Question 1

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

Accepted Answer

A)  Firms are price takers. 
B)  Firms can freely enter the market. 
C)  Many firms have market power. 
D)  Goods offered for sale are largely the same. 
A)  Firms are price takers. 
B)  Firms can freely enter the market. 
C)  Many firms have market power. 
D)  Goods offered for sale are largely the same.

Question 2

Which of the following firms is the closest to being a perfectly competitive firm?

Accepted Answer

A)  a hot dog vendor in New York 
B)  Microsoft Corporation 
C)  Ford Motor Company 
D)  the campus bookstore 
A)  a hot dog vendor in New York 
B)  Microsoft Corporation 
C)  Ford Motor Company 
D)  the campus bookstore

Question 3

Consider a competitive market with 50 identical firms.Suppose the market demand is given by the equation QD = 200 - 10P and the market supply is given by the equation QS = 10P.In addition,suppose the following table shows the marginal cost of production for various levels of output for firms in this market.
 
How many units should a firm in this market produce to maximize profit?

Accepted Answer

A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units 
A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units

Question 4

Suppose that firms in each of the two markets listed below were to increase their prices by 20 percent.Which pair represents the example where customers would decrease their quantity purchased dramatically in one market and only slightly in the other market due to differences in market structure?

Accepted Answer

A)  corn and soybeans 
B)  gasoline and restaurants 
C)  water and cable television 
D)  spiral notebooks and college textbooks 
A)  corn and soybeans 
B)  gasoline and restaurants 
C)  water and cable television 
D)  spiral notebooks and college textbooks

Question 5

If there is an increase in market demand in a perfectly competitive market,then in the short run prices will

Accepted Answer

A)  rise. 
B)  remain unchanged at the minimum of average total cost. 
C)  fall. 
D)  remain unchanged at the minimum of marginal cost. 
A)  rise. 
B)  remain unchanged at the minimum of average total cost. 
C)  fall. 
D)  remain unchanged at the minimum of marginal cost.

Question 6

The entry of new firms into a competitive market will

Accepted Answer

A)  increase market supply and increase market price. 
B)  increase market supply and decrease market price. 
C)  decrease market supply and increase market price. 
D)  decrease market supply and decrease market price. 
A)  increase market supply and increase market price. 
B)  increase market supply and decrease market price. 
C)  decrease market supply and increase market price. 
D)  decrease market supply and decrease market price.

Question 7

Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible

Accepted Answer

A)  marginal cost of production. 
B)  fixed cost of production. 
C)  total cost of production. 
D)  average total cost of production. 
A)  marginal cost of production. 
B)  fixed cost of production. 
C)  total cost of production. 
D)  average total cost of production.

Question 8

Table 14-5
  
-Refer to Table 14-5.If the firm finds that its marginal cost is $11,it should

Accepted Answer

A)  increase production to maximize profit. 
B)  increase the price of the product to maximize profit. 
C)  advertise to attract additional buyers to maximize profit. 
D)  reduce production to increase profit. 
A)  increase production to maximize profit. 
B)  increase the price of the product to maximize profit. 
C)  advertise to attract additional buyers to maximize profit. 
D)  reduce production to increase profit.

Question 9

Scenario 14-2
Assume a certain firm is producing Q = 1,000 units of output.At Q = 1,000,the firm's marginal cost equals $20 and its average total cost equals $25.The firm sells its output for $30 per unit.
-Refer to Scenario 14-2.At Q = 999,the firm's profits equal

Accepted Answer

A)  $4,990. 
B)  $5,000. 
C)  $5,020. 
D)  $5,030. 
A)  $4,990. 
B)  $5,000. 
C)  $5,020. 
D)  $5,030.

Question 10

Which of the following represents the firm's long-run condition for exiting a market?

Accepted Answer

A)  exit if P < MC 
B)  exit if P < FC 
C)  exit if P < ATC 
D)  exit if MR < MC 
A)  exit if P < MC 
B)  exit if P < FC 
C)  exit if P < ATC 
D)  exit if MR < MC

Question 11

News reports from the western United States occasionally report incidents of cattle ranchers slaughtering a large number of newborn calves and burying them in mass graves rather than transporting them to markets.Assuming that this is rational behavior by profit-maximizing "firms," explain what economic factors may influence such behavior.

