Question 1

When new firms enter a perfectly competitive market,

Accepted Answer

A)  economic profits of existing firms will continue to be zero. 
B)  entering firms will earn zero economic profit upon entry into the market. 
C)  existing firms may see their costs rise if more firms compete for limited resources. 
D)  prices will rise as existing firms raise prices to keep new firms out of the market. 
A)  economic profits of existing firms will continue to be zero. 
B)  entering firms will earn zero economic profit upon entry into the market. 
C)  existing firms may see their costs rise if more firms compete for limited resources. 
D)  prices will rise as existing firms raise prices to keep new firms out of the market.

Question 2

Which of the following statements regarding a competitive firm is correct?

Accepted Answer

A)  Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output. 
B)  If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. 
C)  By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price. 
D)  For all firms, average revenue equals the price of the good. 
A)  Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output. 
B)  If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. 
C)  By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price. 
D)  For all firms, average revenue equals the price of the good.

Question 3

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs:
  
-Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will the firm earn?

Accepted Answer

A)  $2 
B)  $4 
C)  $6 
D)  $8 
A)  $2 
B)  $4 
C)  $6 
D)  $8

Question 4

A key characteristic of a competitive market is that

Accepted Answer

A)  government antitrust laws regulate competition. 
B)  producers sell nearly identical products. 
C)  firms minimize total costs. 
D)  firms have price setting power. 
A)  government antitrust laws regulate competition. 
B)  producers sell nearly identical products. 
C)  firms minimize total costs. 
D)  firms have price setting power.

Question 5

At its current level of production a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces and faces an average total cost of $10. At the market price of $12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1,000 units. What is the firm's current profit? What is likely to occur in this market and why?

Accepted Answer

Profit can be calculated as (P

Question 6

When new firms enter a perfectly competitive market,

Accepted Answer

A)  demand increases. 
B)  the short-run market supply curve shifts right. 
C)  the short-run market supply curve shifts left. 
D)  existing firms will increase prices to keep the new firms from entering. 
A)  demand increases. 
B)  the short-run market supply curve shifts right. 
C)  the short-run market supply curve shifts left. 
D)  existing firms will increase prices to keep the new firms from entering.

Question 7

For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price.

Accepted Answer

A) True 
 B)False

Question 8

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct? (i) Marginal revenue equals $4.
(ii) Average revenue equals $100.
(iii) Total revenue equals $1,600.

Accepted Answer

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

Question 9

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. At the end of the first year of operating his new business, Victor's accountant reported an accounting profit of $150,000. What was Victor's economic profit?

Accepted Answer

A)  -$150,000 
B)  -$50,000 
C)  -$25,000 
D)  $25,000 
A)  -$150,000 
B)  -$50,000 
C)  -$25,000 
D)  $25,000

Question 10

Suppose you value a special watch at $100. You purchase it for $75. On your way home from class one day, you lose the watch. The store is still selling the same watch, but the price has risen to $85. Assume that losing the watch has not altered how you value it. What should you do?

Accepted Answer

A)  Pay the $85 to buy the watch. 
B)  Wait to see if the watch goes on sale. If the price drops to $75 or less, buy the watch. 
C)  Wait to see if the watch goes on sale. If the price drops to $25 or less, buy the watch. 
D)  Do not buy the watch. 
A)  Pay the $85 to buy the watch. 
B)  Wait to see if the watch goes on sale. If the price drops to $75 or less, buy the watch. 
C)  Wait to see if the watch goes on sale. If the price drops to $25 or less, buy the watch. 
D)  Do not buy the watch.

Question 11

Scenario 14-4
The information below applies to a competitive firm that sells its output for $40 per unit.
-When the firm produces and sells 150 units of output, its average total cost is $24.50.
-When the firm produces and sells 151 units of output, its average total cost is $24.55.
-Refer to Scenario 14-4. How does the firm's marginal revenue (MR) compare to its marginal cost (MC) when it increases its output from 150 units to 151 units?

Accepted Answer

A)  MR exceeds MC by $7.95. 
B)  MR exceeds MC by $11.05. 
C)  MC exceeds MR by $11.05. 
D)  MC exceeds MR by $13.50. 
A)  MR exceeds MC by $7.95. 
B)  MR exceeds MC by $11.05. 
C)  MC exceeds MR by $11.05. 
D)  MC exceeds MR by $13.50.

Question 12

List and describe the characteristics of a perfectly competitive market.

