industry. 
B) no legal barriers prevent a firm from entering an industry. 
C) a firm's marginal cost is zero. 
D) a firm has no fixed costs in the short run. 
A) there are no costs of entering into an industry. 
B) no legal barriers prevent a firm from entering an industry. 
C) a firm's marginal cost is zero. 
D) a firm has no fixed costs in the short run.

Question 17

When buyers in a competitive market take the selling price as given,they are said to be

Accepted Answer

A) market entrants. 
B) monopolists. 
C) free riders. 
D) price takers. 
A) market entrants. 
B) monopolists. 
C) free riders. 
D) price takers.

Question 18

Table 14-4
The following table presents cost and revenue information for John's Vineyard.
  
-Refer to Table 14-4.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 19

If a firm in a perfectly competitive market triples the number of units of output sold,then total revenue will

Accepted Answer

A) more than triple. 
B) less than triple. 
C) exactly triple. 
D) Any of the above may be true depending on the firm's labor productivity. 
A) more than triple. 
B) less than triple. 
C) exactly triple. 
D) Any of the above may be true depending on the firm's labor productivity.

Question 20

A sunk cost is one that

Accepted Answer

A) changes as the level of output changes in the short run. 
B) was paid in the past and will not change regardless of the present decision. 
C) should determine the rational course of action in the future. 
D) has the most impact on profit-making decisions. 
A) changes as the level of output changes in the short run. 
B) was paid in the past and will not change regardless of the present decision. 
C) should determine the rational course of action in the future. 
D) has the most impact on profit-making decisions.

Exam 14: Firms in Competitive Markets

When a profit-maximizing firm in a competitive market experiences rising prices,it will respond with an increase in production.

In the long run,all of a firm's costs are variable.In this case the exit criterion for a profit-maximizing firm is to

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

Comparison of marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high.

A profit-maximizing firm will shut down in the short run when

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 long-run equilibrium,market price

The Wheeler Wheat Farm sells wheat to a grain broker in Seattle,Washington.Since the market for wheat is generally considered to be competitive,the Wheeler Wheat Farm maximizes its profit by choosing

When determining whether to shutdown in the short run,a competitive firm should

Which of the following represents the firm's short-run condition for shutting down?

Scenario 14-2 Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. -Refer to Scenario 14-2.At Q = 999,the firm's profit amounts to

Table 14-3 Use the information for a competitive firm in the table below to answer the following questions. -Refer to Table 14-3.If the firm finds that its marginal cost is $11,it should

A competitive firm's marginal cost curve is regarded as its supply curve because

Table 14-1 -Refer to Table 14-1.The price and quantity relationship in the table is most likely that faced by a firm in a

Free entry means that

When buyers in a competitive market take the selling price as given,they are said to be

Table 14-4 The following table presents cost and revenue information for John's Vineyard. -Refer to Table 14-4.What is the marginal revenue from selling the 5th unit?

If a firm in a perfectly competitive market triples the number of units of output sold,then total revenue will

A sunk cost is one that

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

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

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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