Question 1

When new firms enter a perfectly competitive market,what will be the likely result

Accepted Answer

A) Demand increases. 
B) The short-run market supply curve shifts right. 
C) The short-run market supply curve shifts left. 
D) Existing firms will increase prices in response to the entry of the new firms. 
A) Demand increases. 
B) The short-run market supply curve shifts right. 
C) The short-run market supply curve shifts left. 
D) Existing firms will increase prices in response to the entry of the new firms.

Question 2

Figure 14-9
  
-Refer to Figure 14-9.When the market is in long-run equilibrium at point A in panel (b),what will happen to the firm represented in panel (a)

Accepted Answer

A) It will have a zero economic profit. 
B) It will have a negative accounting profit. 
C) It will exit the market. 
D) It will increase its output. 
A) It will have a zero economic profit. 
B) It will have a negative accounting profit. 
C) It will exit the market. 
D) It will increase its output.

Question 3

Which statement best explains the relationship between accounting profit and economic profit

Accepted Answer

A) If economic profit is zero, then accounting profit must be zero. 
B) If accounting profit is zero, then economic profit must be zero. 
C) If economic profit is zero, then accounting profit can be positive. 
D) If accounting profit is zero, then economic profit can be positive. 
A) If economic profit is zero, then accounting profit must be zero. 
B) If accounting profit is zero, then economic profit must be zero. 
C) If economic profit is zero, then accounting profit can be positive. 
D) If accounting profit is zero, then economic profit can be positive.

Question 4

A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

Accepted Answer

A) True 
 B)False

Question 5

What happens if some resources used in production may only have limited quantities

Accepted Answer

A) The firm's long-run supply curve may be upward sloping. 
B) The firm's short-run supply curve may be downward slopping. 
C) The firm's long-run supply curve may be horizontal. 
D) The firm's short-run supply curve may be horizontal. 
A) The firm's long-run supply curve may be upward sloping. 
B) The firm's short-run supply curve may be downward slopping. 
C) The firm's long-run supply curve may be horizontal. 
D) The firm's short-run supply curve may be horizontal.

Question 6

Table 14-3
  
-Refer to Table 14-3.If the firm finds that its marginal cost is $22,what should it do

Accepted Answer

A) It should reduce fixed costs by lowering production. 
B) It should increase production to maximize profit. 
C) It should decrease production to maximize profit. 
D) It should reduce variable costs by lowering production. 
A) It should reduce fixed costs by lowering production. 
B) It should increase production to maximize profit. 
C) It should decrease production to maximize profit. 
D) It should reduce variable costs by lowering production.

Question 7

For a certain firm,the 100th unit of output that the firm produces has a marginal revenue of $10 and a marginal cost of $7.Which statement best explains the firm's profit-maximizing decision

Accepted Answer

A) The production of the 100th unit of output increases the firm's profit by $3. 
B) The production of the 100th unit of output increases the firm's average total cost by $7. 
C) The firm's profit-maximizing level of output is less than 100 units. 
D) The firm is maximizing profits at the 100th unit of output. 
A) The production of the 100th unit of output increases the firm's profit by $3. 
B) The production of the 100th unit of output increases the firm's average total cost by $7. 
C) The firm's profit-maximizing level of output is less than 100 units. 
D) The firm is maximizing profits at the 100th unit of output.

Question 8

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 quantity of output will a typical firm produce

Accepted Answer

A) 5 
B) 15 
C) 45 
D) 50 
A) 5 
B) 15 
C) 45 
D) 50

Question 9

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 is a firm's average total cost

Accepted Answer

A) $5 
B) $10 
C) $80 
D) $100 
A) $5 
B) $10 
C) $80 
D) $100

Question 10

A firm is producing its output based on the following cost schedule.How many units of output should it produce when the price of the product is $70,$85,or $95,respectively,and what is the firm's short-run supply curve

Accepted Answer

If price = $70,the firm should shut down

Question 11

Assume a firm is producing 500 units of output and that it sells each unit for $6.Its average total cost is $4.What is its profit

Accepted Answer

A) -$2000 
B) -$1000 
C) $1000 
D) $2000 
A) -$2000 
B) -$1000 
C) $1000 
D) $2000

Question 12

Figure 14-8
  
-Refer to Figure 14-8.If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market,what does the figure in panel (b) most likely reflect

Accepted Answer

A) perfectly inelastic long-run market supply 
B) the idea that free entry and exit of firms in the market lead to only one market price in the long run 
C) the product of the individual supply curves for all firms in the market 
D) the fact that zero profits cannot be sustained in the long run 
A) perfectly inelastic long-run market supply 
B) the idea that free entry and exit of firms in the market lead to only one market price in the long run 
C) the product of the individual supply curves for all firms in the market 
D) the fact that zero profits cannot be sustained in the long run

Question 13

Regardless of the cost structure of firms in a competitive market,what can we expect to happen in the long run

Accepted Answer

A) Firms will experience rising demand for their products. 
B) The marginal firm will earn zero economic profit. 
C) Firms will experience a less competitive market environment. 
D) Exit and entry is likely to lead to a horizontal long-run supply curve. 
A) Firms will experience rising demand for their products. 
B) The marginal firm will earn zero economic profit. 
C) Firms will experience a less competitive market environment. 
D) Exit and entry is likely to lead to a horizontal long-run supply curve.

Question 14

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price
 If a firm set its price below the current market price,what effect would this have on the market?

Accepted Answer

It could not sell any more of

Question 15

When firms in a competitive market have different costs,what is likely to happen

Accepted Answer

A) Free entry and exit in the market is likely to be violated. 
B) The market will no longer be considered competitive. 
C) Long-run market supply will be downward sloping. 
D) Firms will experience different levels of profit. 
A) Free entry and exit in the market is likely to be violated. 
B) The market will no longer be considered competitive. 
C) Long-run market supply will be downward sloping. 
D) Firms will experience different levels of profit.

Question 16

What costs do firms that shut down in the short run still have to pay

Accepted Answer

A) variable costs 
B) fixed costs 
C) total cost 
D) marginal cost 
A) variable costs 
B) fixed costs 
C) total cost 
D) marginal cost

Question 17

When buyers and sellers in a competitive market take the selling price as given,what are they 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

At the profit-maximizing level of output,which equation is correct

Accepted Answer

A) Marginal revenue = Average total cost 
B) Marginal revenue = Average variable cost 
C) Marginal revenue = Marginal cost 
D) Average revenue = Average total cost 
A) Marginal revenue = Average total cost 
B) Marginal revenue = Average variable cost 
C) Marginal revenue = Marginal cost 
D) Average revenue = Average total cost

Question 19

Table 14-2
  
-Refer to Table 14-2.If the firm finds that its marginal cost is $12,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 decrease the price of the product to minimize loss. 
D) It should decrease production to minimize loss. 
A) It should increase production to maximize profit. 
B) It should increase the price of the product to maximize profit. 
C) It should decrease the price of the product to minimize loss. 
D) It should decrease production to minimize loss.

Question 20

Figure 14-5
  
-Refer to Figure 14-5.When would firms be encouraged to enter this market

Accepted Answer

A) for all prices that exceed P₂ 
B) for all prices that exceed P₃ 
C) for all prices that exceed P4 
D) for all prices that exceed P5 
A) for all prices that exceed P₂ 
B) for all prices that exceed P₃ 
C) for all prices that exceed P4 
D) for all prices that exceed P5

Exam 14: Firms in Competitive Markets

When new firms enter a perfectly competitive market,what will be the likely result

Figure 14-9 -Refer to Figure 14-9.When the market is in long-run equilibrium at point A in panel (b),what will happen to the firm represented in panel (a)

Which statement best explains the relationship between accounting profit and economic profit

A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

What happens if some resources used in production may only have limited quantities

Table 14-3 -Refer to Table 14-3.If the firm finds that its marginal cost is $22,what should it do

For a certain firm,the 100th unit of output that the firm produces has a marginal revenue of $10 and a marginal cost of $7.Which statement best explains the firm's profit-maximizing decision

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 quantity of output will a typical firm produce

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 is a firm's average total cost

A firm is producing its output based on the following cost schedule.How many units of output should it produce when the price of the product is $70,$85,or $95,respectively,and what is the firm's short-run supply curve

Assume a firm is producing 500 units of output and that it sells each unit for $6.Its average total cost is $4.What is its profit

Figure 14-8 -Refer to Figure 14-8.If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market,what does the figure in panel (b) most likely reflect

Regardless of the cost structure of firms in a competitive market,what can we expect to happen in the long run

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price If a firm set its price below the current market price,what effect would this have on the market?

When firms in a competitive market have different costs,what is likely to happen

What costs do firms that shut down in the short run still have to pay

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

At the profit-maximizing level of output,which equation is correct

Table 14-2 -Refer to Table 14-2.If the firm finds that its marginal cost is $12,what should it do

Figure 14-5 -Refer to Figure 14-5.When would firms be encouraged to enter this market

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= 60 - P.Market supply is given as Q_S= 3P.Each identical firm has MC = 3Q and ATC = 1.5Q.What quantity of output will a typical firm produce

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 is a firm's average total cost