Question 1

When an individual firm in a competitive market increases its production,it is likely that the market price will fall.

Accepted Answer

A) True 
 B)False

Question 2

Table 14-8
The following table presents cost and revenue information for Soper's Port Vineyard.
  
-Refer to Table 14-8.In order to maximize profits,how many units should Soper's Port Vineyard's produce?

Accepted Answer

A)  5 
B)  6 
C)  7 
D)  8 
A)  5 
B)  6 
C)  7 
D)  8

Question 3

When firms are said to be price takers,it implies that if a firm raises its price,

Accepted Answer

A)  buyers will go elsewhere. 
B)  buyers will pay the higher price in the short run. 
C)  competitors will also raise their prices. 
D)  firms in the industry will exercise market power. 
A)  buyers will go elsewhere. 
B)  buyers will pay the higher price in the short run. 
C)  competitors will also raise their prices. 
D)  firms in the industry will exercise market power.

Question 4

Tommy's Tires operates in a perfectly competitive market.If tires sell for $50 each and average total cost per tire is $40 at the profit-maximizing output level,then in the long run

Accepted Answer

A)  more firms will enter the market. 
B)  some firms will exit from the market. 
C)  the equilibrium price per tire will rise. 
D)  average total costs will fall. 
A)  more firms will enter the market. 
B)  some firms will exit from the market. 
C)  the equilibrium price per tire will rise. 
D)  average total costs will fall.

Question 5

The Wheeler Wheat Farm sells wheat to a grain broker in Seattle,Washington.Since the market for wheat is generally considered to be competitive,the Wheeler Wheat Farm maximizes its profit by choosing

Accepted Answer

A)  to produce the quantity at which average variable cost is minimized. 
B)  to produce the quantity at which average fixed cost is minimized. 
C)  to sell its wheat at a price where marginal cost is equal to average total cost. 
D)  the quantity at which market price is equal to the farm's marginal cost of production. 
A)  to produce the quantity at which average variable cost is minimized. 
B)  to produce the quantity at which average fixed cost is minimized. 
C)  to sell its wheat at a price where marginal cost is equal to average total cost. 
D)  the quantity at which market price is equal to the farm's marginal cost of production.

Question 6

Figure 14-5  
-Refer to Figure 14-5.When market price is P3,a profit-maximizing firm's total revenue

Accepted Answer

A)  can be represented by the area P3Q3. 
B)  can be represented by the area P3Q2. 
C)  can be represented by the area (P3-P2)Q3. 
D)  is zero. 
A)  can be represented by the area P3Q3. 
B)  can be represented by the area P3Q2. 
C)  can be represented by the area (P3-P2)Q3. 
D)  is zero.

Question 7

A key characteristic of a competitive market is that

Accepted Answer

A)  government antitrust laws regulate competition. 
B)  producers sell nearly identical products. 
C)  firms minimize total costs. 
D)  firms have price setting power. 
A)  government antitrust laws regulate competition. 
B)  producers sell nearly identical products. 
C)  firms minimize total costs. 
D)  firms have price setting power.

Question 8

Figure 14-1  
-Refer to Figure 14-1.If the market price is P4,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 9

A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements regarding a competitive firm is correct?

Accepted Answer

A)  Since demand is downward sloping,if a firm increases its level of output,the firm will have to charge a lower price to sell the additional output. 
B)  If a firm raises its price,the firm may be able to increase its total revenue even though it will sell fewer units. 
C)  By lowering its price below the market price,the firm will benefit from being able to sell more units at the lower price than it could have sold by charging the market price. 
D)  For all firms,average revenue equals the price of the good. 
A)  Since demand is downward sloping,if a firm increases its level of output,the firm will have to charge a lower price to sell the additional output. 
B)  If a firm raises its price,the firm may be able to increase its total revenue even though it will sell fewer units. 
C)  By lowering its price below the market price,the firm will benefit from being able to sell more units at the lower price than it could have sold by charging the market price. 
D)  For all firms,average revenue equals the price of the good.

Question 11

A profit-maximizing firm in a competitive market is currently producing 200 units of output.It has average revenue of $9 and average total cost of $7.It follows that the firm's

Accepted Answer

A)  average total cost curve intersects the marginal cost curve at an output level of less than 200 units. 
B)  average variable cost curve intersects the marginal cost curve at an output level of less than 200 units. 
C)  profit is $400. 
D)  All of the above are correct. 
A)  average total cost curve intersects the marginal cost curve at an output level of less than 200 units. 
B)  average variable cost curve intersects the marginal cost curve at an output level of less than 200 units. 
C)  profit is $400. 
D)  All of the above are correct.

Question 12

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

Accepted Answer

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

Question 13

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price,what effect would this have on the market?

Accepted Answer

The firm could not sell any more of its

Question 14

For any competitive market,the supply curve is closely related to the

Accepted Answer

A)  preferences of consumers who purchase products in that market. 
B)  income tax rates of consumers in that market. 
C)  firms' costs of production in that market. 
D)  interest rates on government bonds. 
A)  preferences of consumers who purchase products in that market. 
B)  income tax rates of consumers in that market. 
C)  firms' costs of production in that market. 
D)  interest rates on government bonds.

Question 15

In a competitive market,firms are unable to differentiate their product from that of other producers.

Accepted Answer

A) True 
 B)False

Question 16

Susan quit her job as a teacher,which paid her $36,000 per year,in order to start her own catering business.She spent $12,000 of her savings,which had been earning 10 percent interest per year,on equipment for her business.She also borrowed $12,000 from her bank at 10 percent interest,which she also spent on equipment.For the past several months she has spent $1,000 per month on ingredients and other variable costs.Also for the past several months she has taken in $4,500 in monthly revenue.

Accepted Answer

A)  In the short run,Susan should shut down her business,and in the long run she should exit the industry. 
B)  In the short run,Susan should continue to operate her business,but in the long run she should exit the industry. 
C)  In the short run,Susan should continue to operate her business,but in the long run she will probably face competition from newly entering firms. 
D)  In the short run,Susan should continue to operate her business,and she is also in long-run equilibrium. 
A)  In the short run,Susan should shut down her business,and in the long run she should exit the industry. 
B)  In the short run,Susan should continue to operate her business,but in the long run she should exit the industry. 
C)  In the short run,Susan should continue to operate her business,but in the long run she will probably face competition from newly entering firms. 
D)  In the short run,Susan should continue to operate her business,and she is also in long-run equilibrium.

Question 17

If all existing firms and all potential firms have the same cost curves,there are no inputs in limited quantities,and the market is characterized by free entry and exit,then the long-run market supply curve

Accepted Answer

A)  is horizontal and equal to the minimum of long-run marginal cost for each firm. 
B)  must slope downward. 
C)  must slope upward. 
D)  is horizontal and equal to the minimum of long-run average cost for each firm. 
A)  is horizontal and equal to the minimum of long-run marginal cost for each firm. 
B)  must slope downward. 
C)  must slope upward. 
D)  is horizontal and equal to the minimum of long-run average cost for each firm.

Question 18

Figure 14-2  
-Refer to Figure 14-2.If the market price is $10,what is the firm's total cost?

Accepted Answer

A)  $15 
B)  $30 
C)  $35 
D)  $50 
A)  $15 
B)  $30 
C)  $35 
D)  $50

Question 19

Which of the following expressions is correct for a competitive firm?

Accepted Answer

A)  Profit = (Quantity of output)x (Price - Average total cost) 
B)  Marginal revenue = (Change in total revenue)/(Quantity of output) 
C)  Average total cost = Total variable cost/Quantity of output 
D)  Average revenue = (Marginal revenue)x (Quantity of output) 
A)  Profit = (Quantity of output)x (Price - Average total cost) 
B)  Marginal revenue = (Change in total revenue)/(Quantity of output) 
C)  Average total cost = Total variable cost/Quantity of output 
D)  Average revenue = (Marginal revenue)x (Quantity of output)

Question 20

Who is a price taker in a competitive market?

Accepted Answer

A)  buyers only 
B)  sellers only 
C)  both buyers and sellers 
D)  neither buyers nor sellers 
A)  buyers only 
B)  sellers only 
C)  both buyers and sellers 
D)  neither buyers nor sellers

Exam 14: Firms in Competitive Markets

When an individual firm in a competitive market increases its production,it is likely that the market price will fall.

Table 14-8 The following table presents cost and revenue information for Soper's Port Vineyard. -Refer to Table 14-8.In order to maximize profits,how many units should Soper's Port Vineyard's produce?

When firms are said to be price takers,it implies that if a firm raises its price,

Tommy's Tires operates in a perfectly competitive market.If tires sell for $50 each and average total cost per tire is $40 at the profit-maximizing output level,then in the long run

The Wheeler Wheat Farm sells wheat to a grain broker in Seattle,Washington.Since the market for wheat is generally considered to be competitive,the Wheeler Wheat Farm maximizes its profit by choosing

Figure 14-5 -Refer to Figure 14-5.When market price is P3,a profit-maximizing firm's total revenue

A key characteristic of a competitive market is that

Figure 14-1 -Refer to Figure 14-1.If the market price is P4,in the short run,the perfectly competitive firm will earn

A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.

Which of the following statements regarding a competitive firm is correct?

A profit-maximizing firm in a competitive market is currently producing 200 units of output.It has average revenue of $9 and average total cost of $7.It follows that the firm's

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

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price,what effect would this have on the market?

For any competitive market,the supply curve is closely related to the

In a competitive market,firms are unable to differentiate their product from that of other producers.

If all existing firms and all potential firms have the same cost curves,there are no inputs in limited quantities,and the market is characterized by free entry and exit,then the long-run market supply curve

Figure 14-2 -Refer to Figure 14-2.If the market price is $10,what is the firm's total cost?

Which of the following expressions is correct for a competitive firm?

Who is a price taker in a competitive market?

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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