Question 1

Figure 14-2  
-Refer to Figure 14-2.The firm will earn zero economic profit if the market price is

Accepted Answer

A)  $0 
B)  $6 
C)  $7 
D)  $10 
A)  $0 
B)  $6 
C)  $7 
D)  $10

Question 2

In the long-run equilibrium of a competitive market,the number of firms in the market adjusts until the market demand is satisfied at a price equal to the minimum of

Accepted Answer

A)  average fixed cost for the marginal firm. 
B)  marginal cost of the marginal firm. 
C)  average total cost of the marginal firm. 
D)  average variable cost of the marginal firm. 
A)  average fixed cost for the marginal firm. 
B)  marginal cost of the marginal firm. 
C)  average total cost of the marginal firm. 
D)  average variable cost of the marginal firm.

Question 3

A firm operating in a perfectly competitive market may earn positive,negative,or zero economic profit in the long run.

Accepted Answer

A) True 
 B)False

Question 4

Figure 14-4  
-Refer to Figure 14-4.When market price is P7,a profit-maximizing firm's short-run profits can be represented by the area

Accepted Answer

A)  P7Q5. 
B)  P7Q3. 
C)  (P7 - P5)Q3. 
D)  We are unable to determine the firm's profits because the quantity that the firm would produce is not labeled on the graph. 
A)  P7Q5. 
B)  P7Q3. 
C)  (P7 - P5)Q3. 
D)  We are unable to determine the firm's profits because the quantity that the firm would produce is not labeled on the graph.

Question 5

Carla's Candy Store is maximizing profits by producing 1,000 pounds of candy per day.If Carla's fixed costs unexpectedly increase and the market price remains constant,then the short run profit-maximizing level of output

Accepted Answer

A)  is less than 1,000 pounds. 
B)  is still 1,000 pounds. 
C)  is more than 1,000 pounds. 
D)  becomes zero. 
A)  is less than 1,000 pounds. 
B)  is still 1,000 pounds. 
C)  is more than 1,000 pounds. 
D)  becomes zero.

Question 6

Figure 14-5  
-Refer to Figure 14-5.Firms will earn positive profits in the short run if the market price

Accepted Answer

A)  is less than P1. 
B)  is greater than P1 but less than P3. 
C)  equals P3. 
D)  exceeds P3. 
A)  is less than P1. 
B)  is greater than P1 but less than P3. 
C)  equals P3. 
D)  exceeds P3.

Question 7

In a perfectly competitive market,the market supply curve is

Accepted Answer

A)  the marginal cost curve above average total cost for a representative firm. 
B)  the horizontal sum of all the individual firms' supply curves. 
C)  the vertical sum of all the individual firms' supply curves. 
D)  always a horizontal line. 
A)  the marginal cost curve above average total cost for a representative firm. 
B)  the horizontal sum of all the individual firms' supply curves. 
C)  the vertical sum of all the individual firms' supply curves. 
D)  always a horizontal line.

Question 8

Charlene sells cotton candy.The cotton candy industry is competitive.Charlene hires a business consultant to analyze her company's financial records.The consultant recommends that Charlene increase her production.The consultant must have concluded that Charlene's

Accepted Answer

A)  total revenues exceed her total accounting costs. 
B)  marginal revenue exceeds her total cost. 
C)  marginal revenue exceeds her marginal cost. 
D)  marginal cost exceeds her marginal revenue. 
A)  total revenues exceed her total accounting costs. 
B)  marginal revenue exceeds her total cost. 
C)  marginal revenue exceeds her marginal cost. 
D)  marginal cost exceeds her marginal revenue.

Question 9

You purchase a $30,nonrefundable ticket to a play at a local theater.Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show.Alternatively you could leave the theater and go home and watch TV or read a book.You place an $8 value on watching TV and a $12 value on reading a book.

Accepted Answer

A)  You should stay and watch the remainder of the show. 
B)  You should go home and watch TV. 
C)  You should go home and read a book. 
D)  You should go home and either watch TV or read a book. 
A)  You should stay and watch the remainder of the show. 
B)  You should go home and watch TV. 
C)  You should go home and read a book. 
D)  You should go home and either watch TV or read a book.

Question 10

Table 14-6
John's Vineyard
  
-Refer to Table 14-6.What is the marginal cost of the 5th unit?

Accepted Answer

A)  $55 
B)  $60 
C)  $68 
D)  $80 
A)  $55 
B)  $60 
C)  $68 
D)  $80

Question 11

Suppose a competitive market is comprised of firms that face identical cost curves.The firms experience an increase in demand that results in positive profits for the firms.Which of the following events are then most likely to occur?

Accepted Answer

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

Question 12

Firms operating in perfectly competitive markets try to maximize profits.

Accepted Answer

A) True 
 B)False

Question 13

When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch,which of the following principles is (are)best demonstrated?

Accepted Answer

A)  (i)and (ii)only 
B)  (ii)and (iii)only 
C)  (i)and (iii)only 
D)  All are demonstrated. 
A)  (i)and (ii)only 
B)  (ii)and (iii)only 
C)  (i)and (iii)only 
D)  All are demonstrated.

