Question 1

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

Accepted Answer

A)  total revenue is equal to variable cost. 
B)  total revenue is equal to fixed cost. 
C)  total revenue is equal to total cost. 
D)  profit is maximized. 
A)  total revenue is equal to variable cost. 
B)  total revenue is equal to fixed cost. 
C)  total revenue is equal to total cost. 
D)  profit is maximized.

Question 2

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 3

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

Accepted Answer

A)  more than triple. 
B)  less than triple. 
C)  exactly triple. 
D)  Any of the above may be true depending on the firm's labor productivity. 
A)  more than triple. 
B)  less than triple. 
C)  exactly triple. 
D)  Any of the above may be true depending on the firm's labor productivity.

Question 4

Figure 14-14
  
-Refer to Figure 14-14. 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 5

Scenario 14-4
Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year.
-Refer to Scenario 14-4. How large would Victor's accounting profits need to be to allow him to attain zero economic profit?

Accepted Answer

A)  $100,000 
B)  $125,000 
C)  $175,000 
D)  $225,000 
A)  $100,000 
B)  $125,000 
C)  $175,000 
D)  $225,000

Question 6

Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:
  
-Refer to Table 14-9. 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 7

A competitive firm's profit will be increasing as long as marginal revenue is greater than marginal cost.

Accepted Answer

A) True 
 B)False

Question 8

A firm operating in a perfectly competitive industry will shut down in the short run if its economic profits fall to zero because it is likely to be earning negative accounting profits.

Accepted Answer

A) True 
 B)False

Question 9

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not choose the

Accepted Answer

A)  quantity of butter to produce. 
B)  price at which it sells its butter. 
C)  profits it earns. 
D)  All of the above are correct. 
A)  quantity of butter to produce. 
B)  price at which it sells its butter. 
C)  profits it earns. 
D)  All of the above are correct.

Question 10

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 11

In the transition from the short run to the long run, the number of firms in a competitive industry is

Accepted Answer

A)  fixed. 
B)  increasing at a constant rate. 
C)  decreasing. 
D)  able to adjust to market conditions. 
A)  fixed. 
B)  increasing at a constant rate. 
C)  decreasing. 
D)  able to adjust to market conditions.

Question 12

Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company's financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger's

Accepted Answer

A)  total revenues equal his total economic costs. 
B)  marginal revenue exceeds his total cost. 
C)  marginal revenue exceeds his marginal cost. 
D)  marginal cost exceeds his marginal revenue. 
A)  total revenues equal his total economic costs. 
B)  marginal revenue exceeds his total cost. 
C)  marginal revenue exceeds his marginal cost. 
D)  marginal cost exceeds his marginal revenue.

Question 13

A competitive firm would benefit from charging a price below the market price because the firm would achieve (i) higher average revenue.
(ii) higher profits.
(iii) lower total costs.

Accepted Answer

A)  (i) only 
B)  (ii) and (iii) only 
C)  (i), (ii), and (iii) 
D)  None of the above is correct. 
A)  (i) only 
B)  (ii) and (iii) only 
C)  (i), (ii), and (iii) 
D)  None of the above is correct.

Question 14

Which of the following statements is not correct about competitive firms?

Accepted Answer

A)  In a long-run equilibrium, firms must be operating at their efficient scale. 
B)  In the short run, the number of firms in an industry may be fixed. 
C)  In the long run, the number of firms can adjust to changing market conditions. 
D)  In the short run, firms must be operating at a level of output where price equals average variable cost. 
A)  In a long-run equilibrium, firms must be operating at their efficient scale. 
B)  In the short run, the number of firms in an industry may be fixed. 
C)  In the long run, the number of firms can adjust to changing market conditions. 
D)  In the short run, firms must be operating at a level of output where price equals average variable cost.

Question 15

A corporation has been steadily losing money on one of its product lines, plastic flamingo lawn ornaments. The firm produces plastic flamingos in a factory that cost $20 million to build 10 years ago. The firm is now considering an offer to buy that factory for $15 million. Which of the following statements about the decision to sell or not to sell is correct?

Accepted Answer

A)  The firm should turn down the purchase offer because the factory cost more than $15 million to build. 
B)  The $20 million spent on the factory is a sunk cost; that cost should not affect the decision. 
C)  The $20 million spent on the factory is an implicit cost, which should be included in the decision. 
D)  The firm should sell the factory only if it can reduce its costs elsewhere by $5 million. 
A)  The firm should turn down the purchase offer because the factory cost more than $15 million to build. 
B)  The $20 million spent on the factory is a sunk cost; that cost should not affect the decision. 
C)  The $20 million spent on the factory is an implicit cost, which should be included in the decision. 
D)  The firm should sell the factory only if it can reduce its costs elsewhere by $5 million.

Question 16

A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin.

Accepted Answer

A) True 
 B)False

Question 17

For a competitive firm,

Accepted Answer

A)  total revenue equals average revenue. 
B)  total revenue equals marginal revenue. 
C)  total cost equals marginal revenue. 
D)  average revenue equals marginal revenue. 
A)  total revenue equals average revenue. 
B)  total revenue equals marginal revenue. 
C)  total cost equals marginal revenue. 
D)  average revenue equals marginal revenue.

Question 18

Table 14-8
Suppose that a firm in a competitive market faces the following revenues and costs:
  
-Refer to Table 14-8. The firm will produce a quantity greater than 3 because at 3 units of output, marginal cost

Accepted Answer

A)  is greater than marginal revenue. 
B)  equals marginal revenue. 
C)  is less than marginal revenue. 
D)  is minimized. 
A)  is greater than marginal revenue. 
B)  equals marginal revenue. 
C)  is less than marginal revenue. 
D)  is minimized.

Question 19

Table 14-13
Diana's Dress Emporium
  
-Refer to Table 14-13. What is the marginal cost of the 8th unit?

Accepted Answer

A)  $0 
B)  $100 
C)  $120 
D)  $140 
A)  $0 
B)  $100 
C)  $120 
D)  $140

Question 20

Which of the following industries is most likely to exhibit the characteristic of free entry?

Accepted Answer

A)  nuclear power 
B)  municipal water and sewer 
C)  dairy farming 
D)  airport security 
A)  nuclear power 
B)  municipal water and sewer 
C)  dairy farming 
D)  airport security

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

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

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

Figure 14-14 -Refer to Figure 14-14. 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?

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. In order to maximize profit, the firm will produce a level of output where marginal cost is equal to

A competitive firm's profit will be increasing as long as marginal revenue is greater than marginal cost.

A firm operating in a perfectly competitive industry will shut down in the short run if its economic profits fall to zero because it is likely to be earning negative accounting profits.

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not choose the

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

In the transition from the short run to the long run, the number of firms in a competitive industry is

Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company's financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger's

A competitive firm would benefit from charging a price below the market price because the firm would achieve (i) higher average revenue. (ii) higher profits. (iii) lower total costs.

Which of the following statements is not correct about competitive firms?

A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin.

For a competitive firm,

Table 14-8 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-8. The firm will produce a quantity greater than 3 because at 3 units of output, marginal cost

Table 14-13 Diana's Dress Emporium -Refer to Table 14-13. What is the marginal cost of the 8th unit?

Which of the following industries is most likely to exhibit the characteristic of free entry?

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

Filters

Exam 14: Firms in Competitive Markets

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

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

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

Figure 14-14 -Refer to Figure 14-14. 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?

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. In order to maximize profit, the firm will produce a level of output where marginal cost is equal to

A competitive firm's profit will be increasing as long as marginal revenue is greater than marginal cost.

A firm operating in a perfectly competitive industry will shut down in the short run if its economic profits fall to zero because it is likely to be earning negative accounting profits.

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not choose the

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

In the transition from the short run to the long run, the number of firms in a competitive industry is

Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company's financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger's

A competitive firm would benefit from charging a price below the market price because the firm would achieve (i) higher average revenue. (ii) higher profits. (iii) lower total costs.

Which of the following statements is not correct about competitive firms?

A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin.

For a competitive firm,

Table 14-8 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-8. The firm will produce a quantity greater than 3 because at 3 units of output, marginal cost

Table 14-13 Diana's Dress Emporium -Refer to Table 14-13. What is the marginal cost of the 8th unit?

Which of the following industries is most likely to exhibit the characteristic of free entry?

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

Filters