Question 1

In a competitive market the current price is $7,and the typical firm in the market has ATC = $7.50 and AVC = $7.15.

Accepted Answer

A) In the short run firms will shut down, and in the long run firms will leave the market. 
B) In the short run firms will continue to operate, but in the long run firms will leave the market. 
C) New firms will likely enter this market to capture any remaining economic profits. 
D) In the long run the market will cease to exist. 
A) In the short run firms will shut down, and in the long run firms will leave the market. 
B) In the short run firms will continue to operate, but in the long run firms will leave the market. 
C) New firms will likely enter this market to capture any remaining economic profits. 
D) In the long run the market will cease to exist.

Question 2

When calculating marginal cost,what must the firm know?

Accepted Answer

A) Sunk cost 
B) Variable cost 
C) Fixed cost 
D) Price 
A) Sunk cost 
B) Variable cost 
C) Fixed cost 
D) Price

Question 3

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 Soper's Port Vineyard's economic profit at their profit maximizing point?

Accepted Answer

A) $78 
B) $243 
C) $278 
D) $375 
A) $78 
B) $243 
C) $278 
D) $375

Question 4

Suppose that a firm is currently maximizing its short-run profit at an output of 50 units.If the current price is $9,the marginal cost of the 50th unit is $9,and the average cost of producing 50 units is $4,what is the firm's profit?

Accepted Answer

A) $0 
B) $200 
C) $250 
D) $450 
A) $0 
B) $200 
C) $250 
D) $450

Question 5

The competitive firm's short-run supply curve

Accepted Answer

A) is its marginal revenue curve, but only the portion where marginal revenue exceeds marginal cost. 
B) is its marginal cost curve. 
C) is its marginal cost curve, but only the portion above the minimum of average total cost. 
D) is its marginal cost curve, but only the portion above the minimum of average variable cost. 
A) is its marginal revenue curve, but only the portion where marginal revenue exceeds marginal cost. 
B) is its marginal cost curve. 
C) is its marginal cost curve, but only the portion above the minimum of average total cost. 
D) is its marginal cost curve, but only the portion above the minimum of average variable cost.

Question 6

When a resource used in the production of a good sold in a competitive market is available in only limited quantities,the long-run supply curve is likely to be upward sloping.

Accepted Answer

A) True 
 B)False

Question 7

Figure 14-1
The graph below depicts the cost structure for a firm in a competitive market.
  
-Refer to Figure 14-1.When price falls from P₃ to P₁,the firm finds that

Accepted Answer

A) fixed cost is higher at a production level of Q₁ than it is at Q₃. 
B) it should produce Q₁ units of output. 
C) it should produce Q₃ units of output. 
D) it should shut down immediately. 
A) fixed cost is higher at a production level of Q₁ than it is at Q₃. 
B) it should produce Q₁ units of output. 
C) it should produce Q₃ units of output. 
D) it should shut down immediately.

Question 8

Entry into a market by new firms will

Accepted Answer

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

Question 9

The complete description of a competitive firm's supply curve is as follows: The competitive firm's short-run supply curve is that portion of the

Accepted Answer

A) average variable cost curve that lies above marginal cost. 
B) average total cost curve that lies above marginal cost. 
C) marginal cost curve that lies above average variable cost. 
D) marginal cost curve that lies above average total cost. 
A) average variable cost curve that lies above marginal cost. 
B) average total cost curve that lies above marginal cost. 
C) marginal cost curve that lies above average variable cost. 
D) marginal cost curve that lies above average total cost.

Question 10

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 11

One of the defining characteristics of a perfectly competitive market is

Accepted Answer

A) a small number of sellers. 
B) a large number of buyers and a small number of sellers. 
C) a standardized product. 
D) significant advertising by firms to promote their products. 
A) a small number of sellers. 
B) a large number of buyers and a small number of sellers. 
C) a standardized product. 
D) significant advertising by firms to promote their products.

Question 12

The long-run market supply curve in a competitive market will

Accepted Answer

A) always be horizontal. 
B) be the portion of the MC that lies above the minimum of AVC. 
C) typically be more elastic than the short-run supply curve. 
D) be above the competitive firm's efficient scale. 
A) always be horizontal. 
B) be the portion of the MC that lies above the minimum of AVC. 
C) typically be more elastic than the short-run supply curve. 
D) be above the competitive firm's efficient scale.

