Question 1

For a firm operating in a perfectly competitive industry,total revenue,marginal revenue,and average revenue are all equal.

Accepted Answer

A) True 
 B)False  False

Question 2

For a firm in a perfectly competitive market,the price of the good is always

Accepted Answer

A)  equal to marginal revenue. 
B)  equal to total revenue. 
C)  greater than average revenue. 
D)  equal to the firm's efficient scale of output. 
A)  equal to marginal revenue. 
B)  equal to total revenue. 
C)  greater than average revenue. 
D)  equal to the firm's efficient scale of output. A

Question 3

Scenario 14-3
As part of an estate settlement Mary received $1 million.She decided to use the money to purchase a small business in Anywhere,USA.Her business operates in a perfectly competitive industry.If Mary would have invested the $1 million in a risk-free bond fund she could have made $100,000 each year.She also quit her job with Lucky.Com Inc.to devote all of her time to her new business;her salary at Lucky.Com Inc.was $75,000 per year.
-Refer to Scenario 14-3.At the end of the first year of operating her new business,Mary's accountant reported an accounting profit of $150,000.What was Mary's economic profit?

Accepted Answer

A)  -$150,000 
B)  -$50,000 
C)  -$25,000 
D)  $25,000 
A)  -$150,000 
B)  -$50,000 
C)  -$25,000 
D)  $25,000 C

Question 4

In a perfectly competitive market,

Accepted Answer

A)  no one seller can influence the price of the product. 
B)  price exceeds marginal revenue for each unit sold. 
C)  average revenue exceeds marginal revenue for each unit sold. 
D)  administrative barriers can make it difficult for firms to enter an industry. 
A)  no one seller can influence the price of the product. 
B)  price exceeds marginal revenue for each unit sold. 
C)  average revenue exceeds marginal revenue for each unit sold. 
D)  administrative barriers can make it difficult for firms to enter an industry.

Question 5

A firm that exits its market has to pay

Accepted Answer

A)  its variable costs but not its fixed costs. 
B)  its fixed costs but not its variable costs. 
C)  both its variable costs and its fixed costs. 
D)  neither its variable costs nor its fixed costs. 
A)  its variable costs but not its fixed costs. 
B)  its fixed costs but not its variable costs. 
C)  both its variable costs and its fixed costs. 
D)  neither its variable costs nor its fixed costs.

Question 6

Because there are many buyers and sellers in a perfectly competitive market,no one seller can influence the market price.

Accepted Answer

A) True 
 B)False

Question 7

A dairy farmer must be able to calculate sunk costs in order to determine how much revenue the farm receives for the typical gallon of milk.

Accepted Answer

A) True 
 B)False

Question 8

In the short run for a particular market,there are 500 firms.Each firm has a marginal cost of $30 when it produces 200 units of output.One point on the market supply curve is

Accepted Answer

A)  quantity = 200,price = $30. 
B)  quantity = 500,price = $30. 
C)  quantity = 100,000,price = $30. 
D)  quantity = 100,000,price = $15,000. 
A)  quantity = 200,price = $30. 
B)  quantity = 500,price = $30. 
C)  quantity = 100,000,price = $30. 
D)  quantity = 100,000,price = $15,000.

Question 9

In a long-run equilibrium,the marginal firm has

Accepted Answer

A)  price equal to minimum marginal cost. 
B)  total revenue equal to total cost. 
C)  accounting profit equal to zero. 
D)  All of the above are correct. 
A)  price equal to minimum marginal cost. 
B)  total revenue equal to total cost. 
C)  accounting profit equal to zero. 
D)  All of the above are correct.

Question 10

In making a short-run profit-maximizing production decision,the firm must consider both fixed and variable cost.

Accepted Answer

A) True 
 B)False

Question 11

Figure 14-10  
-Refer to Figure 14-10.If the price is P3 in the short run,what will happen in the long run?

Accepted Answer

A)  Nothing.The price is consistent with zero economic profits,so there is no incentive for firms to enter or exit the industry. 
B)  Individual firms will earn positive economic profits in the short run,which will entice other firms to enter the industry. 
C)  Individual firms will earn negative economic profits in the short run,which will cause some firms to exit the industry. 
D)  Because the price is below the firm's average variable costs,the firms will shut down. 
A)  Nothing.The price is consistent with zero economic profits,so there is no incentive for firms to enter or exit the industry. 
B)  Individual firms will earn positive economic profits in the short run,which will entice other firms to enter the industry. 
C)  Individual firms will earn negative economic profits in the short run,which will cause some firms to exit the industry. 
D)  Because the price is below the firm's average variable costs,the firms will shut down.

