Question 1

Figure 14-1  
-Refer to Figure 14-1.If the market price is P2,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 2

Figure 14-9    
-Refer to Figure 14-9.If the market starts in equilibrium at point C in panel (b),a decrease in demand will ultimately lead to

Accepted Answer

A)  more firms in the industry but lower levels of output for each firm. 
B)  fewer firms in the market. 
C)  a new long-run equilibrium at point D in panel (b). 
D)  lower prices once the new long-run equilibrium is reached. 
A)  more firms in the industry but lower levels of output for each firm. 
B)  fewer firms in the market. 
C)  a new long-run equilibrium at point D in panel (b). 
D)  lower prices once the new long-run equilibrium is reached.

Question 3

When a firm has little ability to influence market prices it is said to be in a

Accepted Answer

A)  competitive market. 
B)  strategic market. 
C)  thin market. 
D)  power market. 
A)  competitive market. 
B)  strategic market. 
C)  thin market. 
D)  power market.

Question 4

A firm in a competitive market has the following cost structure:
 
What is the lowest price at which this firm might choose to operate?

Accepted Answer

A)  $2 
B)  $3 
C)  $4 
D)  $5 
A)  $2 
B)  $3 
C)  $4 
D)  $5

Question 5

When firms are neither entering nor exiting a perfectly competitive market,

Accepted Answer

A)  total revenue must equal total variable cost for each firm. 
B)  economic profits must be zero. 
C)  price must equal average variable cost for each firm. 
D)  Both a and c are correct. 
A)  total revenue must equal total variable cost for each firm. 
B)  economic profits must be zero. 
C)  price must equal average variable cost for each firm. 
D)  Both a and c are correct.

Question 6

Changes in the output of a perfectly competitive firm,without any change in the price of the product,will change the firm's

Accepted Answer

A)  total revenue. 
B)  marginal revenue. 
C)  average revenue. 
D)  All of the above are correct. 
A)  total revenue. 
B)  marginal revenue. 
C)  average revenue. 
D)  All of the above are correct.

Question 7

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

Accepted Answer

A)  can be represented by the area P2Q2. 
B)  can be represented by the area P3Q2. 
C)  can be represented by the area (P3-P2)Q3. 
D)  are zero. 
A)  can be represented by the area P2Q2. 
B)  can be represented by the area P3Q2. 
C)  can be represented by the area (P3-P2)Q3. 
D)  are zero.

Question 8

When firms have an incentive to exit a competitive market,their exit will

Accepted Answer

A)  lower the market price. 
B)  necessarily raise the costs for the firms that remain in the market. 
C)  raise the profits for the firms that remain in the market. 
D)  shift the demand for the product to the left. 
A)  lower the market price. 
B)  necessarily raise the costs for the firms that remain in the market. 
C)  raise the profits for the firms that remain in the market. 
D)  shift the demand for the product to the left.

Question 9

Shrimp Galore,a shrimp harvesting business in the Pacific Northwest,has a 30-year loan on its shrimp harvesting boat.The annual loan payment is $25,000 and the boat has a market (salvage)value that exceeds its outstanding loan balance.Prior to the 2008 shrimp harvesting season,Shrimp Galore's accountant predicted that at expected market prices for shrimp,Shrimp Galore would have a net loss of $75,000 dollars after paying all 2008 expenses (including the annual loan payment).In this case,Shrimp Galore should

Accepted Answer

A)  produce nothing and experience a loss of $25,000. 
B)  produce nothing and experience a loss of $75,000. 
C)  continue to operate because expected profits will rise in the future. 
D)  continue to operate even though it predicts a loss of $75,000. 
A)  produce nothing and experience a loss of $25,000. 
B)  produce nothing and experience a loss of $75,000. 
C)  continue to operate because expected profits will rise in the future. 
D)  continue to operate even though it predicts a loss of $75,000.

Question 10

In the long run,a firm should exit the industry if its total costs exceed its total revenues.

Accepted Answer

A) True 
 B)False

Question 11

Table 14-5
  
-Refer to Table 14-5.At a production level of 4 units which of the following is true?

Accepted Answer

A)  Marginal cost is $4. 
B)  Total revenue is greater than variable cost. 
C)  Marginal revenue is less than marginal cost. 
D)  The firm is maximizing profit. 
A)  Marginal cost is $4. 
B)  Total revenue is greater than variable cost. 
C)  Marginal revenue is less than marginal cost. 
D)  The firm is maximizing profit.

Question 12

Suppose a profit-maximizing firm in a competitive market produces rubber bands.When the market price for rubber bands falls below the minimum of its average total cost,but still lies above the minimum of average variable cost,in the short run the firm will

Accepted Answer

A)  experience losses but will continue to produce rubber bands. 
B)  shut down. 
C)  earn both economic and accounting profits. 
D)  raise the price of its product. 
A)  experience losses but will continue to produce rubber bands. 
B)  shut down. 
C)  earn both economic and accounting profits. 
D)  raise the price of its product.

