Question 1

It is possible for firms in a competitive market to earn positive accounting profits in the long-run.

Accepted Answer

A) True 
 B)False

Question 2

If marginal cost exceeds marginal revenue:

Accepted Answer

A)  the firm must be experiencing losses 
B)  the firm may still be earning a profit 
C)  the firm is most likely to be at a profit-maximising level of output 
D)  a profit-maximising firm should always increase the level of production 
A)  the firm must be experiencing losses 
B)  the firm may still be earning a profit 
C)  the firm is most likely to be at a profit-maximising level of output 
D)  a profit-maximising firm should always increase the level of production

Question 3

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 at a market price of $1.75, 52 500 units of output are supplied to this market, how many identical firms are participating in this market?

Accepted Answer

A)  100 
B)  200 
C)  300 
D)  400 
A)  100 
B)  200 
C)  300 
D)  400

Question 4

When you buy a product from a firm in a competitive market, the price you pay for the product is likely to be:

Accepted Answer

A)  equal the marginal revenue of the firm 
B)  less than the average revenue of the firm 
C)  much greater than the cost of producing the product 
D)  all of the above 
A)  equal the marginal revenue of the firm 
B)  less than the average revenue of the firm 
C)  much greater than the cost of producing the product 
D)  all of the above

Question 5

In a perfectly competitive market, the process of entry and exit will end when firms in the market:

Accepted Answer

A)  are making zero economic profit 
B)  are operating with excess capacity 
C)  capture market power 
D)  experience decreasing marginal revenue 
A)  are making zero economic profit 
B)  are operating with excess capacity 
C)  capture market power 
D)  experience decreasing marginal revenue

Question 6

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 P5, a profit-maximising firm's profits can be represented by the area:

Accepted Answer

A)  (P5 - P4) * Q3 
B)  P5 * Q3 
C)  (P5 - P3) * Q2 
D)  when market price is P5 there are no profits 
A)  (P5 - P4) * Q3 
B)  P5 * Q3 
C)  (P5 - P3) * Q2 
D)  when market price is P5 there are no profits

Question 7

When entry and exit behaviour of firms in an industry does not affect a firm's cost structure:

Accepted Answer

A)  the long-run market supply curve must be upward-sloping 
B)  the long-run market supply curve must be downward-sloping 
C)  the long-run market supply curve must be horizontal 
D)  we can't tell anything about the shape of the long-run market supply curve 
A)  the long-run market supply curve must be upward-sloping 
B)  the long-run market supply curve must be downward-sloping 
C)  the long-run market supply curve must be horizontal 
D)  we can't tell anything about the shape of the long-run market supply curve

Question 8

Graph 14-8
  
-Refer to Graph 14-8. If the figure in panel (a) reflects the long-run equilibrium of a profit-maximising firm in a competitive market, the figure in panel (b) is most likely to reflect long-run market:

Accepted Answer

A)  demand 
B)  supply 
C)  strategy 
D)  production capacity 
A)  demand 
B)  supply 
C)  strategy 
D)  production capacity

Question 9

The supply curve of a firm in a competitive market is equal to average variable cost, above the minimum of marginal cost.

Accepted Answer

A) True 
 B)False

Question 10

Suppose a movie theatre stays open late at night even though few people attend screenings this late. Which of the following principles are being demonstrated? (i) fixed costs are sunk in the short-run
(ii) in the short-run, only variable costs are important to the decision to stay open for late evening showings
(iii) if variable exceeds revenue, the theatre owner is making a profitable strategic decision to remain open late into the night

Accepted Answer

A)  (i) and (ii) only 
B)  (ii) and (iii) only 
C)  (i) and (iii) only 
D)  (i), (ii) and (iii) 
A)  (i) and (ii) only 
B)  (ii) and (iii) only 
C)  (i) and (iii) only 
D)  (i), (ii) and (iii)

Question 11

Table 14-2
The price of each David Butterfly a butterfly farmer in Greytown sells is:
  
-Refer to Table 14-2. Marginal revenue is declining over the range:

Accepted Answer

A)  none; marginal revenue is constant over the whole range of output 
B)  one to three 
C)  three to six 
D)  three to nine 
A)  none; marginal revenue is constant over the whole range of output 
B)  one to three 
C)  three to six 
D)  three to nine

Question 12

A firm in a competitive market will maximise profit when the level of production is such that marginal cost equals price.

Accepted Answer

A) True 
 B)False

Question 13

For a farmer facing a long-run decision about whether to exit the market or not, the cost of her land is considered to be sunk.

