Question 1

The entry and exit decisions of firms in a competitive market are signalled by:

Accepted Answer

A)  high capital costs 
B)  profits and losses 
C)  low capital costs 
D)  high or low demand for a firm's product 
A)  high capital costs 
B)  profits and losses 
C)  low capital costs 
D)  high or low demand for a firm's product

Question 2

By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that:

Accepted Answer

A)  maximises revenue 
B)  minimises total variable cost 
C)  maximises profit 
D)  minimises average total cost 
A)  maximises revenue 
B)  minimises total variable cost 
C)  maximises profit 
D)  minimises average total cost

Question 3

Suppose a firm in a competitive market receives $1200 in total revenue, it has a marginal revenue of $30. What is the average revenue, and how many units were sold?

Accepted Answer

A)  $30 and 40 
B)  $30 and 400 
C)  $12 and 1200 
D)  $12 and 400 
A)  $30 and 40 
B)  $30 and 400 
C)  $12 and 1200 
D)  $12 and 400

Question 4

Sunk costs are relevant to decisions about business strategy, as huge amounts of time have been invested in ensuring that the business is set up for success.

Accepted Answer

A) True 
 B)False

Question 5

Graph 14-9
  
-Refer to Graph 14-9. Assume that the market starts in equilibrium at point A in panel (b). An increase in demand from Demand0 to Demand1 will result in:

Accepted Answer

A)  a new market equilibrium at point D 
B)  rising prices and falling profits for existing firms in the market 
C)  falling prices and falling profits for existing firms in the market 
D)  an eventual increase in the number of firms in the market and a new long-run equilibrium at point C 
A)  a new market equilibrium at point D 
B)  rising prices and falling profits for existing firms in the market 
C)  falling prices and falling profits for existing firms in the market 
D)  an eventual increase in the number of firms in the market and a new long-run equilibrium at point C

Question 6

Table 14-1
This table shows the revenue and costs of a parrot farmer.
  
-Refer to Table 14-1. If the farmer chooses to maximise profit, the appropriate output level is where marginal cost is equal to:

Accepted Answer

A)  seven parrots 
B)  12 parrots 
C)  15 parrots 
D)  20 parrots 
A)  seven parrots 
B)  12 parrots 
C)  15 parrots 
D)  20 parrots

Question 7

In the long-run, a profit-maximising firm will choose to exit a market when:

Accepted Answer

A)  fixed costs exceed sunk costs 
B)  revenue from production is less than total costs 
C)  average fixed cost is rising 
D)  marginal cost exceeds marginal revenue at the current level of production 
A)  fixed costs exceed sunk costs 
B)  revenue from production is less than total costs 
C)  average fixed cost is rising 
D)  marginal cost exceeds marginal revenue at the current level of production

Question 8

To answer the question 'How much revenue does the farm receive for the typical gallon of milk'?, a dairy farmer must be able to calculate sunk cost.

Accepted Answer

A) True 
 B)False

Question 9

Suppose a profit-maximising firm is actually ends up minimising losses. This task is accomplished by producing the quantity at which price is equal to the:

Accepted Answer

A)  marginal cost 
B)  fixed cost 
C)  interest rate 
D)  Profit maximising firms don't make losses 
A)  marginal cost 
B)  fixed cost 
C)  interest rate 
D)  Profit maximising firms don't make losses

Question 10

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue:

Accepted Answer

A)  is unchanged 
B)  increases 
C)  decreases 
D)  increases if MR  ATC 
A)  is unchanged 
B)  increases 
C)  decreases 
D)  increases if MR  ATC

Question 11

When price is below average variable cost, a firm in a competitive market will:

Accepted Answer

A)  shut down and incur fixed costs 
B)  shut down and incur both variable and fixed costs 
C)  continue to operate as long as average revenue exceeds marginal cost 
D)  continue to operate as long as average revenue exceeds average fixed cost 
A)  shut down and incur fixed costs 
B)  shut down and incur both variable and fixed costs 
C)  continue to operate as long as average revenue exceeds marginal cost 
D)  continue to operate as long as average revenue exceeds average fixed cost

Question 12

In a market that allows free entry and exit, the process of entry and exit ends when:

Accepted Answer

A)  profit is zero 
B)  the firms cannot get the finance to enter the market 
C)  some of the firms are making a loss 
D)  all of the above conditions hold 
A)  profit is zero 
B)  the firms cannot get the finance to enter the market 
C)  some of the firms are making a loss 
D)  all of the above conditions hold

Question 13

The average total cost becomes downward sloping when it is crossed by the marginal cost curve.

Accepted Answer

A) True 
 B)False

Question 14

When individual firms in competitive markets increase their production, it is likely that market price will fall.

Accepted Answer

A) True 
 B)False

Question 15

By comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit-maximising level of production.

Accepted Answer

A) True 
 B)False

Question 16

The Wheeler Wheat Farm has a long-term lease on 5000 acres of land in New South Wales. The annual lease payment is $250,000. Prior to planting in the spring of 2001, the Wheeler Farm accountant predicted that the Farm would have $135 000 left after paying all of its costs except the annual lease payment. In this case, the Wheeler Wheat Farm should:

Accepted Answer

A)  continue to operate even though it predicts an accounting loss of $115 000 
B)  shut down and experience an accounting loss of $135 000 
C)  exit the market and experience an accounting loss of $250 000 
D)  continue to operate because total revenue exceeds total cost 
A)  continue to operate even though it predicts an accounting loss of $115 000 
B)  shut down and experience an accounting loss of $135 000 
C)  exit the market and experience an accounting loss of $250 000 
D)  continue to operate because total revenue exceeds total cost

Question 17

NARRBEGIN 14-2
Graph 14-2
   
This graph depicts the cost structure for a firm in a competitive market. Use the graph to answer the following question(s).
-Refer to Graph 14-2. When price rises from P2 to P3, the firm finds that:

Accepted Answer

A)  marginal revenue exceeds marginal cost at a production level of Q2 
B)  if it produces at output level Q3, it will earn zero profit 
C)  expanding output to Q4 would leave the firm with losses 
D)  all of the above are true 
A)  marginal revenue exceeds marginal cost at a production level of Q2 
B)  if it produces at output level Q3, it will earn zero profit 
C)  expanding output to Q4 would leave the firm with losses 
D)  all of the above are true

Question 18

When new firms have an incentive to enter a competitive market, their entry will:

Accepted Answer

A)  leave market prices unchanged 
B)  drive down profits of existing firms in the market 
C)  leave the quantity of goods supplied in the market unchanged 
D)  do all of the above 
A)  leave market prices unchanged 
B)  drive down profits of existing firms in the market 
C)  leave the quantity of goods supplied in the market unchanged 
D)  do all of the above

Question 19

Sarah places a $110 value on seeing the Richmond Tigers play in the Grand Final. She purchases a ticket to the game for $60 but when she arrives at the game she discovers that her ticket is missing. A ticket scalper outside the stadium is selling tickets for $76 dollars. If Sarah purchases a ticket from one of the scalpers for $95, she is best demonstrating the principle that:

Accepted Answer

A)  the assumption of rational behaviour does not easily apply to the purchase of football game tickets 
B)  the price of tickets cannot be explained by economic principles 
C)  sunk costs are irrelevant to many personal decisions 
D)  rational consumers do not always respond to incentives. 
A)  the assumption of rational behaviour does not easily apply to the purchase of football game tickets 
B)  the price of tickets cannot be explained by economic principles 
C)  sunk costs are irrelevant to many personal decisions 
D)  rational consumers do not always respond to incentives.

Question 20

When a competitive market experiences an increase in demand that induces an increase in producer costs, which of the following is most likely to occur?

Accepted Answer

A)  producer profits must fall in the long run 
B)  the long-run market supply curve will be upward sloping 
C)  the condition of free entry into the market will be violated 
D)  all of the above are likely to occur 
A)  producer profits must fall in the long run 
B)  the long-run market supply curve will be upward sloping 
C)  the condition of free entry into the market will be violated 
D)  all of the above are likely to occur

Exam 14: Firms in Competitive Markets

The entry and exit decisions of firms in a competitive market are signalled by:

By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that:

Suppose a firm in a competitive market receives $1200 in total revenue, it has a marginal revenue of $30. What is the average revenue, and how many units were sold?

Sunk costs are relevant to decisions about business strategy, as huge amounts of time have been invested in ensuring that the business is set up for success.

Graph 14-9 -Refer to Graph 14-9. Assume that the market starts in equilibrium at point A in panel (b). An increase in demand from Demand0 to Demand1 will result in:

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1. If the farmer chooses to maximise profit, the appropriate output level is where marginal cost is equal to:

In the long-run, a profit-maximising firm will choose to exit a market when:

To answer the question 'How much revenue does the farm receive for the typical gallon of milk'?, a dairy farmer must be able to calculate sunk cost.

Suppose a profit-maximising firm is actually ends up minimising losses. This task is accomplished by producing the quantity at which price is equal to the:

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue:

When price is below average variable cost, a firm in a competitive market will:

In a market that allows free entry and exit, the process of entry and exit ends when:

The average total cost becomes downward sloping when it is crossed by the marginal cost curve.

When individual firms in competitive markets increase their production, it is likely that market price will fall.

By comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit-maximising level of production.

NARRBEGIN 14-2 Graph 14-2 This graph depicts the cost structure for a firm in a competitive market. Use the graph to answer the following question(s). -Refer to Graph 14-2. When price rises from P2 to P3, the firm finds that:

When new firms have an incentive to enter a competitive market, their entry will:

When a competitive market experiences an increase in demand that induces an increase in producer costs, which of the following is most likely to occur?

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

Filters

Graph 14-9 -Refer to Graph 14-9. Assume that the market starts in equilibrium at point A in panel (b). An increase in demand from Demand₀ to Demand₁ will result in:

NARRBEGIN 14-2 Graph 14-2 This graph depicts the cost structure for a firm in a competitive market. Use the graph to answer the following question(s). -Refer to Graph 14-2. When price rises from P₂ to P₃, the firm finds that: