Question 1

In the long run the market supply

Accepted Answer

A)  must always be horizontal. 
B)  could be upward sloping if the cost of production falls as new firms enter the market. 
C)  could be upward sloping if the cost of production rises as new firms enter the market. 
D)  could be upward sloping if technological improvements lower the cost of producing in the market. 
A)  must always be horizontal. 
B)  could be upward sloping if the cost of production falls as new firms enter the market. 
C)  could be upward sloping if the cost of production rises as new firms enter the market. 
D)  could be upward sloping if technological improvements lower the cost of producing in the market.

Question 2

If a firm in a perfectly competitive market triples the number of units of output sold,then total revenue will

Accepted Answer

A)  more than triple. 
B)  less than triple. 
C)  exactly triple. 
D)  Any of the above may be true depending on the firm's labor productivity. 
A)  more than triple. 
B)  less than triple. 
C)  exactly triple. 
D)  Any of the above may be true depending on the firm's labor productivity.

Question 3

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

Accepted Answer

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

Question 4

In the long run,when price is greater than average total cost,some firms in a competitive market will choose to enter the market.

Accepted Answer

A) True 
 B)False

Question 5

A firm has market power if it can

Accepted Answer

A)  maximize profits. 
B)  minimize costs. 
C)  influence the market price of the good it sells. 
D)  hire as many workers as it needs at the prevailing wage rate. 
A)  maximize profits. 
B)  minimize costs. 
C)  influence the market price of the good it sells. 
D)  hire as many workers as it needs at the prevailing wage rate.

Question 6

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 100th unit for $4.75.The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not a characteristic of a perfectly competitive market?

Accepted Answer

A)  Firms are price takers. 
B)  Firms have difficulty entering the market. 
C)  There are many sellers in the market. 
D)  Goods offered for sale are largely the same. 
A)  Firms are price takers. 
B)  Firms have difficulty entering the market. 
C)  There are many sellers in the market. 
D)  Goods offered for sale are largely the same.

Question 8

Suppose that a firm operating in perfectly competitive market sells 200 units of output at a price of $3 each.Which of the following statements is correct?

Accepted Answer

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

Question 9

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics,which states that rational people

Accepted Answer

A)  consider sunk costs. 
B)  equate prices to the average costs of production. 
C)  will eventually leave markets that experience zero profit. 
D)  think at the margin. 
A)  consider sunk costs. 
B)  equate prices to the average costs of production. 
C)  will eventually leave markets that experience zero profit. 
D)  think at the margin.

Question 10

Table 14-2
  
-Refer to Table 14-2.Over which range of output is average revenue equal to price?

Accepted Answer

A)  1 to 5 
B)  3 to 7 
C)  5 to 9 
D)  Average revenue is equal to price over the entire range of output. 
A)  1 to 5 
B)  3 to 7 
C)  5 to 9 
D)  Average revenue is equal to price over the entire range of output.

Question 11

When economic profits are zero in equilibrium,the firm's revenue must be sufficient to cover all opportunity costs.

Accepted Answer

A) True 
 B)False

Question 12

We can measure the profits earned by a firm in a competitive industry as

Accepted Answer

A)  (P - AT
C) x Q. 
B)  (P - M
C) x Q. 
C)  MR x MC. 
D)  (MC - AT
C) x Q. 
A)  (P - AT
C) x Q. 
B)  (P - M
C) x Q. 
C)  MR x MC. 
D)  (MC - AT
C) x Q.

Question 13

When price is greater than marginal cost for a firm in a competitive market,

Accepted Answer

A)  marginal cost must be falling. 
B)  the firm must be minimizing its losses. 
C)  there are opportunities to increase profit by increasing production. 
D)  the firm should decrease output to maximize profit. 
A)  marginal cost must be falling. 
B)  the firm must be minimizing its losses. 
C)  there are opportunities to increase profit by increasing production. 
D)  the firm should decrease output to maximize profit.

Question 14

When managers of firms in a competitive market observe falling profits,they are likely to infer that the market is characterized by

Accepted Answer

A)  a violation of conventional market forces. 
B)  over-investment. 
C)  the entry of new firms. 
D)  too few firms in the market. 
A)  a violation of conventional market forces. 
B)  over-investment. 
C)  the entry of new firms. 
D)  too few firms in the market.

Question 15

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive market when price falls below the minimum of average variable cost?

