Question 1

In a market with 1,000 identical firms, the short-run market supply is the

Accepted Answer

A)  marginal cost curve above average variable cost for a typical firm in the market. 
B)  quantity supplied by the typical firm in the market at each price. 
C)  sum of the prices charged by each of the 1,000 individual firms at each quantity. 
D)  sum of the quantities supplied by each of the 1,000 individual firms at each price. 
A)  marginal cost curve above average variable cost for a typical firm in the market. 
B)  quantity supplied by the typical firm in the market at each price. 
C)  sum of the prices charged by each of the 1,000 individual firms at each quantity. 
D)  sum of the quantities supplied by each of the 1,000 individual firms at each price.

Question 2

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 total cost but greater than the firm's average variable cost.

Accepted Answer

A) True 
 B)False

Question 3

When a profit-maximizing firm's fixed costs are considered sunk in the short run, then the firm

Accepted Answer

A)  can set price above marginal cost. 
B)  must set price below average total cost. 
C)  will never show losses. 
D)  can safely ignore fixed costs when deciding how much output to produce. 
A)  can set price above marginal cost. 
B)  must set price below average total cost. 
C)  will never show losses. 
D)  can safely ignore fixed costs when deciding how much output to produce.

Question 4

Table 14-7
Suppose that a firm in a competitive market faces the following revenues and costs:
  
-Refer to Table 14-7. If the firm is maximizing profit, how much profit is it earning?

Accepted Answer

A)  $0.50 
B)  $10 
C)  $7.50 
B)  There is insufficient data to determine the firm's profit. 
A)  $0.50 
B)  $10 
C)  $7.50 
B)  There is insufficient data to determine the firm's profit.

Question 5

A firm that exits its market has to pay

Accepted Answer

A)  its variable costs but not its fixed costs. 
B)  its fixed costs but not its variable costs. 
C)  both its variable costs and its fixed costs. 
D)  neither its variable costs nor its fixed costs. 
A)  its variable costs but not its fixed costs. 
B)  its fixed costs but not its variable costs. 
C)  both its variable costs and its fixed costs. 
D)  neither its variable costs nor its fixed costs.

Question 6

In a competitive market, firms are unable to differentiate their product from that of other producers.

Accepted Answer

A) True 
 B)False

Question 7

A firm operating in a competitive market will stay in business in the short run so long as the market price exceeds the firm's average total cost; otherwise, the firm will shut down.

Accepted Answer

A) True 
 B)False

Question 8

Suppose a firm in each of the two markets listed below were to increase its price by 15 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

Accepted Answer

A)  cotton and soybeans 
B)  gasoline and corn 
C)  #2 lead pencils and college textbooks 
D)  electricity and cable television 
A)  cotton and soybeans 
B)  gasoline and corn 
C)  #2 lead pencils and college textbooks 
D)  electricity and cable television

Question 9

Scenario 14-1
Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.
-Refer to Scenario 14-1. 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 10

Which of the following statements is correct regarding a firm's decision-making?

Accepted Answer

A)  The decision to shut down and the decision to exit are both short-run decisions. 
B)  The decision to shut down and the decision to exit are both long-run decisions. 
C)  The decision to shut down is a short-run decision, whereas the decision to exit is a long-run decision. 
D)  The decision to exit is a short-run decision, whereas the decision to shut down is a long-run decision. 
A)  The decision to shut down and the decision to exit are both short-run decisions. 
B)  The decision to shut down and the decision to exit are both long-run decisions. 
C)  The decision to shut down is a short-run decision, whereas the decision to exit is a long-run decision. 
D)  The decision to exit is a short-run decision, whereas the decision to shut down is a long-run decision.

Question 11

Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:
  
-Refer to Table 14-9. At which quantity of output is marginal revenue equal to marginal cost?