Question 13

In a perfectly competitive market,the process of entry and exit will end when,for firms in the market,

Accepted Answer

A) price is equal to average variable cost. 
B) marginal revenue is equal to average variable cost. 
C) economic profits are zero. 
D) accounting profits are zero. 
A) price is equal to average variable cost. 
B) marginal revenue is equal to average variable cost. 
C) economic profits are zero. 
D) accounting profits are zero.

Question 14

The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.

Accepted Answer

A) True 
 B)False

Question 15

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.To maximize its profit,the firm should

Accepted Answer

A) increase its output. 
B) continue to produce 1,000 units. 
C) decrease its output, but continue to produce. 
D) shut down. 
A) increase its output. 
B) continue to produce 1,000 units. 
C) decrease its output, but continue to produce. 
D) shut down.

Question 16

Which of the following expressions is correct for a competitive firm?

Accepted Answer

A) Profit = (Quantity of output) x (Price - Average total cost) 
B) Marginal revenue = (Change in total revenue)/(Quantity of output) 
C) Average cost = Total variable cost/Quantity of output 
D) Average revenue = (Marginal revenue) x (Quantity of output) 
A) Profit = (Quantity of output) x (Price - Average total cost) 
B) Marginal revenue = (Change in total revenue)/(Quantity of output) 
C) Average cost = Total variable cost/Quantity of output 
D) Average revenue = (Marginal revenue) x (Quantity of output)

Question 17

In a competitive market,the actions of any single buyer or seller will

Accepted Answer

A) have a negligible impact on the market price. 
B) have little effect on overall production but will ultimately change final product price. 
C) cause a noticeable change in overall production and a change in final product price. 
D) adversely affect the profitability of more than one firm in the market. 
A) have a negligible impact on the market price. 
B) have little effect on overall production but will ultimately change final product price. 
C) cause a noticeable change in overall production and a change in final product price. 
D) adversely affect the profitability of more than one firm in the market.

Question 18

Suppose a firm in a competitive market reduces its output by 20 percent.As a result,the price of its output is likely to

Accepted Answer

A) increase. 
B) remain unchanged. 
C) decrease by less than 20 percent. 
D) decrease by more than 20 percent. 
A) increase. 
B) remain unchanged. 
C) decrease by less than 20 percent. 
D) decrease by more than 20 percent.

Question 19

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 20

A profit-maximizing firm in a competitive market is able to sell its product for $7.At its current level of output,the firm's average total cost is $10.The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units.The firm experiences a

Accepted Answer

A) profit of more than $27. 
B) profit of exactly $27. 
C) loss of more than $27. 
D) loss of exactly $27. 
A) profit of more than $27. 
B) profit of exactly $27. 
C) loss of more than $27. 
D) loss of exactly $27.

Exam 14: Firms in Competitive Markets

In a competitive market the current price is $7,and the typical firm in the market has ATC = $7.50 and AVC = $7.15.

When calculating marginal cost,what must the firm know?

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 Soper's Port Vineyard's economic profit at their profit maximizing point?

Suppose that a firm is currently maximizing its short-run profit at an output of 50 units.If the current price is $9,the marginal cost of the 50th unit is $9,and the average cost of producing 50 units is $4,what is the firm's profit?

The competitive firm's short-run supply curve

When a resource used in the production of a good sold in a competitive market is available in only limited quantities,the long-run supply curve is likely to be upward sloping.

Figure 14-1 The graph below depicts the cost structure for a firm in a competitive market. -Refer to Figure 14-1.When price falls from P₃ to P₁,the firm finds that

Entry into a market by new firms will

The complete description of a competitive firm's supply curve is as follows: The competitive firm's short-run supply curve is that portion of the

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

One of the defining characteristics of a perfectly competitive market is

The long-run market supply curve in a competitive market will

In a perfectly competitive market,the process of entry and exit will end when,for firms in the market,

The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.

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.To maximize its profit,the firm should

Which of the following expressions is correct for a competitive firm?

In a competitive market,the actions of any single buyer or seller will

Suppose a firm in a competitive market reduces its output by 20 percent.As a result,the price of its output is likely to

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

A profit-maximizing firm in a competitive market is able to sell its product for $7.At its current level of output,the firm's average total cost is $10.The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units.The firm experiences a

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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