Question 1

One of the important characteristics of a perfectly competitive market is that there are many buyers and sellers.

Accepted Answer

A) True 
 B)False

Question 2

All of the following conditions are consistent with a firm's decision to shut down:
TR < VC, TR/Q < VC/Q, and P < MR.
(TR = total revenue, VC = variable cost, Q = level of production, P = price and MR = marginal revenue.)

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements best reflects a price-taking firm?

Accepted Answer

A)  if the firm were to charge more than the going price, it would sell none of its goods 
B)  the firm has no incentive to charge less than the going price 
C)  the firm can sell as much as it wants at the going price 
D)  all of the above are true 
A)  if the firm were to charge more than the going price, it would sell none of its goods 
B)  the firm has no incentive to charge less than the going price 
C)  the firm can sell as much as it wants at the going price 
D)  all of the above are true

Question 4

In a competitive market, positive accounting profits will encourage entry by more firms until the marginal firm has zero accounting profit.

Accepted Answer

A) True 
 B)False

Question 5

Graph 14-4
   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 14-4. Which line segment best reflects the long-run supply curve for this firm?

Accepted Answer

A)  AB 
B)  CD 
C)  DE 
D)  none of the above; the long-run supply curve requires knowledge of the average variable cost structure 
A)  AB 
B)  CD 
C)  DE 
D)  none of the above; the long-run supply curve requires knowledge of the average variable cost structure

Question 6

The entry of new firms into a competitive market will:

Accepted Answer

A)  decrease market supply and increase market prices 
B)  increase market supply and increase market prices 
C)  increase market supply and decrease market prices 
D)  decrease market supply and decrease market prices 
A)  decrease market supply and increase market prices 
B)  increase market supply and increase market prices 
C)  increase market supply and decrease market prices 
D)  decrease market supply and decrease market prices

Question 7

New firms will enter the market when profit-maximising firms in competitive markets are earning profits.

Accepted Answer

A) True 
 B)False

Question 8

What are the three assumptions that are made about a competitive market?

Accepted Answer

1- there are many buyers and s

Question 9

At the end of the process of entry and exit, it is possible that some firms in a competitive market are making positive economic profit.

Accepted Answer

A) True 
 B)False

Question 10

Regardless of the cost structure of firms in a competitive market, in the long run:

Accepted Answer

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

Question 11

When a firm has little ability to influence market prices, it is said to be in what kind of a market?

Accepted Answer

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

Question 12

Table 14-2
The price of each David Butterfly a butterfly farmer in Greytown sells is:
  
-Refer to Table 14-2. The price and quantity relationship shows that the market structure most likely facing a butterfly farmer is a:

Accepted Answer

A)  trade market 
B)  competitive market 
C)  developing market 
D)  resource market 
A)  trade market 
B)  competitive market 
C)  developing market 
D)  resource market

Question 13

Graph 14-6
   
This graph depicts the cost structure of a firm in a competitive market. Use the graph to answer the following question(s).
-Refer to Graph 14-6. When market price is P4, a profit-maximising firm's total cost can be represented by the area:

Accepted Answer

A)  P4 * Q1 
B)  P2 *  Q4 
C)  P4 * Q4 
D)  total costs cannot be determined from the information in the graph 
A)  P4 * Q1 
B)  P2 *  Q4 
C)  P4 * Q4 
D)  total costs cannot be determined from the information in the graph

Question 14

Graph 14-1
   
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 14-1. What price level will leave the profit-maximising firm with zero profits?

Accepted Answer

A)  MC1 
B)  MC2 
C)  MC3 
D)  MC4 
A)  MC1 
B)  MC2 
C)  MC3 
D)  MC4

Question 15

When a firm makes a short-run decision not to produce anything during a specified period of time because of current market conditions, it:

Accepted Answer

A)  shuts down 
B)  exits 
C)  is insolvent 
D)  should advertise its products more 
A)  shuts down 
B)  exits 
C)  is insolvent 
D)  should advertise its products more

Question 16

Graph 14-5
  
 The graph depicts the cost structure of a firm in a competitive market. Use the graph to answer the following question(s).
-Refer to Graph 14-5. When market price is P2, a profit-maximising firm's losses can be represented by the area:

Accepted Answer

A)  (P3 - P2) * Q2 
B)  (P2 - P1) * Q2 
C)  at a market price of P2, the firm does not have losses 
D)  at a market price of P2, the firm has losses, but the reference points in the graph don't identify the losses 
A)  (P3 - P2) * Q2 
B)  (P2 - P1) * Q2 
C)  at a market price of P2, the firm does not have losses 
D)  at a market price of P2, the firm has losses, but the reference points in the graph don't identify the losses

Question 17

When a firm in a competitive market produces 10 units of output, it has a marginal revenue of $5 what is the firm's total revenue when it produces 9 units of output?

