Question 1

If marginal cost exceeds marginal revenue,the firm

Accepted Answer

A) is most likely to be at a profit-maximizing level of output. 
B) should increase the level of production to maximize its profit. 
C) must be experiencing losses. 
D) may still be earning a positive accounting profit. 
A) is most likely to be at a profit-maximizing level of output. 
B) should increase the level of production to maximize its profit. 
C) must be experiencing losses. 
D) may still be earning a positive accounting profit.

Question 2

When managers of firms in a competitive market observe falling profits,they are likely to infer that the market is characterized by

Accepted Answer

A) a violation of conventional market forces. 
B) over-investment. 
C) the entry of new firms. 
D) too few firms in the market. 
A) a violation of conventional market forces. 
B) over-investment. 
C) the entry of new firms. 
D) too few firms in the market.

Question 3

Suppose a profit-maximizing firm in a competitive market produces rubber bands.When the market price for rubber bands falls below the minimum of its average total cost,but still lies above the minimum of average variable cost,the firm

Accepted Answer

A) will experience losses but will continue to produce rubber bands. 
B) will shut down. 
C) will be earning both economic and accounting profits. 
D) should raise the price of its product. 
A) will experience losses but will continue to produce rubber bands. 
B) will shut down. 
C) will be earning both economic and accounting profits. 
D) should raise the price of its product.

Question 4

In competitive markets,firms that raise their prices are typically rewarded with larger profits.

Accepted Answer

A) True 
 B)False

Question 5

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 total cost amounts to

Accepted Answer

A) $10,985. 
B) $10,990. 
C) $10,995. 
D) $10,999. 
A) $10,985. 
B) $10,990. 
C) $10,995. 
D) $10,999.

Question 6

When a firm has little ability to influence market prices it is said to be in

Accepted Answer

A) a competitive market. 
B) a strategic market. 
C) a thin market. 
D) a power market. 
A) a competitive market. 
B) a strategic market. 
C) a thin market. 
D) a power market.

Question 7

A firm that exits its market

Accepted Answer

A) still has to pay its variable costs, but not its fixed costs. 
B) still has to pay its fixed costs, but not its variable costs. 
C) still has to pay both its variable costs and its fixed costs. 
D) has to pay neither its variable costs nor its fixed costs. 
A) still has to pay its variable costs, but not its fixed costs. 
B) still has to pay its fixed costs, but not its variable costs. 
C) still has to pay both its variable costs and its fixed costs. 
D) has to pay neither its variable costs nor its fixed costs.

Question 8

Which of the following firms is the closest to being a perfectly competitive firm?

Accepted Answer

A) A hot dog vendor in New York 
B) Microsoft Corporation 
C) Ford Motor Company 
D) The campus bookstore 
A) A hot dog vendor in New York 
B) Microsoft Corporation 
C) Ford Motor Company 
D) The campus bookstore

Question 9

Figure 14-2
The figure below depicts the cost structure of a profit-maximizing firm in a competitive market.
  
-Refer to Figure 14-2.If the firm is in a short-run position where P < AVC,it is most likely to be on what segment of its supply curve?

Accepted Answer

A) BC 
B) CD 
C) DE 
D) AB 
A) BC 
B) CD 
C) DE 
D) AB

Question 10

When market conditions in a competitive industry are such that firms cannot cover their production costs,then

Accepted Answer

A) the firms will suffer long-run economic losses. 
B) the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. 
C) some firms will exit the market, causing prices to rise until the remaining firms can cover their production costs. 
D) all firms will go out of business, since consumers will not pay prices that enable firms to cover their production costs. 
A) the firms will suffer long-run economic losses. 
B) the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. 
C) some firms will exit the market, causing prices to rise until the remaining firms can cover their production costs. 
D) all firms will go out of business, since consumers will not pay prices that enable firms to cover their production costs.

Question 11

For a competitive firm,

Accepted Answer

A) Total revenue = Average revenue. 
B) Total revenue = Marginal revenue. 
C) Total cost = Marginal revenue. 
D) Average revenue = Marginal revenue. 
A) Total revenue = Average revenue. 
B) Total revenue = Marginal revenue. 
C) Total cost = Marginal revenue. 
D) Average revenue = Marginal revenue.

Question 12

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.At the end of the first year of operating her new business,Mary's accountant reported an accounting profit of $150,000.What was Mary's economic profit?

Accepted Answer

A) $25,000 loss 
B) $50,000 loss 
C) $25,000 profit 
D) $150,000 profit 
A) $25,000 loss 
B) $50,000 loss 
C) $25,000 profit 
D) $150,000 profit

Question 13

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue,then

Accepted Answer

A) average revenue exceeds marginal cost. 
B) the firm is earning a positive profit. 
C) a one-unit decrease in output would increase the firm's profit. 
D) All of the above are correct. 
A) average revenue exceeds marginal cost. 
B) the firm is earning a positive profit. 
C) a one-unit decrease in output would increase the firm's profit. 
D) All of the above are correct.

Question 14

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 $5,it should

Accepted Answer

A) reduce fixed costs by lowering production. 
B) increase production to maximize profit. 
C) decrease production to maximize profit. 
D) maintain its current level of production to maximize profit. 
A) reduce fixed costs by lowering production. 
B) increase production to maximize profit. 
C) decrease production to maximize profit. 
D) maintain its current level of production to maximize profit.

Question 15

Shrimp Galore,a shrimp harvesting business in the Pacific Northwest,has a 30-year loan on its shrimp harvesting boat.The annual loan payment is $25,000 and the boat has a market (salvage)value that exceeds its outstanding loan balance.Prior to the 2001 shrimp harvesting season,Shrimp Galore's accountant predicted that at expected market prices for shrimp,Shrimp Galore would have a net loss of $75,000 dollars after paying all 2001 expenses (including the annual loan payment).In this case,Shrimp Galore should

Accepted Answer

A) produce nothing and experience a loss of $25,000. 
B) produce nothing and experience a loss of $75,000. 
C) continue to operate because expected profits will rise in the future. 
D) continue to operate even though it predicts a loss of $75,000. 
A) produce nothing and experience a loss of $25,000. 
B) produce nothing and experience a loss of $75,000. 
C) continue to operate because expected profits will rise in the future. 
D) continue to operate even though it predicts a loss of $75,000.

Question 16

When some resources used in production are only available in limited quantities,it is likely that the long-run supply curve in a competitive market is

Accepted Answer

A) downward sloping. 
B) upward sloping. 
C) horizontal. 
D) vertical. 
A) downward sloping. 
B) upward sloping. 
C) horizontal. 
D) vertical.

Question 17

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 revenue from selling the 3rd unit?

Accepted Answer

A) $50 
B) $80 
C) $120 
D) $140 
A) $50 
B) $80 
C) $120 
D) $140

Question 18

Competitive firms that earn a loss in the short run should

Accepted Answer

A) shut down if P < AVC. 
B) raise their price. 
C) lower their output. 
D) All of the above 
A) shut down if P < AVC. 
B) raise their price. 
C) lower their output. 
D) All of the above

Question 19

In a long-run equilibrium,the marginal firm has

Accepted Answer

A) price equal to average total cost. 
B) total revenue equal to total cost. 
C) economic profit equal to zero. 
D) All of the above are correct. 
A) price equal to average total cost. 
B) total revenue equal to total cost. 
C) economic profit equal to zero. 
D) All of the above are correct.

Question 20

Figure 14-1
The graph below depicts the cost structure for a firm in a competitive market.
  
-Refer to Figure 14-1.When price rises from P₃ to P₄,the firm finds that

Accepted Answer

A) fixed costs are lower at a production level of Q₄. 
B) it can earn a positive profit by increasing production to Q₄. 
C) profit is still maximized at a production level of Q₃. 
D) average revenue exceeds marginal revenue at a production level of Q₄. 
A) fixed costs are lower at a production level of Q₄. 
B) it can earn a positive profit by increasing production to Q₄. 
C) profit is still maximized at a production level of Q₃. 
D) average revenue exceeds marginal revenue at a production level of Q₄.

Exam 14: Firms in Competitive Markets

If marginal cost exceeds marginal revenue,the firm

When managers of firms in a competitive market observe falling profits,they are likely to infer that the market is characterized by

Suppose a profit-maximizing firm in a competitive market produces rubber bands.When the market price for rubber bands falls below the minimum of its average total cost,but still lies above the minimum of average variable cost,the firm

In competitive markets,firms that raise their prices are typically rewarded with larger profits.

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 total cost amounts to

When a firm has little ability to influence market prices it is said to be in

A firm that exits its market

Which of the following firms is the closest to being a perfectly competitive firm?

Figure 14-2 The figure below depicts the cost structure of a profit-maximizing firm in a competitive market. -Refer to Figure 14-2.If the firm is in a short-run position where P < AVC,it is most likely to be on what segment of its supply curve?

When market conditions in a competitive industry are such that firms cannot cover their production costs,then

For a competitive firm,

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue,then

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 $5,it should

When some resources used in production are only available in limited quantities,it is likely that the long-run supply curve in a competitive market 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 revenue from selling the 3rd unit?

Competitive firms that earn a loss in the short run should

In a long-run equilibrium,the marginal firm has

Figure 14-1 The graph below depicts the cost structure for a firm in a competitive market. -Refer to Figure 14-1.When price rises from P₃ to P₄,the firm finds 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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