Accepted Answer

A) True 
 B)False

Question 14

When firms in a competitive market have different costs, it is likely that:

Accepted Answer

A)  the market will no longer be considered competitive 
B)  free entry and exit in the market is likely to be violated 
C)  some firms will earn economic profits in the long run 
D)  long-run market supply will be downward-sloping 
A)  the market will no longer be considered competitive 
B)  free entry and exit in the market is likely to be violated 
C)  some firms will earn economic profits in the long run 
D)  long-run market supply will be downward-sloping

Question 15

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 falls from P3 to P1, the firm finds that:

Accepted Answer

A)  fixed cost is higher at a production level of Q1 than it is at Q3 
B)  it is unwilling to produce any output 
C)  it should produce Q1 units of output 
D)  all of the above are true 
A)  fixed cost is higher at a production level of Q1 than it is at Q3 
B)  it is unwilling to produce any output 
C)  it should produce Q1 units of output 
D)  all of the above are true

Question 16

A market is competitive if which of the following are true? (i) each buyer is small compared to the market
(ii) a single firm has a significant impact on the market price
(iii) the good offered for sale is largely the same

Accepted Answer

A)  (i) and (ii) only 
B)  (ii) and (iii) only 
C)  (i) and (iii) only 
D)  (i), (ii) and (iii) 
A)  (i) and (ii) only 
B)  (ii) and (iii) only 
C)  (i) and (iii) only 
D)  (i), (ii) and (iii)

Question 17

If a perfectly competitive firm in equilibrium increases output by 25 per cent marginal revenue will fall and marginal costs will rise.

Accepted Answer

A) True 
 B)False

Question 18

Table 14-1
This table shows the revenue and costs of a parrot farmer.
  
-Refer to Table 14-1. Average revenue will equal to marginal cost when harvest is equal to:

Accepted Answer

A)  1 parrot 
B)  3 parrots 
C)  5 parrots 
D)  8 parrots 
A)  1 parrot 
B)  3 parrots 
C)  5 parrots 
D)  8 parrots

Question 19

Table 14-1
This table shows the revenue and costs of a parrot farmer.
  
-Refer to Table 14-1. If the farmer determines that marginal cost is $11, harvest of parrots should:

Accepted Answer

A)  increase production to maximise profit 
B)  decrease production to maximise profit 
C)  maintain its current level of production to maximise profit 
D)  stop and the farmer produce a new product instead 
A)  increase production to maximise profit 
B)  decrease production to maximise profit 
C)  maintain its current level of production to maximise profit 
D)  stop and the farmer produce a new product instead

Question 20

A firm will exit in the short run if total revenue is less than total costs.

Accepted Answer

A) True 
 B)False

Exam 14: Firms in Competitive Markets

It is possible for firms in a competitive market to earn positive accounting profits in the long-run.

If marginal cost exceeds marginal revenue:

When you buy a product from a firm in a competitive market, the price you pay for the product is likely to be:

In a perfectly competitive market, the process of entry and exit will end when firms in the market:

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 P5, a profit-maximising firm's profits can be represented by the area:

When entry and exit behaviour of firms in an industry does not affect a firm's cost structure:

Graph 14-8 -Refer to Graph 14-8. If the figure in panel (a) reflects the long-run equilibrium of a profit-maximising firm in a competitive market, the figure in panel (b) is most likely to reflect long-run market:

The supply curve of a firm in a competitive market is equal to average variable cost, above the minimum of marginal cost.

Table 14-2 The price of each David Butterfly a butterfly farmer in Greytown sells is: -Refer to Table 14-2. Marginal revenue is declining over the range:

A firm in a competitive market will maximise profit when the level of production is such that marginal cost equals price.

For a farmer facing a long-run decision about whether to exit the market or not, the cost of her land is considered to be sunk.

When firms in a competitive market have different costs, it is likely that:

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 falls from P3 to P1, the firm finds that:

A market is competitive if which of the following are true? (i) each buyer is small compared to the market (ii) a single firm has a significant impact on the market price (iii) the good offered for sale is largely the same

If a perfectly competitive firm in equilibrium increases output by 25 per cent marginal revenue will fall and marginal costs will rise.

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1. Average revenue will equal to marginal cost when harvest is equal to:

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1. If the farmer determines that marginal cost is $11, harvest of parrots should:

A firm will exit in the short run if total revenue is less than total costs.

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 14-5 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 P₅, a profit-maximising firm's profits can be represented by the area:

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 falls from P₃ to P₁, the firm finds that: