Question 1

When a forester is making a long-run decision about whether or not to exit an industry, the cost of the land used for the plantation:

Accepted Answer

A)  will be considered as part of the forester's fixed cost 
B)  is treated differently than the cost of sawmill 
C)  is not considered a sunk cost 
D)  will be ignored as irrelevant 
A)  will be considered as part of the forester's fixed cost 
B)  is treated differently than the cost of sawmill 
C)  is not considered a sunk cost 
D)  will be ignored as irrelevant

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Explain what it means if a firm in a competitive market is labelled as a price-taker.

Accepted Answer

A price-taker is a firm whose production

Question 4

The Wheeler Wheat Farm sells wheat to a grain broker. Since the market for wheat is generally considered to be competitive, the Wheeler Farm:

Accepted Answer

A)  does not choose the quantity of wheat to produce 
B)  does not have any fixed costs of production 
C)  is not able to earn an accounting profit 
D)  does not choose the price at which it sells its wheat 
A)  does not choose the quantity of wheat to produce 
B)  does not have any fixed costs of production 
C)  is not able to earn an accounting profit 
D)  does not choose the price at which it sells its wheat

Question 5

When firms think at the margin and make incremental adjustments to the level of production, they are naturally led to a level of production where:

Accepted Answer

A)  average variable cost exceeds marginal cost 
B)  costs are minimised 
C)  profit is maximised 
D)  total cost is less than average revenue 
A)  average variable cost exceeds marginal cost 
B)  costs are minimised 
C)  profit is maximised 
D)  total cost is less than average revenue

Question 6

Graph 14-3
   This graph depicts the cost structure of a profit-maximising firm in a competitive market. Use the graph to answer the following question(s).
-Refer to Graph 14-3. 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)  none of the above 
A)  BC 
B)  CD 
C)  DE 
D)  none of the above

Question 7

In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

Accepted Answer

A) True 
 B)False

Question 8

It is not possible for the marginal firm in a competitive market to make an economic profit in the long-run.

Accepted Answer

A) True 
 B)False

Question 9

In a competitive market, no single producer can influence the market price because:

Accepted Answer

A)  many other sellers are offering a product that is essentially identical 
B)  consumers have more influence over the market price than producers do 
C)  producers agree not to change the price 
D)  government intervention prevents firms from influencing price 
A)  many other sellers are offering a product that is essentially identical 
B)  consumers have more influence over the market price than producers do 
C)  producers agree not to change the price 
D)  government intervention prevents firms from influencing price

Question 10

Profit-maximising producers in a competitive market in general, produce output at a point where:

Accepted Answer

A)  marginal cost is decreasing 
B)  total sales are maximised 
C)  marginal cost is increasing 
D)  price is less than marginal revenue 
A)  marginal cost is decreasing 
B)  total sales are maximised 
C)  marginal cost is increasing 
D)  price is less than marginal revenue

Question 11

When firms are neither entering nor exiting a perfectly competitive market:

Accepted Answer

A)  total cost must exceed total revenue 
B)  economic profits must be zero 
C)  banks must be unprepared to forgive bad debts 
D)  regulations to enter the market must be very onerous 
A)  total cost must exceed total revenue 
B)  economic profits must be zero 
C)  banks must be unprepared to forgive bad debts 
D)  regulations to enter the market must be very onerous

Question 12

In the long run, a competitive market with 1000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)  a violation of conventional market forces 
B)  rising prices 
C)  too few firms in the market 
D)  over-investment 
A)  a violation of conventional market forces 
B)  rising prices 
C)  too few firms in the market 
D)  over-investment

Question 14

A profit-maximising firm in a competitive market will not increase production when average revenue exceeds marginal cost.

Accepted Answer

A) True 
 B)False

Question 15

When total revenue is less than total variable cost, a firm in a competitive market will:

Accepted Answer

A)  shut down 
B)  continue to operate as long as average revenue exceeds marginal cost 
C)  continue to operate as long as average revenue exceeds average fixed cost 
D)  always exit the industry 
A)  shut down 
B)  continue to operate as long as average revenue exceeds marginal cost 
C)  continue to operate as long as average revenue exceeds average fixed cost 
D)  always exit the industry

Question 16

Graph 14-9
  
-Refer to Graph 14-9. If the market starts in equilibrium at point C in panel (b), a decrease in demand will ultimately lead to:

Accepted Answer

A)  more firms in the industry, but lower levels of production for each firm 
B)  a new long-run equilibrium at point D in panel (b) 
C)  fewer firms in the market 
D)  none of the above 
A)  more firms in the industry, but lower levels of production for each firm 
B)  a new long-run equilibrium at point D in panel (b) 
C)  fewer firms in the market 
D)  none of the above

Question 17

For any given price, a firm in a competitive market will maximise profit by selecting the level of output in which price intersects the:

Accepted Answer

A)  marginal revenue curve 
B)  marginal cost curve 
C)  average total cost curve 
D)  average variable cost curve 
A)  marginal revenue curve 
B)  marginal cost curve 
C)  average total cost curve 
D)  average variable cost curve

Question 18

Which of the following statements best reflects the production decision of a profit-maximising firm in a competitive market when price falls below the minimum of average variable cost?

Accepted Answer

A)  the firm will immediately stop production to minimise its losses 
B)  the firm will continue to produce to attempt to pay fixed costs 
C)  the firm will stop production as soon as it is able to pay its sunk costs 
D)  the firm will continue to produce in the short run but will likely exit the market in the long run 
A)  the firm will immediately stop production to minimise its losses 
B)  the firm will continue to produce to attempt to pay fixed costs 
C)  the firm will stop production as soon as it is able to pay its sunk costs 
D)  the firm will continue to produce in the short run but will likely exit the market in the long run

Question 19

Graph 14-7
   In this graph, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. Use the graph to answer the following question(s).
-Refer to Graph 14-7. If there are 30 identical firms in this market, what level of output will be supplied to the market when price is $1.00?

Accepted Answer

A)  300 
B)  1000 
C)  3000 
D)  30 000 
A)  300 
B)  1000 
C)  3000 
D)  30 000

Question 20

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

Exam 14: Firms in Competitive Markets

When a forester is making a long-run decision about whether or not to exit an industry, the cost of the land used for the plantation:

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

Explain what it means if a firm in a competitive market is labelled as a price-taker.

The Wheeler Wheat Farm sells wheat to a grain broker. Since the market for wheat is generally considered to be competitive, the Wheeler Farm:

When firms think at the margin and make incremental adjustments to the level of production, they are naturally led to a level of production where:

Graph 14-3 This graph depicts the cost structure of a profit-maximising firm in a competitive market. Use the graph to answer the following question(s). -Refer to Graph 14-3. 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?

In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

It is not possible for the marginal firm in a competitive market to make an economic profit in the long-run.

In a competitive market, no single producer can influence the market price because:

Profit-maximising producers in a competitive market in general, produce output at a point where:

When firms are neither entering nor exiting a perfectly competitive market:

In the long run, a competitive market with 1000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

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

A profit-maximising firm in a competitive market will not increase production when average revenue exceeds marginal cost.

When total revenue is less than total variable cost, a firm in a competitive market will:

Graph 14-9 -Refer to Graph 14-9. If the market starts in equilibrium at point C in panel (b), a decrease in demand will ultimately lead to:

For any given price, a firm in a competitive market will maximise profit by selecting the level of output in which price intersects the:

Which of the following statements best reflects the production decision of a profit-maximising firm in a competitive market when price falls below the minimum of average variable cost?

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?

Ten Lessons From 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

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity 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 Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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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