Question 1

Table 14-13
Diana's Dress Emporium
  
-Refer to Table 14-13. In order to maximize profits, how many units should Diana's Dress Emporium produce?

Accepted Answer

A)  5 
B)  6 
C)  7 
D)  8 
A)  5 
B)  6 
C)  7 
D)  8

Question 2

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves:  
-Refer to Figure 14-13. If the price is $3.50 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 3

Table 14-8
Suppose that a firm in a competitive market faces the following revenues and costs:
  
-Refer to Table 14-8. The firm should not produce an output level beyond

Accepted Answer

A)  4 units. 
B)  5 units. 
C)  6 units. 
D)  7 units. 
A)  4 units. 
B)  5 units. 
C)  6 units. 
D)  7 units.

Question 4

When price is below average variable cost, a firm in a competitive market will

Accepted Answer

A)  shut down and incur fixed costs. 
B)  shut down and incur both variable and fixed costs. 
C)  continue to operate as long as average revenue exceeds marginal cost. 
D)  continue to operate as long as average revenue exceeds average fixed cost. 
A)  shut down and incur fixed costs. 
B)  shut down and incur both variable and fixed costs. 
C)  continue to operate as long as average revenue exceeds marginal cost. 
D)  continue to operate as long as average revenue exceeds average fixed cost.

Question 5

Mrs. Smith operates a business in a competitive market. The current market price is $7.50. At her profit- maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

Accepted Answer

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

Question 6

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves:  
-Refer to Figure 14-1. If the market price is $5.00, the firm will earn

Accepted Answer

A)  positive economic profits in the short run. 
B)  negative economic profits in the short run but remain in business. 
C)  negative economic profits and shut down. 
D)  zero economic profits in the short run. 
A)  positive economic profits in the short run. 
B)  negative economic profits in the short run but remain in business. 
C)  negative economic profits and shut down. 
D)  zero economic profits in the short run.

Question 7

Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-3. 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 8

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:
  
-Refer to Table 14-11. The marginal revenue from producing the 5th unit equals (i) $6.
(ii) the price.
(iii) the marginal cost.

Accepted Answer

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

Question 9

A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob. Which of the following events would decrease the firm's average revenue?

Accepted Answer

A)  The firm increases its output above 500 doorknobs. 
B)  The firm decreases its output below 500 doorknobs. 
C)  The market price of doorknobs rises above $10. 
D)  The market price of doorknobs falls below $10. 
A)  The firm increases its output above 500 doorknobs. 
B)  The firm decreases its output below 500 doorknobs. 
C)  The market price of doorknobs rises above $10. 
D)  The market price of doorknobs falls below $10.

Question 10

Table 14-12
Bill's Birdhouses
  
-Refer to Table 14-12. What is the total revenue from selling 4 units?

Accepted Answer

A)  $80 
B)  $137 
C)  $320 
D)  $480 
A)  $80 
B)  $137 
C)  $320 
D)  $480

Question 11

In a long-run equilibrium, the marginal firm has

Accepted Answer

A)  price equal to average total cost. 
B)  total revenue equal to total cost. 
C)  economic profit equal to zero. 
D)  All of the above are correct. 
A)  price equal to average total cost. 
B)  total revenue equal to total cost. 
C)  economic profit equal to zero. 
D)  All of the above are correct.

Question 12

Suppose that a competitive market is initially in equilibrium. Then demand increases. If entering firms face the same costs as existing firms and sufficient resources are available for entering firms,

Accepted Answer

A)  the long-run market supply curve will be upward sloping. 
B)  the long-run market supply curve will be perfectly elastic. 
C)  in the long run firms will suffer economic losses, leading them to exit the industry. 
D)  the number of firms will decrease, and the market will become a monopoly. 
A)  the long-run market supply curve will be upward sloping. 
B)  the long-run market supply curve will be perfectly elastic. 
C)  in the long run firms will suffer economic losses, leading them to exit the industry. 
D)  the number of firms will decrease, and the market will become a monopoly.