Question 13

When new entrants into a competitive market have higher costs than existing firms,

Accepted Answer

A)  accounting profits will be the primary determinant of entry into the market. 
B)  sunk costs become an important determinant of the short-run entry strategy. 
C)  market price will rise. 
D)  long-run supply is constant. 
A)  accounting profits will be the primary determinant of entry into the market. 
B)  sunk costs become an important determinant of the short-run entry strategy. 
C)  market price will rise. 
D)  long-run supply is constant.

Question 14

Which of the following statements regarding a competitive market is not correct?

Accepted Answer

A)  There are many buyers and many sellers in the market. 
B)  Because of firm location or product differences,some firms can charge a higher price than other firms and still maintain their sales volume. 
C)  Price and average revenue are equal. 
D)  Price and marginal revenue are equal. 
A)  There are many buyers and many sellers in the market. 
B)  Because of firm location or product differences,some firms can charge a higher price than other firms and still maintain their sales volume. 
C)  Price and average revenue are equal. 
D)  Price and marginal revenue are equal.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Which of the following could be used to calculate the profit for a firm?

Accepted Answer

A)  Profit = MR - MC 
B)  Profit = MR - TC 
C)  Profit = (P - M
C) xQ 
D)  Profit = (P - AT
C) xQ 
A)  Profit = MR - MC 
B)  Profit = MR - TC 
C)  Profit = (P - M
C) xQ 
D)  Profit = (P - AT
C) xQ

Question 17

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.At Q = 999,the firm's total cost amounts to

Accepted Answer

A)  $10,985. 
B)  $10,990. 
C)  $10,995. 
D)  $10,999. 
A)  $10,985. 
B)  $10,990. 
C)  $10,995. 
D)  $10,999.

Question 18

Suppose that a firm is currently maximizing its short-run profit at an output of 50 units.If the current price is $9,the marginal cost of the 50th unit is $9,and the average total cost of producing 50 units is $4,what is the firm's profit?

Accepted Answer

A)  $0 
B)  $200 
C)  $250 
D)  $450 
A)  $0 
B)  $200 
C)  $250 
D)  $450

Question 19

Figure 14-9    
-Refer to Figure 14-9.Assume that the market starts in equilibrium at point A in panel (b).An increase in demand from D0 to D1 will result in

Accepted Answer

A)  a new market equilibrium at point D. 
B)  an eventual increase in the number of firms in the market and a new long-run equilibrium at point C. 
C)  rising prices and falling profits for existing firms in the market. 
D)  falling prices and falling profits for existing firms in the market. 
A)  a new market equilibrium at point D. 
B)  an eventual increase in the number of firms in the market and a new long-run equilibrium at point C. 
C)  rising prices and falling profits for existing firms in the market. 
D)  falling prices and falling profits for existing firms in the market.

Question 20

In the long run,a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

Accepted Answer

A) True 
 B)False

Exam 14: Firms in Competitive Markets

Figure 14-1 -Refer to Figure 14-1.If the market price is P2,in the short run,the perfectly competitive firm will earn

Figure 14-9 -Refer to Figure 14-9.If the market starts in equilibrium at point C in panel (b),a decrease in demand will ultimately lead to

When a firm has little ability to influence market prices it is said to be in a

A firm in a competitive market has the following cost structure: What is the lowest price at which this firm might choose to operate?

When firms are neither entering nor exiting a perfectly competitive market,

Changes in the output of a perfectly competitive firm,without any change in the price of the product,will change the firm's

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

When firms have an incentive to exit a competitive market,their exit will

In the long run,a firm should exit the industry if its total costs exceed its total revenues.

Table 14-5 -Refer to Table 14-5.At a production level of 4 units which of the following is true?

Suppose a profit-maximizing firm in a competitive market produces rubber bands.When the market price for rubber bands falls below the minimum of its average total cost,but still lies above the minimum of average variable cost,in the short run the firm will

When new entrants into a competitive market have higher costs than existing firms,

Which of the following statements regarding a competitive market is not correct?

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

Which of the following could be used to calculate the profit for a firm?

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.At Q = 999,the firm's total cost amounts to

Suppose that a firm is currently maximizing its short-run profit at an output of 50 units.If the current price is $9,the marginal cost of the 50th unit is $9,and the average total cost of producing 50 units is $4,what is the firm's profit?

Figure 14-9 -Refer to Figure 14-9.Assume that the market starts in equilibrium at point A in panel (b).An increase in demand from D0 to D1 will result in

In the long run,a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

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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