Accepted Answer

There are many buyers and sell

Question 13

When buyers in a competitive market take the selling price as given, they are said to be

Accepted Answer

A)  market entrants. 
B)  monopolists. 
C)  free riders. 
D)  price takers. 
A)  market entrants. 
B)  monopolists. 
C)  free riders. 
D)  price takers.

Question 14

In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

Accepted Answer

A) True 
 B)False

Question 15

Figure 14-9
In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms.
  
-Refer to Figure 14-9. If there are 600 identical firms in this market, what is the value of Q1?

Accepted Answer

A)  6,000 
B)  12,000 
C)  60,000 
D)  120,000 
A)  6,000 
B)  12,000 
C)  60,000 
D)  120,000

Question 16

Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

Accepted Answer

The firm selects the level of output at

Question 17

The term shutdown

Accepted Answer

A)  and the term exit both refer to short-run decisions that a firm might make. 
B)  and the term exit both refer to long-run decisions that a firm might make. 
C)  refers to a short-run decision that a firm might make, whereas the term exit refers to a long-run decision that a firm might make. 
D)  refers to a long-run decision that a firm might make, whereas the term exit refers to a short-run decision that a firm might make. 
A)  and the term exit both refer to short-run decisions that a firm might make. 
B)  and the term exit both refer to long-run decisions that a firm might make. 
C)  refers to a short-run decision that a firm might make, whereas the term exit refers to a long-run decision that a firm might make. 
D)  refers to a long-run decision that a firm might make, whereas the term exit refers to a short-run decision that a firm might make.

Question 18

In a competitive market with free entry and exit, if all firms have the same cost structure, then

Accepted Answer

A)  all firms will operate at their efficient scale in the short run. 
B)  all firms will operate at their efficient scale in the long run. 
C)  the price of the product will differ across firms. 
D)  Both a and b are correct. 
A)  all firms will operate at their efficient scale in the short run. 
B)  all firms will operate at their efficient scale in the long run. 
C)  the price of the product will differ across firms. 
D)  Both a and b are correct.

Question 19

Scenario 14-4
The information below applies to a competitive firm that sells its output for $40 per unit.
-When the firm produces and sells 150 units of output, its average total cost is $24.50.
-When the firm produces and sells 151 units of output, its average total cost is $24.55.
-Refer to Scenario 14-4. Suppose the firm is producing 150 units of output and its fixed cost is $975. Then its variable cost amounts to

Accepted Answer

A)  $2,360.25. 
B)  $2,500.00. 
C)  $2,612.75. 
D)  $2,700.00. 
A)  $2,360.25. 
B)  $2,500.00. 
C)  $2,612.75. 
D)  $2,700.00.

Question 20

A firm in a competitive market has the following cost structure:   If the market price is $8, how many units of output should the firm produce to maximize profit?

Accepted Answer

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

When new firms enter a perfectly competitive market,

Which of the following statements regarding a competitive firm is correct?

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will the firm earn?

A key characteristic of a competitive market is that

When new firms enter a perfectly competitive market,

For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price.

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct? (i) Marginal revenue equals $4. (ii) Average revenue equals $100. (iii) Total revenue equals $1,600.

Suppose you value a special watch at $100. You purchase it for $75. On your way home from class one day, you lose the watch. The store is still selling the same watch, but the price has risen to $85. Assume that losing the watch has not altered how you value it. What should you do?

List and describe the characteristics of a perfectly competitive market.

When buyers in a competitive market take the selling price as given, they are said to be

In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

The term shutdown

In a competitive market with free entry and exit, if all firms have the same cost structure, then

A firm in a competitive market has the following cost structure: If the market price is $8, how many units of output should the firm produce to maximize profit?

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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Exam 14: Firms in Competitive Markets

When new firms enter a perfectly competitive market,

Which of the following statements regarding a competitive firm is correct?

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will the firm earn?

A key characteristic of a competitive market is that

When new firms enter a perfectly competitive market,

For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price.

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct? (i) Marginal revenue equals $4. (ii) Average revenue equals $100. (iii) Total revenue equals $1,600.

Suppose you value a special watch at $100. You purchase it for $75. On your way home from class one day, you lose the watch. The store is still selling the same watch, but the price has risen to $85. Assume that losing the watch has not altered how you value it. What should you do?

List and describe the characteristics of a perfectly competitive market.

When buyers in a competitive market take the selling price as given, they are said to be

In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

The term shutdown

In a competitive market with free entry and exit, if all firms have the same cost structure, then

A firm in a competitive market has the following cost structure: If the market price is $8, how many units of output should the firm produce to maximize profit?

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