Accepted Answer

A)  The firm will continue to produce to attempt to pay fixed costs. 
B)  The firm will immediately stop production to minimize its losses. 
C)  The firm will stop production as soon as it is able to pay its sunk costs. 
D)  The firm will continue to produce in the short run but will likely exit the market in the long run. 
A)  The firm will continue to produce to attempt to pay fixed costs. 
B)  The firm will immediately stop production to minimize its losses. 
C)  The firm will stop production as soon as it is able to pay its sunk costs. 
D)  The firm will continue to produce in the short run but will likely exit the market in the long run.

Question 16

A firm operating in a perfectly competitive industry will shut down in the short run if its economic profits fall to zero because it is likely to be earning negative accounting profits.

Accepted Answer

A) True 
 B)False

Question 17

Cold Duck Airlines flies between Tacoma and Portland.The company leases planes on a year-long contract at a cost that averages $600 per flight.Other costs (fuel,flight attendants,etc. )amount to $550 per flight.Currently,Cold Duck's revenues are $1,000 per flight.All prices and costs are expected to continue at their present levels.If it wants to maximize profit,Cold Duck Airlines should

Accepted Answer

A)  drop the flight immediately. 
B)  continue the flight. 
C)  continue flying until the lease expires and then drop the run. 
D)  drop the flight now but renew the lease if conditions improve. 
A)  drop the flight immediately. 
B)  continue the flight. 
C)  continue flying until the lease expires and then drop the run. 
D)  drop the flight now but renew the lease if conditions improve.

Question 18

Table 14-8
The following table presents cost and revenue information for Soper's Port Vineyard.
  
-Refer to Table 14-8.What is the marginal cost of the 1st unit?

Accepted Answer

A)  $50 
B)  $75 
C)  $80 
D)  $150 
A)  $50 
B)  $75 
C)  $80 
D)  $150

Question 19

Mrs.Smith operates a business in a competitive market.The current market price is $8.50,and at her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Which of the following statements about Mrs.Smith's firm is correct?

Accepted Answer

A)  Mrs.Smith should shut down her business in the short run but continue to operate in the long run.. 
B)  Mrs.Smith should continue to operate in the short run but shut down in the long run. 
C)  Mrs.Smith should continue to operate in both the short run and long run. 
D)  Mrs.Smith should shut down in both the short run and long run. 
A)  Mrs.Smith should shut down her business in the short run but continue to operate in the long run.. 
B)  Mrs.Smith should continue to operate in the short run but shut down in the long run. 
C)  Mrs.Smith should continue to operate in both the short run and long run. 
D)  Mrs.Smith should shut down in both the short run and long run.

Question 20

Bill operates a boat rental business in a competitive industry.He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them.He rents each boat for $200 per month.The variable cost for each boat rental is $50.In the off season,Bill should

Accepted Answer

A)  operate his business as long as he rents at least 7 boats per month. 
B)  operate his business as long as he rents at least 1 boat per month. 
C)  operate his business as long as he rents all 10 boats each month. 
D)  raise the price he charges per boat rental. 
A)  operate his business as long as he rents at least 7 boats per month. 
B)  operate his business as long as he rents at least 1 boat per month. 
C)  operate his business as long as he rents all 10 boats each month. 
D)  raise the price he charges per boat rental.

Exam 14: Firms in Competitive Markets

In the long run the market supply

If a firm in a perfectly competitive market triples the number of units of output sold,then total revenue will

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

In the long run,when price is greater than average total cost,some firms in a competitive market will choose to enter the market.

A firm has market power if it can

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 100th unit for $4.75.The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Which of the following is not a characteristic of a perfectly competitive market?

Suppose that a firm operating in perfectly competitive market sells 200 units of output at a price of $3 each.Which of the following statements is correct?

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics,which states that rational people

Table 14-2 -Refer to Table 14-2.Over which range of output is average revenue equal to price?

When economic profits are zero in equilibrium,the firm's revenue must be sufficient to cover all opportunity costs.

We can measure the profits earned by a firm in a competitive industry as

When price is greater than marginal cost for a firm in a competitive market,

When managers of firms in a competitive market observe falling profits,they are likely to infer that the market is characterized by

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive market when price falls below the minimum of average variable cost?

A firm operating in a perfectly competitive industry will shut down in the short run if its economic profits fall to zero because it is likely to be earning negative accounting profits.

Table 14-8 The following table presents cost and revenue information for Soper's Port Vineyard. -Refer to Table 14-8.What is the marginal cost of the 1st unit?

Mrs.Smith operates a business in a competitive market.The current market price is $8.50,and at her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Which of the following statements about Mrs.Smith's firm is correct?

Bill operates a boat rental business in a competitive industry.He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them.He rents each boat for $200 per month.The variable cost for each boat rental is $50.In the off season,Bill 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

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