Question 13

In the long run, a profit-maximizing firm will choose to exit a market when

Accepted Answer

A)  average fixed cost is falling. 
B)  variable costs exceed sunk costs. 
C)  marginal cost exceeds marginal revenue at the current level of production. 
D)  total revenue is less than total cost. 
A)  average fixed cost is falling. 
B)  variable costs exceed sunk costs. 
C)  marginal cost exceeds marginal revenue at the current level of production. 
D)  total revenue is less than total cost.

Question 14

In making a short-run profit-maximizing production decision, the firm must consider both fixed and variable cost.

Accepted Answer

A) True 
 B)False

Question 15

A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the
market price is less than that firm's average variable cost.

Accepted Answer

A) True 
 B)False

Question 16

Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to

Accepted Answer

A)  increase. 
B)  remain unchanged. 
C)  decrease by less than 20 percent. 
D)  decrease by more than 20 percent. 
A)  increase. 
B)  remain unchanged. 
C)  decrease by less than 20 percent. 
D)  decrease by more than 20 percent.

Question 17

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15.

Accepted Answer

A)  In the short run firms will shut down, and in the long run firms will leave the market. 
B)  In the short run firms will continue to operate, but in the long run firms will leave the market. 
C)  New firms will likely enter this market to capture any remaining economic profits. 
D)  The firm will earn zero profits in both the short run and long run. 
A)  In the short run firms will shut down, and in the long run firms will leave the market. 
B)  In the short run firms will continue to operate, but in the long run firms will leave the market. 
C)  New firms will likely enter this market to capture any remaining economic profits. 
D)  The firm will earn zero profits in both the short run and long run.

Question 18

The short-run market supply curve in a perfectly competitive industry

Accepted Answer

A)  shows the total quantity supplied by all firms at each possible price. 
B)  is perfectly inelastic at the market price. 
C)  is perfectly elastic at the market price. 
D)  shows the variety of prices that different firms will charge for a given quantity. 
A)  shows the total quantity supplied by all firms at each possible price. 
B)  is perfectly inelastic at the market price. 
C)  is perfectly elastic at the market price. 
D)  shows the variety of prices that different firms will charge for a given quantity.

Question 19

Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should

Accepted Answer

A)  make more than 20 wedding cakes per month. 
B)  make fewer than 20 wedding cakes per month. 
C)  continue to make 20 wedding cakes per month. 
D)  We do not have enough information to answer the question. 
A)  make more than 20 wedding cakes per month. 
B)  make fewer than 20 wedding cakes per month. 
C)  continue to make 20 wedding cakes per month. 
D)  We do not have enough information to answer the question.

Question 20

In the short run, a firm operating in a competitive industry will shut down if price is

Accepted Answer

A)  less than average total cost. 
B)  less than average variable cost. 
C)  greater than average variable cost but less than average total cost. 
D)  greater than marginal cost. 
A)  less than average total cost. 
B)  less than average variable cost. 
C)  greater than average variable cost but less than average total cost. 
D)  greater than marginal cost.

Exam 14: Firms in Competitive Markets

Table 14-13 Diana's Dress Emporium -Refer to Table 14-13. In order to maximize profits, how many units should Diana's Dress Emporium produce?

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $3.50 in the short run, what will happen in the long run?

Table 14-8 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-8. The firm should not produce an output level beyond

When price is below average variable cost, a firm in a competitive market will

Mrs. Smith operates a business in a competitive market. The current market price is $7.50. At her profit- maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price is $5.00, the firm will earn

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. The firm will earn zero economic profit if the market price is

Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11. The marginal revenue from producing the 5th unit equals (i) $6. (ii) the price. (iii) the marginal cost.

A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob. Which of the following events would decrease the firm's average revenue?

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the total revenue from selling 4 units?

In a long-run equilibrium, the marginal firm has

Suppose that a competitive market is initially in equilibrium. Then demand increases. If entering firms face the same costs as existing firms and sufficient resources are available for entering firms,

In the long run, a profit-maximizing firm will choose to exit a market when

In making a short-run profit-maximizing production decision, the firm must consider both fixed and variable cost.

A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost.

Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15.

The short-run market supply curve in a perfectly competitive industry

In the short run, a firm operating in a competitive industry will shut down if price is

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

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