Accepted Answer

If the selling price is not su

Question 12

Profit-maximizing firms enter a competitive market when existing firms in that market have

Accepted Answer

A)  total revenues that exceed fixed costs. 
B)  total revenues that exceed total variable costs. 
C)  average total costs that exceed average revenue. 
D)  average total costs less than market price. 
A)  total revenues that exceed fixed costs. 
B)  total revenues that exceed total variable costs. 
C)  average total costs that exceed average revenue. 
D)  average total costs less than market price.

Question 13

In competitive markets,firms that raise their prices are typically rewarded with larger profits.

Accepted Answer

A) True 
 B)False

Question 14

The competitive firm's short-run supply curve is its

Accepted Answer

A)  marginal revenue curve,but only the portion where marginal revenue exceeds marginal cost. 
B)  marginal cost curve. 
C)  marginal cost curve,but only the portion above the minimum of average total cost. 
D)  marginal cost curve,but only the portion above the minimum of average variable cost. 
A)  marginal revenue curve,but only the portion where marginal revenue exceeds marginal cost. 
B)  marginal cost curve. 
C)  marginal cost curve,but only the portion above the minimum of average total cost. 
D)  marginal cost curve,but only the portion above the minimum of average variable cost.

Question 15

Table 14-5
  
-Refer to Table 14-5.If the firm finds that its marginal cost is $5,it should

Accepted Answer

A)  reduce fixed costs by lowering production. 
B)  increase production to maximize profit. 
C)  decrease production to maximize profit. 
D)  maintain its current level of production to maximize profit. 
A)  reduce fixed costs by lowering production. 
B)  increase production to maximize profit. 
C)  decrease production to maximize profit. 
D)  maintain its current level of production to maximize profit.

Question 16

If a profit-maximizing firm in a competitive market discovers that,at its current level of production,price is greater than marginal cost,it should

Accepted Answer

A)  shut down. 
B)  reduce its output,but continue operating. 
C)  keep output the same. 
D)  increase its output. 
A)  shut down. 
B)  reduce its output,but continue operating. 
C)  keep output the same. 
D)  increase its output.

Question 17

A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin.

Accepted Answer

A) True 
 B)False

Question 18

A popular resort restaurant will maximize profits if it chooses to stay open during the less-crowded "off season" when its total revenues exceed its variable costs.

Accepted Answer

A) True 
 B)False

Question 19

The supply curve of a firm in a competitive market is the average variable cost curve above the minimum of marginal cost.

Accepted Answer

A) True 
 B)False

Question 20

Figure 14-4  
-Refer to Figure 14-4.In the short run,if the market price is higher than P1 but less than P4,individual firms in a competitive industry will earn

Accepted Answer

A)  positive profits. 
B)  zero profits. 
C)  losses but will remain in business. 
D)  losses and will shut down. 
A)  positive profits. 
B)  zero profits. 
C)  losses but will remain in business. 
D)  losses and will shut down.

Exam 14: Firms in Competitive Markets

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

Which of the following firms is the closest to being a perfectly competitive firm?

Suppose that firms in each of the two markets listed below were to increase their prices by 20 percent.Which pair represents the example where customers would decrease their quantity purchased dramatically in one market and only slightly in the other market due to differences in market structure?

If there is an increase in market demand in a perfectly competitive market,then in the short run prices will

The entry of new firms into a competitive market will

Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible

Table 14-5 -Refer to Table 14-5.If the firm finds that its marginal cost is $11,it should

Scenario 14-2 Assume a certain firm is producing Q = 1,000 units of output.At Q = 1,000,the firm's marginal cost equals $20 and its average total cost equals $25.The firm sells its output for $30 per unit. -Refer to Scenario 14-2.At Q = 999,the firm's profits equal

Which of the following represents the firm's long-run condition for exiting a market?

Profit-maximizing firms enter a competitive market when existing firms in that market have

In competitive markets,firms that raise their prices are typically rewarded with larger profits.

The competitive firm's short-run supply curve is its

Table 14-5 -Refer to Table 14-5.If the firm finds that its marginal cost is $5,it should

If a profit-maximizing firm in a competitive market discovers that,at its current level of production,price is greater than marginal cost,it should

A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin.

A popular resort restaurant will maximize profits if it chooses to stay open during the less-crowded "off season" when its total revenues exceed its variable costs.

The supply curve of a firm in a competitive market is the average variable cost curve above the minimum of marginal cost.

Figure 14-4 -Refer to Figure 14-4.In the short run,if the market price is higher than P1 but less than P4,individual firms in a competitive industry will earn

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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