Accepted Answer

A)  3 units 
B)  5 units 
C)  7 units 
D)  9 units 
A)  3 units 
B)  5 units 
C)  7 units 
D)  9 units

Question 12

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 marginal revenue of the 12th unit is

Accepted Answer

A)  $9. 
B)  $10. 
C)  $11 
D)  The marginal revenue cannot be determined without knowing the total revenue when 11 units are sold. 
A)  $9. 
B)  $10. 
C)  $11 
D)  The marginal revenue cannot be determined without knowing the total revenue when 11 units are sold.

Question 13

Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them. He rents each boat for $200 per month. The variable cost for each boat rental is $50. In the off season, Bill should

Accepted Answer

A)  operate his business as long as he rents at least 7 boats per month. 
B)  operate his business as long as he rents at least 1 boat per month. 
C)  operate his business as long as he rents all 10 boats each month. 
D)  raise the price he charges per boat rental. 
A)  operate his business as long as he rents at least 7 boats per month. 
B)  operate his business as long as he rents at least 1 boat per month. 
C)  operate his business as long as he rents all 10 boats each month. 
D)  raise the price he charges per boat rental.

Question 14

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is

Accepted Answer

A)  downward sloping. 
B)  upward sloping. 
C)  horizontal. 
D)  vertical. 
A)  downward sloping. 
B)  upward sloping. 
C)  horizontal. 
D)  vertical.

Question 15

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

Accepted Answer

The firm could not sell any more of its

Question 16

A popular resort restaurant will maximize profits if it chooses to stay open during the less­crowded "off season" when its total revenues exceed its variable costs.

Accepted Answer

A) True 
 B)False

Question 17

The entry of new firms into a competitive market will

Accepted Answer

A)  increase market supply and increase market price. 
B)  increase market supply and decrease market price. 
C)  decrease market supply and increase market price. 
D)  decrease market supply and decrease market price. 
A)  increase market supply and increase market price. 
B)  increase market supply and decrease market price. 
C)  decrease market supply and increase market price. 
D)  decrease market supply and decrease market price.

Question 18

Firms that operate in perfectly competitive markets try to

Accepted Answer

A)  maximize revenues. 
B)  maximize profits. 
C)  equate marginal revenue with average total cost. 
D)  All of the above are correct. 
A)  maximize revenues. 
B)  maximize profits. 
C)  equate marginal revenue with average total cost. 
D)  All of the above are correct.

Question 19

Suppose that a competitive market is initially in equilibrium. Then demand increases. If some resources used in production are not available in sufficient quantities 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 20

Scenario 14-1
Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.
-Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

Accepted Answer

A)  -$200. 
B)  $1,000. 
C)  $3,000. 
D)  $4,000. 
A)  -$200. 
B)  $1,000. 
C)  $3,000. 
D)  $4,000.

Exam 14: Firms in Competitive Markets

In a market with 1,000 identical firms, the short-run market supply is the

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 total cost but greater than the firm's average variable cost.

When a profit-maximizing firm's fixed costs are considered sunk in the short run, then the firm

Table 14-7 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-7. If the firm is maximizing profit, how much profit is it earning?

A firm that exits its market has to pay

In a competitive market, firms are unable to differentiate their product from that of other producers.

A firm operating in a competitive market will stay in business in the short run so long as the market price exceeds the firm's average total cost; otherwise, the firm will shut down.

Suppose a firm in each of the two markets listed below were to increase its price by 15 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

Scenario 14-1 Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. -Refer to Scenario 14-1. To maximize its profit, the firm should

Which of the following statements is correct regarding a firm's decision-making?

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. At which quantity of output is marginal revenue equal to marginal cost?

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 marginal revenue of the 12th unit is

Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them. He rents each boat for $200 per month. The variable cost for each boat rental is $50. In the off season, Bill should

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

A popular resort restaurant will maximize profits if it chooses to stay open during the less­crowded "off season" when its total revenues exceed its variable costs.

The entry of new firms into a competitive market will

Firms that operate in perfectly competitive markets try to

Suppose that a competitive market is initially in equilibrium. Then demand increases. If some resources used in production are not available in sufficient quantities for entering firms,

Scenario 14-1 Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. -Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

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

A popular resort restaurant will maximize profits if it chooses to stay open during the lesscrowded "off season" when its total revenues exceed its variable costs.