Question 1

Table 14-2
  
-Refer to Table 14-2.If the firm doubles its output from 3 to 6 units,total revenue will

Accepted Answer

A)  increase by less than $39. 
B)  increase by exactly $39. 
C)  increase by more than $39. 
D)  It cannot be determined from the information provided. 
A)  increase by less than $39. 
B)  increase by exactly $39. 
C)  increase by more than $39. 
D)  It cannot be determined from the information provided.

Question 2

When total revenue is less than variable costs,a firm in a competitive market will

Accepted Answer

A)  continue to operate as long as average revenue exceeds marginal cost. 
B)  continue to operate as long as average revenue exceeds average fixed cost. 
C)  shut down. 
D)  raise its price. 
A)  continue to operate as long as average revenue exceeds marginal cost. 
B)  continue to operate as long as average revenue exceeds average fixed cost. 
C)  shut down. 
D)  raise its price.

Question 3

If all firms have the same costs of production,then in long-run equilibrium,

Accepted Answer

A)  price exceeds average total cost for all firms. 
B)  price exceeds marginal cost for all firms. 
C)  some firms may earn positive economic profits. 
D)  all firms have zero economic profits and just cover their opportunity costs. 
A)  price exceeds average total cost for all firms. 
B)  price exceeds marginal cost for all firms. 
C)  some firms may earn positive economic profits. 
D)  all firms have zero economic profits and just cover their opportunity costs.

Question 4

Figure 14-9    
-Refer to Figure 14-9.Assume that the market starts in equilibrium at point A in panel (b)and that panel (a)illustrates the cost curves facing individual firms.Suppose that demand increases from D0 to D1.Which of the following statements is not correct?

Accepted Answer

A)  Point A is a long-run equilibrium point. 
B)  Points A,B,and C are short-run equilibria points. 
C)  Point B is a long-run equilibrium point. 
D)  Point C is a long-run equilibrium point. 
A)  Point A is a long-run equilibrium point. 
B)  Points A,B,and C are short-run equilibria points. 
C)  Point B is a long-run equilibrium point. 
D)  Point C is a long-run equilibrium point.

Question 5

When market conditions in a competitive industry are such that firms cannot cover their total production costs,then

Accepted Answer

A)  the firms will suffer long-run economic losses. 
B)  the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. 
C)  some firms will exit the market,causing prices to rise until the remaining firms can cover their total production costs. 
D)  all firms will go out of business,since consumers will not pay prices that enable firms to cover their total production costs. 
A)  the firms will suffer long-run economic losses. 
B)  the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. 
C)  some firms will exit the market,causing prices to rise until the remaining firms can cover their total production costs. 
D)  all firms will go out of business,since consumers will not pay prices that enable firms to cover their total production costs.

Question 6

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

Accepted Answer

A)  fixed cost. 
B)  variable cost. 
C)  total cost. 
D)  revenue. 
A)  fixed cost. 
B)  variable cost. 
C)  total cost. 
D)  revenue.

Question 7

A firm in a competitive market has the following cost structure:
 
If the market price is $4,this firm will

Accepted Answer

A)  produce two units in the short run and exit in the long run. 
B)  produce three units in the short run and exit in the long run. 
C)  produce four units in the short run and exit in the long run. 
D)  shut down in the short run and exit in the long run. 
A)  produce two units in the short run and exit in the long run. 
B)  produce three units in the short run and exit in the long run. 
C)  produce four units in the short run and exit in the long run. 
D)  shut down in the short run and exit in the long run.

Question 8

Which of the following statements best expresses a firm's profit-maximizing decision rule?

Accepted Answer

A)  If marginal revenue is greater than marginal cost,the firm should increase its output. 
B)  If marginal revenue is less than marginal cost,the firm should decrease its output. 
C)  If marginal revenue equals marginal cost,the firm should continue producing its current level of output. 
D)  All of the above are correct. 
A)  If marginal revenue is greater than marginal cost,the firm should increase its output. 
B)  If marginal revenue is less than marginal cost,the firm should decrease its output. 
C)  If marginal revenue equals marginal cost,the firm should continue producing its current level of output. 
D)  All of the above are correct.

Question 9

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

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 10

Figure 14-4  
-Refer to Figure 14-4.When market price is P2,a profit-maximizing firm's losses can be represented by the area

Accepted Answer

A)  (P4 - P2)Q2. 
B)  (P2 - P1)(Q2-Q1). 
C)  At a market price of P2,the firm earns profits,not losses. 
D)  At a market price of P2 the firm has losses,but the reference points in the figure don't identify the losses. 
A)  (P4 - P2)Q2. 
B)  (P2 - P1)(Q2-Q1). 
C)  At a market price of P2,the firm earns profits,not losses. 
D)  At a market price of P2 the firm has losses,but the reference points in the figure don't identify the losses.

Question 11

If a firm notices that its average revenue equals the current market price,that firm must be participating in a competitive market.

Accepted Answer

A) True 
 B)False

Question 12

If a firm operating in a competitive industry shuts down in the short run,it can avoid paying

Accepted Answer

A)  fixed costs. 
B)  variable costs. 
C)  total costs. 
D)  The firm must pay all its costs,even if it shuts down. 
A)  fixed costs. 
B)  variable costs. 
C)  total costs. 
D)  The firm must pay all its costs,even if it shuts down.

Question 13

Figure 14-9    
-Refer to Figure 14-9.Suppose a firm in a competitive market,like the one depicted in panel (a),observes market price rising from P1 to P2.Which of the following could explain this observation?

