Question 1

Total profit for a firm is calculated as

Accepted Answer

A)  marginal revenue minus average total cost. 
B)  average revenue minus average total cost. 
C)  marginal revenue minus marginal cost. 
D)  (price minus average cost)times quantity of output. 
A)  marginal revenue minus average total cost. 
B)  average revenue minus average total cost. 
C)  marginal revenue minus marginal cost. 
D)  (price minus average cost)times quantity of output.

Question 2

The long-run supply curve for a competitive industry may be upward sloping if

Accepted Answer

A)  there are barriers to entry. 
B)  firms that enter the industry are able to do so at lower average total costs than the existing firms in the industry. 
C)  some resources are available only in limited quantities. 
D)  accounting profits are positive. 
A)  there are barriers to entry. 
B)  firms that enter the industry are able to do so at lower average total costs than the existing firms in the industry. 
C)  some resources are available only in limited quantities. 
D)  accounting profits are positive.

Question 3

Table 14-6
John's Vineyard
  
-Refer to Table 14-6.What is the marginal cost of the 8th unit?

Accepted Answer

A)  $0 
B)  $72.75 
C)  $120 
D)  $502 
A)  $0 
B)  $72.75 
C)  $120 
D)  $502

Question 4

The textile industry is composed of a large number of small firms.In recent years,these firms have suffered economic losses and many sellers have left the industry.Economic theory suggests that these conditions will

Accepted Answer

A)  shift the demand curve outward so that price will rise to the level of production cost. 
B)  cause the remaining firms to collude so that they can produce more efficiently. 
C)  cause the market supply to decline and the price of textiles to rise. 
D)  cause firms in the textile industry to suffer long-run economic losses. 
A)  shift the demand curve outward so that price will rise to the level of production cost. 
B)  cause the remaining firms to collude so that they can produce more efficiently. 
C)  cause the market supply to decline and the price of textiles to rise. 
D)  cause firms in the textile industry to suffer long-run economic losses.

Question 5

Because the goods offered for sale in a competitive market are largely the same,

Accepted Answer

A)  there will be few sellers in the market. 
B)  there will be few buyers in the market. 
C)  only a few buyers will have market power. 
D)  sellers will have little reason to charge less than the going market price. 
A)  there will be few sellers in the market. 
B)  there will be few buyers in the market. 
C)  only a few buyers will have market power. 
D)  sellers will have little reason to charge less than the going market price.

Question 6

A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

Accepted Answer

A) True 
 B)False

Question 7

As a general rule,when accountants calculate profit they account for explicit costs but usually ignore

Accepted Answer

A)  certain outlays of money by the firm. 
B)  implicit costs. 
C)  operating costs. 
D)  fixed costs. 
A)  certain outlays of money by the firm. 
B)  implicit costs. 
C)  operating costs. 
D)  fixed costs.

Question 8

When price exceeds average variable cost in the short run,a competitive firm's marginal cost curve is regarded as its supply curve because

Accepted Answer

A)  the position of the marginal cost curve determines the price for which the firm should sell its product. 
B)  among the various cost curves,the marginal cost curve is the only one that slopes upward. 
C)  the marginal cost curve determines the quantity of output the firm is willing to supply at any price. 
D)  the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized. 
A)  the position of the marginal cost curve determines the price for which the firm should sell its product. 
B)  among the various cost curves,the marginal cost curve is the only one that slopes upward. 
C)  the marginal cost curve determines the quantity of output the firm is willing to supply at any price. 
D)  the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized.

Question 9

Which of the following statements is not correct?

Accepted Answer

A)  In a long-run equilibrium,marginal firms make zero economic profit. 
B)  To maximize profit,firms should produce at a level of output where price equals average variable cost. 
C)  The amount of gold in the world is limited.Therefore,the gold jewelry market probably has a long-run supply curve that is upward sloping. 
D)  Long-run supply curves are typically more elastic than short-run supply curves. 
A)  In a long-run equilibrium,marginal firms make zero economic profit. 
B)  To maximize profit,firms should produce at a level of output where price equals average variable cost. 
C)  The amount of gold in the world is limited.Therefore,the gold jewelry market probably has a long-run supply curve that is upward sloping. 
D)  Long-run supply curves are typically more elastic than short-run supply curves.

Question 10

A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

Accepted Answer

A) True 
 B)False

Question 11

If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost,then

Accepted Answer

A)  a one-unit increase in output will increase the firm's profit. 
B)  a one-unit decrease in output will increase the firm's profit. 
C)  total revenue exceeds total cost. 
D)  total cost exceeds total revenue. 
A)  a one-unit increase in output will increase the firm's profit. 
B)  a one-unit decrease in output will increase the firm's profit. 
C)  total revenue exceeds total cost. 
D)  total cost exceeds total revenue.

