Question 1

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

Accepted Answer

A)  decreases in production costs resulting from more firms coming into the market. 
B)  a breakdown of the "free entry and exit" feature of competition. 
C)  a breakdown of the "price taking" feature of competition. 
D)  the fact that a resource used in the production of the good is available only in limited quantities. 
A)  decreases in production costs resulting from more firms coming into the market. 
B)  a breakdown of the "free entry and exit" feature of competition. 
C)  a breakdown of the "price taking" feature of competition. 
D)  the fact that a resource used in the production of the good is available only in limited quantities.

Question 2

When profit-maximizing firms in competitive markets are earning profits,

Accepted Answer

A)  market demand must exceed market supply at the market equilibrium price. 
B)  market supply must exceed market demand at the market equilibrium price. 
C)  new firms will enter the market. 
D)  the most inefficient firms will be encouraged to leave the market. 
A)  market demand must exceed market supply at the market equilibrium price. 
B)  market supply must exceed market demand at the market equilibrium price. 
C)  new firms will enter the market. 
D)  the most inefficient firms will be encouraged to leave the market.

Question 3

Because nothing can be done about sunk costs, they are irrelevant to decisions about business strategy.

Accepted Answer

A) True 
 B)False

Question 4

Scenario 14-3
Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20.
-Refer to Scenario 14-3. At Q=499, the firm's total costs equal

Accepted Answer

A)  $5,983. 
B)  $5,988. 
C)  $5,995. 
D)  $5,999. 
A)  $5,983. 
B)  $5,988. 
C)  $5,995. 
D)  $5,999.

Question 5

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 positive economic profit if the market price is

Accepted Answer

A)  above $6. 
B)  positive. 
C)  $6. 
B)  There is no price at which the firm earns positive economic profits. 
A)  above $6. 
B)  positive. 
C)  $6. 
B)  There is no price at which the firm earns positive economic profits.

Question 6

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

Accepted Answer

Average revenue is total revenue divided

Question 7

When a perfectly competitive firm decides to shut down, it is most likely that

Accepted Answer

A)  marginal cost is above average variable cost. 
B)  marginal cost is above average total cost. 
C)  price is below the firm's average variable cost. 
D)  fixed costs exceed variable costs. 
A)  marginal cost is above average variable cost. 
B)  marginal cost is above average total cost. 
C)  price is below the firm's average variable cost. 
D)  fixed costs exceed variable costs.

Question 8

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 9

Suppose a firm is considering producing zero units of output. We call this exiting an industry in the short run and shutting down in the long run.

Accepted Answer

A) True 
 B)False

Question 10

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 2010 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 2010 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 11

A firm's marginal cost has a minimum value of $80, its average variable cost has a minimum value of $90, and its average total cost has a minimum value of $100. Then the firm will shut down in the short run once the price of its product falls below

Accepted Answer

A)  $100. 
B)  $90. 
C)  $80. 
D)  $40. 
A)  $100. 
B)  $90. 
C)  $80. 
D)  $40.

Question 12

Why does a firm in a competitive industry charge the market price?

Accepted Answer

A)  If a firm charges less than the market price, it loses potential revenue. 
B)  If a firm charges more than the market price, it loses all its market power. 
C)  The firm can only sell limited number of units of output, so it wants to sell at the market price in order to lower its costs. 
D)  All of the above are correct. 
A)  If a firm charges less than the market price, it loses potential revenue. 
B)  If a firm charges more than the market price, it loses all its market power. 
C)  The firm can only sell limited number of units of output, so it wants to sell at the market price in order to lower its costs. 
D)  All of the above are correct.

Question 13

Table 14-5
The table represents a demand curve faced by a firm in a competitive market.
  
-Refer to Table 14-5. For this firm, the price of the product is

Accepted Answer

A)  $11. 
B)  $9. 
C)  $13. 
D)  $15. 
A)  $11. 
B)  $9. 
C)  $13. 
D)  $15.

Question 14

Who is a price taker in a competitive market?

Accepted Answer

A)  buyers only 
B)  sellers only 
C)  both buyers and sellers 
D)  neither buyers nor sellers 
A)  buyers only 
B)  sellers only 
C)  both buyers and sellers 
D)  neither buyers nor sellers

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

In a competitive market, no single producer can influence the market price because

Accepted Answer

A)  many other sellers are offering a product that is essentially identical. 
B)  consumers have more influence over the market price than producers do. 
C)  government intervention prevents firms from influencing price. 
D)  producers agree not to change the price. 
A)  many other sellers are offering a product that is essentially identical. 
B)  consumers have more influence over the market price than producers do. 
C)  government intervention prevents firms from influencing price. 
D)  producers agree not to change the price.

Question 17

Table 14-1
  
-Refer to Table 14-1. Over which range of output is average revenue equal to price?

Accepted Answer

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

Question 18

Figure 14-7  
-Refer to Figure 14-7. In the long run, the firm will exit the market if the price of the good is

Accepted Answer

A)  $75. 
B)  $85. 
C)  $95. 
D)  All of the above are correct. 
A)  $75. 
B)  $85. 
C)  $95. 
D)  All of the above are correct.

Question 19

A firm operating in a perfectly competitive industry will shut down 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 20

Table 14-4
The table represents a demand curve faced by a firm in a competitive market.
  
-Refer to Table 14-4. For this firm, the average revenue is

Accepted Answer

A)  $0. 
B)  $5. 
C)  $10. 
D)  $15. 
A)  $0. 
B)  $5. 
C)  $10. 
D)  $15.

Exam 14: Firms in Competitive Markets

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

When profit-maximizing firms in competitive markets are earning profits,

Because nothing can be done about sunk costs, they are irrelevant to decisions about business strategy.

Scenario 14-3 Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. -Refer to Scenario 14-3. At Q=499, the firm's total costs equal

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 positive economic profit if the market price is

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

When a perfectly competitive firm decides to shut down, it is most likely that

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?

Suppose a firm is considering producing zero units of output. We call this exiting an industry in the short run and shutting down in the long run.

A firm's marginal cost has a minimum value of $80, its average variable cost has a minimum value of $90, and its average total cost has a minimum value of $100. Then the firm will shut down in the short run once the price of its product falls below

Why does a firm in a competitive industry charge the market price?

Table 14-5 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-5. For this firm, the price of the product is

Who is a price taker in a competitive market?

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

In a competitive market, no single producer can influence the market price because

Table 14-1 -Refer to Table 14-1. Over which range of output is average revenue equal to price?

Figure 14-7 -Refer to Figure 14-7. In the long run, the firm will exit the market if the price of the good is

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

Table 14-4 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-4. For this firm, the average revenue 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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