Accepted Answer

A)  The entry of new firms into the market. 
B)  The exit of existing consumers from the market. 
C)  An increase in market supply from S0 to S1. 
D)  An increase in market demand from D0 to D1. 
A)  The entry of new firms into the market. 
B)  The exit of existing consumers from the market. 
C)  An increase in market supply from S0 to S1. 
D)  An increase in market demand from D0 to D1.

Question 14

Profit-maximizing firms in a competitive market produce an output level where

Accepted Answer

A)  marginal cost equals marginal revenue. 
B)  marginal cost equals average total cost. 
C)  marginal revenue is increasing. 
D)  price is less than marginal revenue. 
A)  marginal cost equals marginal revenue. 
B)  marginal cost equals average total cost. 
C)  marginal revenue is increasing. 
D)  price is less than marginal revenue.

Question 15

Table 14-5
  
-Refer to Table 14-5.In order to maximize profit,the firm will produce a level of output where marginal cost is equal to

Accepted Answer

A)  $6. 
B)  $7. 
C)  $8. 
D)  $9. 
A)  $6. 
B)  $7. 
C)  $8. 
D)  $9.

Question 16

Which of the following statements is correct?

Accepted Answer

A)  For all firms,marginal revenue equals the price of the good. 
B)  Only for competitive firms does average revenue equal the price of the good. 
C)  Marginal revenue can be calculated as total revenue divided by the quantity sold. 
D)  Only for competitive firms does average revenue equal marginal revenue. 
A)  For all firms,marginal revenue equals the price of the good. 
B)  Only for competitive firms does average revenue equal the price of the good. 
C)  Marginal revenue can be calculated as total revenue divided by the quantity sold. 
D)  Only for competitive firms does average revenue equal marginal revenue.

Question 17

A profit-maximizing firm in a competitive market is able to sell its product for $7.At its current level of output,the firm's average total cost is $10.The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units.The firm experiences a

Accepted Answer

A)  profit of more than $27. 
B)  profit of exactly $27. 
C)  loss of more than $27. 
D)  loss of exactly $27. 
A)  profit of more than $27. 
B)  profit of exactly $27. 
C)  loss of more than $27. 
D)  loss of exactly $27.

Question 18

In a perfectly competitive market,the process of entry and exit will end when

Accepted Answer

A)  price equals minimum marginal cost. 
B)  marginal revenue equals marginal cost. 
C)  economic profits are zero. 
D)  accounting profits are zero. 
A)  price equals minimum marginal cost. 
B)  marginal revenue equals marginal cost. 
C)  economic profits are zero. 
D)  accounting profits are zero.

Question 19

The analysis of competitive firms sheds light on the decisions that lie behind the

Accepted Answer

A)  demand curve. 
B)  supply curve. 
C)  way firms make pricing decisions in the not-for-profit sector of the economy. 
D)  way financial markets set interest rates. 
A)  demand curve. 
B)  supply curve. 
C)  way firms make pricing decisions in the not-for-profit sector of the economy. 
D)  way financial markets set interest rates.

Question 20

If a competitive firm is currently producing a level of output at which profit is not maximized,then it must be true that

Accepted Answer

A)  marginal revenue exceeds marginal cost. 
B)  marginal cost exceeds marginal revenue. 
C)  total cost exceeds total revenue. 
D)  None of the above is correct. 
A)  marginal revenue exceeds marginal cost. 
B)  marginal cost exceeds marginal revenue. 
C)  total cost exceeds total revenue. 
D)  None of the above is correct.

Exam 14: Firms in Competitive Markets

Table 14-2 -Refer to Table 14-2.If the firm doubles its output from 3 to 6 units,total revenue will

When total revenue is less than variable costs,a firm in a competitive market will

If all firms have the same costs of production,then in long-run equilibrium,

Figure 14-9 -Refer to Figure 14-9.Assume that the market starts in equilibrium at point A in panel (b)and that panel (a)illustrates the cost curves facing individual firms.Suppose that demand increases from D0 to D1.Which of the following statements is not correct?

When market conditions in a competitive industry are such that firms cannot cover their total production costs,then

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

A firm in a competitive market has the following cost structure: If the market price is $4,this firm will

Which of the following statements best expresses a firm's profit-maximizing decision rule?

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

Figure 14-4 -Refer to Figure 14-4.When market price is P2,a profit-maximizing firm's losses can be represented by the area

If a firm notices that its average revenue equals the current market price,that firm must be participating in a competitive market.

If a firm operating in a competitive industry shuts down in the short run,it can avoid paying

Figure 14-9 -Refer to Figure 14-9.Suppose a firm in a competitive market,like the one depicted in panel (a),observes market price rising from P1 to P2.Which of the following could explain this observation?

Profit-maximizing firms in a competitive market produce an output level where

Table 14-5 -Refer to Table 14-5.In order to maximize profit,the firm will produce a level of output where marginal cost is equal to

Which of the following statements is correct?

A profit-maximizing firm in a competitive market is able to sell its product for $7.At its current level of output,the firm's average total cost is $10.The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units.The firm experiences a

In a perfectly competitive market,the process of entry and exit will end when

The analysis of competitive firms sheds light on the decisions that lie behind the

If a competitive firm is currently producing a level of output at which profit is not maximized,then it must be true that

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

Figure 14-4 -Refer to Figure 14-4.When market price is P₂,a profit-maximizing firm's losses can be represented by the area