Question 1

In the long-run equilibrium of a market with free entry and exit,marginal firms are operating

Accepted Answer

A) at the point where average variable cost equals marginal cost. 
B) at the minimum point on their marginal cost curves. 
C) at their efficient scale. 
D) where accounting profit is zero. 
A) at the point where average variable cost equals marginal cost. 
B) at the minimum point on their marginal cost curves. 
C) at their efficient scale. 
D) where accounting profit is zero.

Question 2

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) will eventually leave markets that experience zero profit. 
D) think at the margin. 
A) consider sunk costs. 
B) equate prices to the average costs of production. 
C) will eventually leave markets that experience zero profit. 
D) think at the margin.

Question 3

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

Accepted Answer

A) fixed cost. 
B) variable cost. 
C) total cost. 
D) revenue. 
A) fixed cost. 
B) variable cost. 
C) total cost. 
D) revenue.

Question 4

A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its

Accepted Answer

A) opportunity costs. 
B) fixed costs. 
C) variable costs. 
D) total costs. 
A) opportunity costs. 
B) fixed costs. 
C) variable costs. 
D) total costs.

Question 5

By comparing the marginal revenue and marginal cost from each unit produced,a firm in a competitive market can determine the profit-maximizing level of production.

Accepted Answer

A) True 
 B)False

Question 6

In a competitive market,firms are unable to differentiate their product from that of other producers.

Accepted Answer

A) True 
 B)False

Question 7

Suppose the total cost for various levels of output for a competitive firm are given in the table below:  
If the market price is $8,how many units should the firm produce to maximize profit?

Accepted Answer

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

Question 8

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 efficient scale in the short run. 
B) all firms will operate at efficient scale in the long run. 
C) the price of the product will differ across firms. 
D) the number of sellers in the market will steadily decrease over time. 
A) all firms will operate at efficient scale in the short run. 
B) all firms will operate at efficient scale in the long run. 
C) the price of the product will differ across firms. 
D) the number of sellers in the market will steadily decrease over time.

Question 9

Figure 14-7
  
-Refer to Figure 14-7.Suppose a firm in a competitive market,like the one depicted in panel (a),observes market price rising from P₁ to P₂.Which of the following could explain this observation?

Accepted Answer

A) The entry of new firms into the market. 
B) The exit of existing consumers from the market. 
C) An increase in market supply from Supply₀ to Supply₁. 
D) An increase in market demand from Demand₀ to Demand₁. 
A) The entry of new firms into the market. 
B) The exit of existing consumers from the market. 
C) An increase in market supply from Supply₀ to Supply₁. 
D) An increase in market demand from Demand₀ to Demand₁.

Question 10

Table 14-4
The following table presents cost and revenue information for John's Vineyard.
  
-Refer to Table 14-4.What is the average revenue when 4 units are sold?

Accepted Answer

A) $0 
B) $80 
C) $90 
D) $320 
A) $0 
B) $80 
C) $90 
D) $320

Question 11

A market is competitive if (i)	firms have the flexibility to price their own product.
(ii)	each buyer is small compared to the market.
(iii)	each seller is small compared to the market.

Accepted Answer

A) (i) and (ii) only 
B) (i) and (iii) only 
C) (ii) and (iii) only 
D) All of the above are correct. 
A) (i) and (ii) only 
B) (i) and (iii) only 
C) (ii) and (iii) only 
D) All of the above are correct.

Question 12

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

Accepted Answer

A) fall in the short run.All firms will shut down and some of them will exit the industry.Price will then rise to reach the new long-run equilibrium. 
B) fall in the short run.No firms will shut down, but some of them will exit the industry.Price will then rise 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 fall in the short run because firms will exit to maintain the price. 
A) fall in the short run.All firms will shut down and some of them will exit the industry.Price will then rise to reach the new long-run equilibrium. 
B) fall in the short run.No firms will shut down, but some of them will exit the industry.Price will then rise 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 fall in the short run because firms will exit to maintain the price.