Question 14

Figure 14-10  
-Refer to Figure 14-10.If the price is P2 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 15

When all firms and potential firms in a market have the same cost curves,the long-run equilibrium of a competitive market with free entry and exit will be characterized by firms

Accepted Answer

A)  earning small but positive economic profits. 
B)  facing the prospect of future losses. 
C)  operating at the efficient scale. 
D)  that work together to raise market prices. 
A)  earning small but positive economic profits. 
B)  facing the prospect of future losses. 
C)  operating at the efficient scale. 
D)  that work together to raise market prices.

Question 16

For any given price,a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the

Accepted Answer

A)  average total cost curve. 
B)  average variable cost curve. 
C)  marginal cost curve. 
D)  marginal revenue curve. 
A)  average total cost curve. 
B)  average variable cost curve. 
C)  marginal cost curve. 
D)  marginal revenue curve.

Question 17

Suppose you value a special watch at $100.You purchase it for $75.On your way home from class one day,you lose the watch.The store is still selling the same watch,but the price has risen to $85.What should you do?

Accepted Answer

A)  Pay the $85 to buy the watch. 
B)  Wait to see if the watch goes on sale.If the price drops to $75 or less,buy the watch. 
C)  Wait to see if the watch goes on sale.If the price drops to $25 or less,buy the watch. 
D)  Do not buy the watch. 
A)  Pay the $85 to buy the watch. 
B)  Wait to see if the watch goes on sale.If the price drops to $75 or less,buy the watch. 
C)  Wait to see if the watch goes on sale.If the price drops to $25 or less,buy the watch. 
D)  Do not buy the watch.

Question 18

Christopher is a professional tennis player who gives tennis lessons.The industry is competitive.Christopher hires a business consultant to analyze his financial records.The consultant recommends that Christopher give fewer tennis lessons.The consultant must have concluded that Christopher's

Accepted Answer

A)  total revenues exceed his total accounting costs. 
B)  marginal revenue exceeds his total cost. 
C)  marginal revenue exceeds his marginal cost. 
D)  marginal cost exceeds his marginal revenue. 
A)  total revenues exceed his total accounting costs. 
B)  marginal revenue exceeds his total cost. 
C)  marginal revenue exceeds his marginal cost. 
D)  marginal cost exceeds his marginal revenue.

Question 19

Table 14-3
The following table presents cost and revenue information for Soper's Port Vineyard.
  
-Refer to Table 14-3.What is the total revenue from selling 4 units?

Accepted Answer

A)  $120 
B)  $257 
C)  $317 
D)  $480 
A)  $120 
B)  $257 
C)  $317 
D)  $480

Question 20

Scenario 14-1
Assume a certain firm is producing Q = 1,000 units of output.At Q = 1,000,the firm's marginal cost equals $15 and its average total cost equals $11.The firm sells its output for $12 per unit.
-Refer to Scenario 14-1.To maximize its profit,the firm should

Accepted Answer

A)  increase its output. 
B)  continue to produce 1,000 units. 
C)  decrease its output but continue to produce. 
D)  shut down. 
A)  increase its output. 
B)  continue to produce 1,000 units. 
C)  decrease its output but continue to produce. 
D)  shut down.

Exam 14: Firms in Competitive Markets

Figure 14-2 -Refer to Figure 14-2.The firm will earn zero economic profit if the market price is

In the long-run equilibrium of a competitive market,the number of firms in the market adjusts until the market demand is satisfied at a price equal to the minimum of

A firm operating in a perfectly competitive market may earn positive,negative,or zero economic profit in the long run.

Figure 14-4 -Refer to Figure 14-4.When market price is P7,a profit-maximizing firm's short-run profits can be represented by the area

Carla's Candy Store is maximizing profits by producing 1,000 pounds of candy per day.If Carla's fixed costs unexpectedly increase and the market price remains constant,then the short run profit-maximizing level of output

Figure 14-5 -Refer to Figure 14-5.Firms will earn positive profits in the short run if the market price

In a perfectly competitive market,the market supply curve is

Charlene sells cotton candy.The cotton candy industry is competitive.Charlene hires a business consultant to analyze her company's financial records.The consultant recommends that Charlene increase her production.The consultant must have concluded that Charlene's

Table 14-6 John's Vineyard -Refer to Table 14-6.What is the marginal cost of the 5th unit?

Suppose a competitive market is comprised of firms that face identical cost curves.The firms experience an increase in demand that results in positive profits for the firms.Which of the following events are then most likely to occur?

Firms operating in perfectly competitive markets try to maximize profits.

When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch,which of the following principles is (are)best demonstrated?

Figure 14-10 -Refer to Figure 14-10.If the price is P2 in the short run,what will happen in the long run?

When all firms and potential firms in a market have the same cost curves,the long-run equilibrium of a competitive market with free entry and exit will be characterized by firms

For any given price,a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the

Suppose you value a special watch at $100.You purchase it for $75.On your way home from class one day,you lose the watch.The store is still selling the same watch,but the price has risen to $85.What should you do?

Christopher is a professional tennis player who gives tennis lessons.The industry is competitive.Christopher hires a business consultant to analyze his financial records.The consultant recommends that Christopher give fewer tennis lessons.The consultant must have concluded that Christopher's

Table 14-3 The following table presents cost and revenue information for Soper's Port Vineyard. -Refer to Table 14-3.What is the total revenue from selling 4 units?

Scenario 14-1 Assume a certain firm is producing Q = 1,000 units of output.At Q = 1,000,the firm's marginal cost equals $15 and its average total cost equals $11.The firm sells its output for $12 per unit. -Refer to Scenario 14-1.To maximize its profit,the firm should

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