Question 12

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 13

Figure 14-6  
-Refer to Figure 14-6.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)  DF 
D)  AB 
A)  BC 
B)  CD 
C)  DF 
D)  AB

Question 14

When existing firms in a competitive market are profitable,an incentive exists for

Accepted Answer

A)  new firms to seek government subsidies that would allow them to enter the market. 
B)  new firms to enter the market,even without government subsidies. 
C)  existing firms to raise prices. 
D)  existing firms to increase production. 
A)  new firms to seek government subsidies that would allow them to enter the market. 
B)  new firms to enter the market,even without government subsidies. 
C)  existing firms to raise prices. 
D)  existing firms to increase production.

Question 15

All firms maximize profits by producing an output level where marginal revenue equals marginal cost;for firms operating in perfectly competitive industries,maximizing profits also means producing an output level where price equals marginal cost.

Accepted Answer

A) True 
 B)False

Question 16

Figure 14-1  
-Refer to Figure 14-1.Which of the four prices corresponds to a perfectly competitive firm earning zero economic profits in the short run?

Accepted Answer

A)  P1 
B)  P2 
C)  P3 
D)  P4 
A)  P1 
B)  P2 
C)  P3 
D)  P4

Question 17

When marginal revenue equals marginal cost,the firm

Accepted Answer

A)  should increase the level of production to maximize its profit. 
B)  may be minimizing its losses rather than maximizing its profit. 
C)  must be generating positive economic profits. 
D)  must be generating positive accounting profits. 
A)  should increase the level of production to maximize its profit. 
B)  may be minimizing its losses rather than maximizing its profit. 
C)  must be generating positive economic profits. 
D)  must be generating positive accounting profits.

Question 18

If a competitive firm is (i)selling 1,000 units of its product at a price of $9 per unit and (ii)earning a positive profit,then

Accepted Answer

A)  its total cost is less than $9,000. 
B)  its marginal revenue is less than $9. 
C)  its average revenue is greater than $9. 
D)  the firm cannot be a competitive firm since competitive firms can only earn zero profit. 
A)  its total cost is less than $9,000. 
B)  its marginal revenue is less than $9. 
C)  its average revenue is greater than $9. 
D)  the firm cannot be a competitive firm since competitive firms can only earn zero profit.

Question 19

In the short run,a market consists of 100 identical firms.The market price is $8,and the total cost to each firm of producing various levels of output is given in the table below.What will total quantity supplied be in the market?

Accepted Answer

A)  200 units 
B)  300 units 
C)  400 units 
D)  500 units 
A)  200 units 
B)  300 units 
C)  400 units 
D)  500 units

Question 20

The short-run supply curve for a firm in a perfectly competitive market is

Accepted Answer

A)  horizontal. 
B)  likely to slope downward. 
C)  determined by forces external to the firm. 
D)  the portion of its marginal cost curve that lies above its average variable cost. 
A)  horizontal. 
B)  likely to slope downward. 
C)  determined by forces external to the firm. 
D)  the portion of its marginal cost curve that lies above its average variable cost.

Exam 14: Firms in Competitive Markets

For a firm operating in a perfectly competitive industry,total revenue,marginal revenue,and average revenue are all equal.

For a firm in a perfectly competitive market,the price of the good is always

In a perfectly competitive market,

A firm that exits its market has to pay

Because there are many buyers and sellers in a perfectly competitive market,no one seller can influence the market price.

A dairy farmer must be able to calculate sunk costs in order to determine how much revenue the farm receives for the typical gallon of milk.

In the short run for a particular market,there are 500 firms.Each firm has a marginal cost of $30 when it produces 200 units of output.One point on the market supply curve is

In a long-run equilibrium,the marginal firm has

In making a short-run profit-maximizing production decision,the firm must consider both fixed and variable cost.

Figure 14-10 -Refer to Figure 14-10.If the price is P3 in the short run,what will happen in the long run?

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.

Figure 14-6 -Refer to Figure 14-6.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?

When existing firms in a competitive market are profitable,an incentive exists for

All firms maximize profits by producing an output level where marginal revenue equals marginal cost;for firms operating in perfectly competitive industries,maximizing profits also means producing an output level where price equals marginal cost.

Figure 14-1 -Refer to Figure 14-1.Which of the four prices corresponds to a perfectly competitive firm earning zero economic profits in the short run?

When marginal revenue equals marginal cost,the firm

If a competitive firm is (i)selling 1,000 units of its product at a price of $9 per unit and (ii)earning a positive profit,then

In the short run,a market consists of 100 identical firms.The market price is $8,and the total cost to each firm of producing various levels of output is given in the table below.What will total quantity supplied be in the market?

The short-run supply curve for a firm in a perfectly competitive market is

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

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

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