Accepted Answer

A)  $15 
B)  $45 
C)  $65 
D)  this cannot be determined from the information given 
A)  $15 
B)  $45 
C)  $65 
D)  this cannot be determined from the information given

Question 18

In a competitive market that is characterised by free entry and exit:

Accepted Answer

A)  the market price will tend to fall 
B)  the number of sellers in the market will increase in the long-run 
C)  the number of sellers in the market will decrease in the long-run 
D)  all firms will operate at efficient scale in the long run 
A)  the market price will tend to fall 
B)  the number of sellers in the market will increase in the long-run 
C)  the number of sellers in the market will decrease in the long-run 
D)  all firms will operate at efficient scale in the long run

Question 19

Graph 14-1
   
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 14-1. When market price is at MC2, a firm producing output level Q1 would experience:

Accepted Answer

A)  profits equal to (MC2 - MC1) * Q1 
B)  zero profits 
C)  losses equal to (MC2 - MC1) *  Q1 
D)  losses because P < ATC 
A)  profits equal to (MC2 - MC1) * Q1 
B)  zero profits 
C)  losses equal to (MC2 - MC1) *  Q1 
D)  losses because P < ATC

Question 20

When new entrants to a competitive market have higher costs than existing firms:

Accepted Answer

A)  market price must be rising 
B)  accounting profits will be the primary signal for entrance 
C)  sunk costs become an important determinant of short-run entrance strategy 
D)  none of the above are true 
A)  market price must be rising 
B)  accounting profits will be the primary signal for entrance 
C)  sunk costs become an important determinant of short-run entrance strategy 
D)  none of the above are true

Exam 14: Firms in Competitive Markets

One of the important characteristics of a perfectly competitive market is that there are many buyers and sellers.

All of the following conditions are consistent with a firm's decision to shut down: TR < VC, TR/Q < VC/Q, and P < MR. (TR = total revenue, VC = variable cost, Q = level of production, P = price and MR = marginal revenue.)

Which of the following statements best reflects a price-taking firm?

In a competitive market, positive accounting profits will encourage entry by more firms until the marginal firm has zero accounting profit.

Graph 14-4 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 14-4. Which line segment best reflects the long-run supply curve for this firm?

The entry of new firms into a competitive market will:

New firms will enter the market when profit-maximising firms in competitive markets are earning profits.

What are the three assumptions that are made about a competitive market?

At the end of the process of entry and exit, it is possible that some firms in a competitive market are making positive economic profit.

Regardless of the cost structure of firms in a competitive market, in the long run:

When a firm has little ability to influence market prices, it is said to be in what kind of a market?

Table 14-2 The price of each David Butterfly a butterfly farmer in Greytown sells is: -Refer to Table 14-2. The price and quantity relationship shows that the market structure most likely facing a butterfly farmer is a:

Graph 14-6 This graph depicts the cost structure of a firm in a competitive market. Use the graph to answer the following question(s). -Refer to Graph 14-6. When market price is P4, a profit-maximising firm's total cost can be represented by the area:

Graph 14-1 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 14-1. What price level will leave the profit-maximising firm with zero profits?

When a firm makes a short-run decision not to produce anything during a specified period of time because of current market conditions, it:

Graph 14-5 The graph depicts the cost structure of a firm in a competitive market. Use the graph to answer the following question(s). -Refer to Graph 14-5. When market price is P2, a profit-maximising firm's losses can be represented by the area:

When a firm in a competitive market produces 10 units of output, it has a marginal revenue of $5 what is the firm's total revenue when it produces 9 units of output?

In a competitive market that is characterised by free entry and exit:

Graph 14-1 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 14-1. When market price is at MC2, a firm producing output level Q1 would experience:

When new entrants to a competitive market have higher costs than existing firms:

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 14-6 This graph depicts the cost structure of a firm in a competitive market. Use the graph to answer the following question(s). -Refer to Graph 14-6. When market price is P₄, a profit-maximising firm's total cost can be represented by the area:

Graph 14-5 The graph depicts the cost structure of a firm in a competitive market. Use the graph to answer the following question(s). -Refer to Graph 14-5. When market price is P₂, a profit-maximising firm's losses can be represented by the area:

Graph 14-1 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 14-1. When market price is at MC₂, a firm producing output level Q₁ would experience: