Question 1

Marginal adjustments to production end when firms in competitive markets experience a price equal to marginal revenue.

Accepted Answer

A) True 
 B)False

Question 2

In the long-run equilibrium of a market with free entry and exit,what happens to firms

Accepted Answer

A) Firms are producing where marginal cost exceeds average total cost. 
B) Firms are producing where the price of the good equals the minimum of average variable cost. 
C) Firms are producing where average total cost exceeds the price of the good. 
D) Firms are producing where the price of the good is equal to the minimum of average total cost. 
A) Firms are producing where marginal cost exceeds average total cost. 
B) Firms are producing where the price of the good equals the minimum of average variable cost. 
C) Firms are producing where average total cost exceeds the price of the good. 
D) Firms are producing where the price of the good is equal to the minimum of average total cost.

Question 3

Market demand is given as QD = 120 - 2P.Market supply is given as QS = 2P.Each identical firm has MC = 6Q and ATC = 3Q.What is a firm's profit

Accepted Answer

A) $12 
B) $48 
C) $75 
D) $150 
A) $12 
B) $48 
C) $75 
D) $150

Question 4

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

Accepted Answer

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

Question 5

A profit-maximizing firm in a competitive market produces small rubber balls.When the market price for small rubber balls falls below the minimum of its average total cost but still lies above the minimum of average variable cost,what happens to the firm

Accepted Answer

A) It will experience losses, but it will continue to produce rubber balls. 
B) It will shut down. 
C) It will be earning both economic and accounting profits. 
D) It will be earning only accounting profits. 
A) It will experience losses, but it will continue to produce rubber balls. 
B) It will shut down. 
C) It will be earning both economic and accounting profits. 
D) It will be earning only accounting profits.

Question 6

Table 14-3
  
-Refer to Table 14-3.If the firm finds that its marginal cost is $16,what should it do

Accepted Answer

A) It should increase production to maximize profit. 
B) It should increase the price of the product to maximize profit. 
C) It should increase the marginal revenue of the product to maximize profit. 
D) It should advertise to attract additional buyers to maximize profit. 
A) It should increase production to maximize profit. 
B) It should increase the price of the product to maximize profit. 
C) It should increase the marginal revenue of the product to maximize profit. 
D) It should advertise to attract additional buyers to maximize profit.

Question 7

Give two reasons why the long-run industry supply curve may slope upward.Use an example to demonstrate your reasons.

Accepted Answer

Some resources used in production may be

Question 8

Figure 14-2
  
-Refer to Figure 14-2.When price falls from P₃ to P₁,which of the following does the firm find

Accepted Answer

A) It should produce Q₁ units of output. 
B) It should produce Q₃ units of output. 
C) Fixed cost is higher at a production level of Q₁ than it is at Q₃. 
D) It is unwilling to produce any output. 
A) It should produce Q₁ units of output. 
B) It should produce Q₃ units of output. 
C) Fixed cost is higher at a production level of Q₁ than it is at Q₃. 
D) It is unwilling to produce any output.

Question 9

Table 14-2
  
-Refer to Table 14-2.At a production level of 5 units,what do we know about marginal revenue

Accepted Answer

A) Marginal revenue is $6. 
B) Marginal revenue is greater than average total cost. 
C) Marginal revenue is less than marginal cost. 
D) Marginal revenue is less than average revenue. 
A) Marginal revenue is $6. 
B) Marginal revenue is greater than average total cost. 
C) Marginal revenue is less than marginal cost. 
D) Marginal revenue is less than average revenue.

Question 10

When a firm experiences zero-profit equilibrium,the firm's revenue must be sufficient to cover all opportunity costs.

Accepted Answer

A) True 
 B)False

Question 11

Market demand is given as QD = 250 - P.Market supply is given as QS = 1.5P.Each identical firm has MC = 10Q and ATC = 8Q.What quantity of output will a typical firm produce

Accepted Answer

A) 10 
B) 20 
C) 40 
D) 50 
A) 10 
B) 20 
C) 40 
D) 50

Question 12

Market demand is given as QD = 60 - P.Market supply is given as QS = 3P.Each identical firm has MC = 3Q and ATC = 1.5Q.What is a firm's profit

Accepted Answer

A) $37.50 
B) $67.50 
C) $75.00 
D) $337.50 
A) $37.50 
B) $67.50 
C) $75.00 
D) $337.50

Question 13

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 which firms

Accepted Answer

A) those earning small levels of economic profit 
B) those facing the prospect of future losses 
C) those operating at efficient scale 
D) those that band together to raise market prices 
A) those earning small levels of economic profit 
B) those facing the prospect of future losses 
C) those operating at efficient scale 
D) those that band together to raise market prices

Question 14

What will the exit of existing firms from a competitive market do to market supply and market prices

Accepted Answer

A) It will increase market supply and increase market prices. 
B) It will increase market supply and decrease market prices. 
C) It will decrease market supply and increase market prices. 
D) It will decrease market supply and decrease market prices. 
A) It will increase market supply and increase market prices. 
B) It will increase market supply and decrease market prices. 
C) It will decrease market supply and increase market prices. 
D) It will decrease market supply and decrease market prices.

Question 15

Figure 14-4
  
-Refer to Figure 14-4.This firm will exit the market for any price equal to which line segment

Accepted Answer

A) BC 
B) OC 
C) OD 
D) CD 
A) BC 
B) OC 
C) OD 
D) CD

Question 16

Starting from a situation in which a firm in a competitive market produces and sells 4000 doorknobs for a price of $25 per doorknob,which event would decrease the firm's average revenue

Accepted Answer

A) The market price of doorknobs falls below $25. 
B) The market price of doorknobs rises above $250. 
C) The firm decreases its output below 4000 doorknobs. 
D) The firm increases its output above 4000 doorknobs. 
A) The market price of doorknobs falls below $25. 
B) The market price of doorknobs rises above $250. 
C) The firm decreases its output below 4000 doorknobs. 
D) The firm increases its output above 4000 doorknobs.

Question 17

What will the entry of new firms into a competitive market do to market supply and market prices

Accepted Answer

A) It will increase market supply and increase market prices. 
B) It will increase market supply and decrease market prices. 
C) It will decrease market supply and increase market prices. 
D) It will decrease market supply and decrease market prices. 
A) It will increase market supply and increase market prices. 
B) It will increase market supply and decrease market prices. 
C) It will decrease market supply and increase market prices. 
D) It will decrease market supply and decrease market prices.

Question 18

Figure 14-5
  
-Refer to Figure 14-5.When market price is P₁,which area represents a profit-maximizing firm's losses

Accepted Answer

A) (P₂ - P₁) × Q₂ 
B) (P₃ - P₁) × Q₂ 
C) (P₂ - P₁) × Q₁ 
D) (P4 - P₁) × Q₁ 
A) (P₂ - P₁) × Q₂ 
B) (P₃ - P₁) × Q₂ 
C) (P₂ - P₁) × Q₁ 
D) (P4 - P₁) × Q₁

Question 19

What is a characteristic of a competitive market

Accepted Answer

A) Each seller can sell all he wants to sell at the going price. 
B) Sellers are price setters. 
C) The goods offered by the different sellers are heterogeneous. 
D) There are barriers to entry. 
A) Each seller can sell all he wants to sell at the going price. 
B) Sellers are price setters. 
C) The goods offered by the different sellers are heterogeneous. 
D) There are barriers to entry.

Question 20

When entry and exit behaviour of firms in an industry does not affect a firm's cost structure,what is the shape of the long-run market supply curve

Accepted Answer

A) It must be horizontal. 
B) It must be upward. 
C) It is downward sloping then upward sloping. 
D) It is upward sloping then downward sloping. 
A) It must be horizontal. 
B) It must be upward. 
C) It is downward sloping then upward sloping. 
D) It is upward sloping then downward sloping.

Exam 14: Firms in Competitive Markets

Marginal adjustments to production end when firms in competitive markets experience a price equal to marginal revenue.

In the long-run equilibrium of a market with free entry and exit,what happens to firms

Market demand is given as QD = 120 - 2P.Market supply is given as QS = 2P.Each identical firm has MC = 6Q and ATC = 3Q.What is a firm's profit

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

A profit-maximizing firm in a competitive market produces small rubber balls.When the market price for small rubber balls falls below the minimum of its average total cost but still lies above the minimum of average variable cost,what happens to the firm

Table 14-3 -Refer to Table 14-3.If the firm finds that its marginal cost is $16,what should it do

Give two reasons why the long-run industry supply curve may slope upward.Use an example to demonstrate your reasons.

Figure 14-2 -Refer to Figure 14-2.When price falls from P₃ to P₁,which of the following does the firm find

Table 14-2 -Refer to Table 14-2.At a production level of 5 units,what do we know about marginal revenue

When a firm experiences zero-profit equilibrium,the firm's revenue must be sufficient to cover all opportunity costs.

Market demand is given as QD = 250 - P.Market supply is given as QS = 1.5P.Each identical firm has MC = 10Q and ATC = 8Q.What quantity of output will a typical firm produce

Market demand is given as QD = 60 - P.Market supply is given as QS = 3P.Each identical firm has MC = 3Q and ATC = 1.5Q.What is a firm's profit

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 which firms

What will the exit of existing firms from a competitive market do to market supply and market prices

Figure 14-4 -Refer to Figure 14-4.This firm will exit the market for any price equal to which line segment

Starting from a situation in which a firm in a competitive market produces and sells 4000 doorknobs for a price of $25 per doorknob,which event would decrease the firm's average revenue

What will the entry of new firms into a competitive market do to market supply and market prices

Figure 14-5 -Refer to Figure 14-5.When market price is P₁,which area represents a profit-maximizing firm's losses

What is a characteristic of a competitive market

When entry and exit behaviour of firms in an industry does not affect a firm's cost structure,what is the shape of the long-run market supply curve

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

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

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Filters

Market demand is given as Q_D= 120 - 2P.Market supply is given as Q_S= 2P.Each identical firm has MC = 6Q and ATC = 3Q.What is a firm's profit

Market demand is given as Q_D= 250 - P.Market supply is given as Q_S= 1.5P.Each identical firm has MC = 10Q and ATC = 8Q.What quantity of output will a typical firm produce

Market demand is given as Q_D= 60 - P.Market supply is given as Q_S= 3P.Each identical firm has MC = 3Q and ATC = 1.5Q.What is a firm's profit