Question 13

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

Accepted Answer

A) its loss exceeds 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 loss exceeds 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 14

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 = 1,000,the firm's profit amounts to

Accepted Answer

A) $-200. 
B) $1,000. 
C) $3,000. 
D) $4,000. 
A) $-200. 
B) $1,000. 
C) $3,000. 
D) $4,000.

Question 15

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 16

The textile industry is composed of a large number of small firms.In recent years,these firms have suffered economic losses and many sellers have left the industry.Economic theory suggests that these conditions will

Accepted Answer

A) shift the demand curve outward so that price will rise to the level of production cost. 
B) cause the remaining firms to collude so that they can produce more efficiently. 
C) cause the market supply to decline and the price of textiles to rise. 
D) cause firms in the textile industry to suffer long-run economic losses. 
A) shift the demand curve outward so that price will rise to the level of production cost. 
B) cause the remaining firms to collude so that they can produce more efficiently. 
C) cause the market supply to decline and the price of textiles to rise. 
D) cause firms in the textile industry to suffer long-run economic losses.

Question 17

Whenever a perfectly competitive firm chooses to change its level of output,holding the price of the product constant,its marginal revenue

Accepted Answer

A) increases if MR  ATC. 
B) does not change. 
C) increases. 
D) decreases. 
A) increases if MR  ATC. 
B) does not change. 
C) increases. 
D) decreases.

Question 18

To answer the question,"How much revenue does the farm receive for the typical gallon of milk?" a dairy farmer must be able to calculate sunk cost.

Accepted Answer

A) True 
 B)False

Question 19

There are 500 identical firms in a competitive market.The firms do not use any resources that are available in limited quantities,and all of them have the following long-run cost structure:  
The long-run supply curve for this market is

Accepted Answer

A) positively sloped. 
B) horizontal at a price of $3.33. 
C) horizontal at a price of $5. 
D) horizontal at a price of $7. 
A) positively sloped. 
B) horizontal at a price of $3.33. 
C) horizontal at a price of $5. 
D) horizontal at a price of $7.

Question 20

When a profit-maximizing firm's fixed costs are considered sunk in the short run,then the firm

Accepted Answer

A) can set price above marginal cost. 
B) must set price below average total cost. 
C) will never show losses. 
D) can safely ignore fixed costs when deciding how much output to produce. 
A) can set price above marginal cost. 
B) must set price below average total cost. 
C) will never show losses. 
D) can safely ignore fixed costs when deciding how much output to produce.

Exam 14: Firms in Competitive Markets

In the long-run equilibrium of a market with free entry and exit,marginal firms are operating

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

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its

By comparing the marginal revenue and marginal cost from each unit produced,a firm in a competitive market can determine the profit-maximizing level of production.

In a competitive market,firms are unable to differentiate their product from that of other producers.

Suppose the total cost for various levels of output for a competitive firm are given in the table below: If the market price is $8,how many units should the firm produce to maximize profit?

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

Figure 14-7 -Refer to Figure 14-7.Suppose a firm in a competitive market,like the one depicted in panel (a),observes market price rising from P₁ to P₂.Which of the following could explain this observation?

Table 14-4 The following table presents cost and revenue information for John's Vineyard. -Refer to Table 14-4.What is the average revenue when 4 units are sold?

A market is competitive if (i) firms have the flexibility to price their own product. (ii) each buyer is small compared to the market. (iii) each seller is small compared to the market.

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

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

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 = 1,000,the firm's profit amounts to

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 textile industry is composed of a large number of small firms.In recent years,these firms have suffered economic losses and many sellers have left the industry.Economic theory suggests that these conditions will

Whenever a perfectly competitive firm chooses to change its level of output,holding the price of the product constant,its marginal revenue

To answer the question,"How much revenue does the farm receive for the typical gallon of milk?" a dairy farmer must be able to calculate sunk cost.

There are 500 identical firms in a competitive market.The firms do not use any resources that are available in limited quantities,and all of them have the following long-run cost structure: The long-run supply curve for this market is

When a profit-maximizing firm's fixed costs are considered sunk in the short run,then the firm

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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