Question 1

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

Accepted Answer

1) Some resource used in production may

Question 2

In the long run, a firm will enter a competitive industry if

Accepted Answer

A)  total revenue exceeds total cost. 
B)  the price exceeds average total cost. 
C)  the firm can earn economic profits. 
D)  All of the above are correct. 
A)  total revenue exceeds total cost. 
B)  the price exceeds average total cost. 
C)  the firm can earn economic profits. 
D)  All of the above are correct.

Question 3

When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit

Accepted Answer

A)  is negative. 
B)  is at least zero. 
C)  is also zero. 
D)  could be positive, negative or zero. 
A)  is negative. 
B)  is at least zero. 
C)  is also zero. 
D)  could be positive, negative or zero.

Question 4

A market might have an upward-sloping long-run supply curve if

Accepted Answer

A)  firms have different costs. 
B)  consumers exercise market power over producers. 
C)  all factors of production are essentially available in unlimited supply. 
D)  the entry of new firms into the market has no effect on the cost structure of firms in the market. 
A)  firms have different costs. 
B)  consumers exercise market power over producers. 
C)  all factors of production are essentially available in unlimited supply. 
D)  the entry of new firms into the market has no effect on the cost structure of firms in the market.

Question 5

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

Accepted Answer

A)  average revenue exceeds marginal cost. 
B)  the firm is earning a positive profit. 
C)  decreasing output would increase the firm's profit. 
D)  All of the above are correct. 
A)  average revenue exceeds marginal cost. 
B)  the firm is earning a positive profit. 
C)  decreasing output would increase the firm's profit. 
D)  All of the above are correct.

Question 6

In the short-run, a firm's supply curve is equal to the

Accepted Answer

A)  marginal cost curve above its average variable cost curve. 
B)  marginal cost curve above its average total cost curve. 
C)  average variable cost curve above its marginal cost curve. 
D)  average total cost curve above its marginal cost curve. 
A)  marginal cost curve above its average variable cost curve. 
B)  marginal cost curve above its average total cost curve. 
C)  average variable cost curve above its marginal cost curve. 
D)  average total cost curve above its marginal cost curve.

Question 7

In the short run, a market consists of 100 identical firms. The market price is $8, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market?

Accepted Answer

A)  200 units 
B)  300 units 
C)  400 units 
D)  500 units 
A)  200 units 
B)  300 units 
C)  400 units 
D)  500 units

Question 8

Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market?

Accepted Answer

A)  less than $2.50 
B)  more than $2.50 
C)  exactly $2.50 
D)  The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm. 
A)  less than $2.50 
B)  more than $2.50 
C)  exactly $2.50 
D)  The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm.

Question 9

Table 14-12
Bill's Birdhouses
  
-Refer to Table 14-12. What is Bill's economic profit at the profit-maximizing output level?

Accepted Answer

A)  $25 
B)  $75 
C)  $115 
D)  $225 
A)  $25 
B)  $75 
C)  $115 
D)  $225

Question 10

If marginal cost exceeds marginal revenue, the firm

Accepted Answer

A)  is most likely to be at a profit-maximizing level of output. 
B)  should increase the level of production to maximize its profit. 
C)  should reduce its average fixed cost in order to lower its marginal cost. 
D)  may still be earning a positive accounting profit. 
A)  is most likely to be at a profit-maximizing level of output. 
B)  should increase the level of production to maximize its profit. 
C)  should reduce its average fixed cost in order to lower its marginal cost. 
D)  may still be earning a positive accounting profit.

Question 11

In the long run, a firm will exit a competitive industry if

Accepted Answer

A)  total revenue exceeds total cost. 
B)  the price exceeds average total cost. 
C)  average total cost exceeds the price. 
D)  Both a and b are correct. 
A)  total revenue exceeds total cost. 
B)  the price exceeds average total cost. 
C)  average total cost exceeds the price. 
D)  Both a and b are correct.

Question 12

When a profit-maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production.

Accepted Answer

A) True 
 B)False

Question 13

We can measure the profits earned by a firm in a competitive industry as

Accepted Answer

A)  (P - AT
C)  × Q. 
B)  (P - M
C)  × Q. 
C)  MR × MC. 
D)  (MC - AT
C)  × Q. 
A)  (P - AT
C)  × Q. 
B)  (P - M
C)  × Q. 
C)  MR × MC. 
D)  (MC - AT
C)  × Q.

Question 14

When marginal revenue equals marginal cost, the firm

Accepted Answer

A)  should increase the level of production to maximize its profit. 
B)  may be minimizing its losses rather than maximizing its profit. 
C)  must be generating positive economic profits. 
D)  must be generating positive accounting profits. 
A)  should increase the level of production to maximize its profit. 
B)  may be minimizing its losses rather than maximizing its profit. 
C)  must be generating positive economic profits. 
D)  must be generating positive accounting profits.

Question 15

In a perfectly competitive market, the process of entry and exit will end when (i) accounting profits are zero.
(ii) economic profits are zero.
(iii) price equals minimum marginal cost.
(iv) price equals minimum average total cost.

Accepted Answer

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

Question 16

In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is

Accepted Answer

A)  zero. 
B)  equal to the industry profits. 
C)  the market supply curve. 
D)  a horizontal line. 
A)  zero. 
B)  equal to the industry profits. 
C)  the market supply curve. 
D)  a horizontal line.

Question 17

A firm's marginal cost has a minimum value of $4, its average variable cost has a minimum value of $6, and its average total cost has a minimum value of $7. Then the firm will shut down in the short run once the price of its product falls below

Accepted Answer

A)  $7. 
B)  $6. 
C)  $4. 
D)  We do not have enough information to answer the question. 
A)  $7. 
B)  $6. 
C)  $4. 
D)  We do not have enough information to answer the question.

Question 18

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. To maximize its profit, the firm should

Accepted Answer

A)  increase its output. 
B)  continue to produce 1,000 units. 
C)  decrease its output but continue to produce. 
D)  shut down. 
A)  increase its output. 
B)  continue to produce 1,000 units. 
C)  decrease its output but continue to produce. 
D)  shut down.

Question 19

Figure 14-7  
-Refer to Figure 14-7. The firm will shut down in the short run 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 20

Table 14-8
Suppose that a firm in a competitive market faces the following revenues and costs:
  
-Refer to Table 14-8. In order to maximize profits, the firm will produce

Accepted Answer

A)  1 unit of output because marginal cost is minimized. 
B)  4 units of output because marginal revenue exceeds marginal cost. 
C)  5 units of output because marginal revenue equals marginal cost. 
D)  7 units of output because total revenue is maximized. 
A)  1 unit of output because marginal cost is minimized. 
B)  4 units of output because marginal revenue exceeds marginal cost. 
C)  5 units of output because marginal revenue equals marginal cost. 
D)  7 units of output because total revenue is maximized.

Exam 14: Firms in Competitive Markets

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

In the long run, a firm will enter a competitive industry if

When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit

A market might have an upward-sloping long-run supply curve if

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

In the short-run, a firm's supply curve is equal to the

In the short run, a market consists of 100 identical firms. The market price is $8, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market?

Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market?

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is Bill's economic profit at the profit-maximizing output level?

If marginal cost exceeds marginal revenue, the firm

In the long run, a firm will exit a competitive industry if

When a profit-maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production.

We can measure the profits earned by a firm in a competitive industry as

When marginal revenue equals marginal cost, the firm

In a perfectly competitive market, the process of entry and exit will end when (i) accounting profits are zero. (ii) economic profits are zero. (iii) price equals minimum marginal cost. (iv) price equals minimum average total cost.

In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is

A firm's marginal cost has a minimum value of $4, its average variable cost has a minimum value of $6, and its average total cost has a minimum value of $7. Then the firm will shut down in the short run once the price of its product falls below

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. To maximize its profit, the firm should

Figure 14-7 -Refer to Figure 14-7. The firm will shut down in the short run if the price of the good is

Table 14-8 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-8. In order to maximize profits, the firm will produce

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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