Question 12

In the long run,a firm will exit a competitive industry if

Accepted Answer

A)  total revenue exceeds total cost. 
B)  the price exceeds average total cost. 
C)  average total cost exceeds the price. 
D)  Both a and b are correct. 
A)  total revenue exceeds total cost. 
B)  the price exceeds average total cost. 
C)  average total cost exceeds the price. 
D)  Both a and b are correct.

Question 13

A firm is currently producing 100 units of output per day.The manager reports to the owner that producing the 100th unit costs the firm $5.The firm can sell the unit for $6.The firm should produce more than 100 units in order to maximize its profits (or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 14

Figure 14-1  
-Refer to Figure 14-1.If the market price is P1,in the short run,the perfectly competitive firm will earn

Accepted Answer

A)  positive economic profits. 
B)  negative economic profits but will try to remain open. 
C)  negative economic profits and will shut down. 
D)  zero economic profits. 
A)  positive economic profits. 
B)  negative economic profits but will try to remain open. 
C)  negative economic profits and will shut down. 
D)  zero economic profits.

Question 15

In the long-run equilibrium of a market with free entry and exit,marginal firms are operating

Accepted Answer

A)  at the point where average variable cost equals marginal cost. 
B)  at the minimum point on their marginal cost curves. 
C)  at their efficient scale. 
D)  where accounting profit is zero. 
A)  at the point where average variable cost equals marginal cost. 
B)  at the minimum point on their marginal cost curves. 
C)  at their efficient scale. 
D)  where accounting profit is zero.

Question 16

Entry into a market by new firms will increase the

Accepted Answer

A)  supply of the good. 
B)  profits of existing firms. 
C)  price of the good. 
D)  marginal cost of producing the good. 
A)  supply of the good. 
B)  profits of existing firms. 
C)  price of the good. 
D)  marginal cost of producing the good.

Question 17

A firm's marginal cost has a minimum value of $50,its average variable cost has a minimum value of $80,and its average total cost has a minimum value of $90.Then the firm will shut down if the price of its product falls below

Accepted Answer

A)  $90. 
B)  $80. 
C)  $50. 
D)  $40. 
A)  $90. 
B)  $80. 
C)  $50. 
D)  $40.

Question 18

Figure 14-8
In the figure below,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.    
-Refer to Figure 14-8.When 100 identical firms participate in this market,at what price will 15,000 units be supplied to this market?

Accepted Answer

A)  $1.00 
B)  $1.50 
C)  $2.00 
D)  The price cannot be determined from the information provided. 
A)  $1.00 
B)  $1.50 
C)  $2.00 
D)  The price cannot be determined from the information provided.

Question 19

In the long run,each firm in a competitive industry earns

Accepted Answer

A)  zero accounting profits. 
B)  zero economic profits. 
C)  positive economic profits. 
D)  Both a and b are correct. 
A)  zero accounting profits. 
B)  zero economic profits. 
C)  positive economic profits. 
D)  Both a and b are correct.

Question 20

Suppose a firm in a competitive market reduces its output by 20 percent.As a result,the price of its output is likely to

Accepted Answer

A)  increase. 
B)  remain unchanged. 
C)  decrease by less than 20 percent. 
D)  decrease by more than 20 percent. 
A)  increase. 
B)  remain unchanged. 
C)  decrease by less than 20 percent. 
D)  decrease by more than 20 percent.

Exam 14: Firms in Competitive Markets

Total profit for a firm is calculated as

The long-run supply curve for a competitive industry may be upward sloping if

Table 14-6 John's Vineyard -Refer to Table 14-6.What is the marginal cost of the 8th unit?

The textile industry is composed of a large number of small firms.In recent years,these firms have suffered economic losses and many sellers have left the industry.Economic theory suggests that these conditions will

Because the goods offered for sale in a competitive market are largely the same,

A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

As a general rule,when accountants calculate profit they account for explicit costs but usually ignore

When price exceeds average variable cost in the short run,a competitive firm's marginal cost curve is regarded as its supply curve because

Which of the following statements is not correct?

A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost,then

In the long run,a firm will exit a competitive industry if

A firm is currently producing 100 units of output per day.The manager reports to the owner that producing the 100th unit costs the firm $5.The firm can sell the unit for $6.The firm should produce more than 100 units in order to maximize its profits (or minimize its losses).

Figure 14-1 -Refer to Figure 14-1.If the market price is P1,in the short run,the perfectly competitive firm will earn

In the long-run equilibrium of a market with free entry and exit,marginal firms are operating

Entry into a market by new firms will increase the

A firm's marginal cost has a minimum value of $50,its average variable cost has a minimum value of $80,and its average total cost has a minimum value of $90.Then the firm will shut down if the price of its product falls below

In the long run,each firm in a competitive industry earns

Suppose a firm in a competitive market reduces its output by 20 percent.As a result,the price of its output is likely to

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

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