Question 1

Which of the following statements is correct?

Accepted Answer

A)  For all firms, marginal revenue equals the price of the good. 
B)  Only for competitive firms does average revenue equal the price of the good. 
C)  Marginal revenue can be calculated as total revenue divided by the quantity sold. 
D)  Only for competitive firms does average revenue equal marginal revenue. 
A)  For all firms, marginal revenue equals the price of the good. 
B)  Only for competitive firms does average revenue equal the price of the good. 
C)  Marginal revenue can be calculated as total revenue divided by the quantity sold. 
D)  Only for competitive firms does average revenue equal marginal revenue.

Question 2

Table 14-1
  
-Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will

Accepted Answer

A)  increase by less than $15. 
B)  increase by exactly $15. 
C)  increase by more than $15. 
D)  Total revenue cannot be determined from the information provided. 
A)  increase by less than $15. 
B)  increase by exactly $15. 
C)  increase by more than $15. 
D)  Total revenue cannot be determined from the information provided.

Question 3

The firm will make the most profits if it produces the quantity of output at which

Accepted Answer

A)  marginal cost equals average cost. 
B)  profit per unit is greatest. 
C)  marginal revenue equals total revenue. 
D)  marginal revenue equals marginal cost. 
A)  marginal cost equals average cost. 
B)  profit per unit is greatest. 
C)  marginal revenue equals total revenue. 
D)  marginal revenue equals marginal cost.

Question 4

Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's

Accepted Answer

A)  total revenue. 
B)  marginal revenue. 
C)  average revenue. 
D)  All of the above are correct. 
A)  total revenue. 
B)  marginal revenue. 
C)  average revenue. 
D)  All of the above are correct.

Question 5

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs:
  
-Refer to Table 14-10. At which level of production will the firm maximize profit?

Accepted Answer

A)  3 units 
B)  4 units 
C)  5 units 
D)  6 units 
A)  3 units 
B)  4 units 
C)  5 units 
D)  6 units

Question 6

Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect

Accepted Answer

A)  new firms to enter the market. 
B)  the market price to rise. 
C)  its profits to rise. 
D)  Both b and c are correct. 
A)  new firms to enter the market. 
B)  the market price to rise. 
C)  its profits to rise. 
D)  Both b and c are correct.

Question 7

The marginal firm in a competitive market will earn zero economic profit in the long run.

Accepted Answer

A) True 
 B)False

Question 8

Table 14-6
The following table presents cost and revenue information for a firm operating in a competitive industry.
  
-Refer to Table 14-6. What is the average revenue when 4 units are sold?

Accepted Answer

A)  $60 
B)  $120 
C)  $125 
D)  $197 
A)  $60 
B)  $120 
C)  $125 
D)  $197

Question 9

Figure 14-11  
-Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were eight identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve?

Accepted Answer

A)  A only 
B)  A and C only 
C)  B only 
D)  B and D only 
A)  A only 
B)  A and C only 
C)  B only 
D)  B and D only

Question 10

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves:  
-Refer to Figure 14-1. If the market price is $4.00, the firm will earn

Accepted Answer

A)  positive economic profits in the short run. 
B)  negative economic profits in the short run but remain in business. 
C)  negative economic profits and shut down. 
D)  zero economic profits in the short run. 
A)  positive economic profits in the short run. 
B)  negative economic profits in the short run but remain in business. 
C)  negative economic profits and shut down. 
D)  zero economic profits in the short run.

Question 11

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

Accepted Answer

A)  fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
B)  fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
C)  fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
D)  not fall in the short run because firms will exit to maintain the price. 
A)  fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
B)  fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
C)  fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
D)  not fall in the short run because firms will exit to maintain the price.

Question 12

When firms have an incentive to exit a competitive market, their exit will

Accepted Answer

A)  lower the market price. 
B)  necessarily raise the costs for the firms that remain in the market. 
C)  raise the profits of the firms that remain in the market. 
D)  shift the demand for the product to the left. 
A)  lower the market price. 
B)  necessarily raise the costs for the firms that remain in the market. 
C)  raise the profits of the firms that remain in the market. 
D)  shift the demand for the product to the left.

Question 13

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people

Accepted Answer

A)  consider sunk costs. 
B)  equate prices to the average costs of production. 
C)  prefer to purchase products from smaller rather than larger firms. 
D)  think at the margin. 
A)  consider sunk costs. 
B)  equate prices to the average costs of production. 
C)  prefer to purchase products from smaller rather than larger firms. 
D)  think at the margin.

Question 14

Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's

Accepted Answer

A)  total revenues exceed her total accounting costs. 
B)  marginal revenue exceeds her total cost. 
C)  marginal revenue exceeds her marginal cost. 
D)  marginal cost exceeds her marginal revenue. 
A)  total revenues exceed her total accounting costs. 
B)  marginal revenue exceeds her total cost. 
C)  marginal revenue exceeds her marginal cost. 
D)  marginal cost exceeds her marginal revenue.

Question 15

Suppose you bought a ticket to a football game for $30 and that you place a $35 value on seeing the game. If you lose the ticket, then what is the maximum price you should pay for another ticket? Assume that losing the ticket does not alter how you value it.

Accepted Answer

A)  $5 
B)  $30 
C)  $35 
D)  $65 
A)  $5 
B)  $30 
C)  $35 
D)  $65

Question 16

A sunk cost is one that

Accepted Answer

A)  changes as the level of output changes in the short run. 
B)  was paid in the past and will not change regardless of the present decision. 
C)  should determine the rational course of action in the future. 
D)  has the most impact on profit-making decisions. 
A)  changes as the level of output changes in the short run. 
B)  was paid in the past and will not change regardless of the present decision. 
C)  should determine the rational course of action in the future. 
D)  has the most impact on profit-making decisions.

Question 17

Figure 14-10
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 14-10. If there are 700 identical firms in this market, what is the value of Q2?

Accepted Answer

A)  140,000 
B)  210,000 
C)  280,000 
D)  420,000 
A)  140,000 
B)  210,000 
C)  280,000 
D)  420,000

Question 18

You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $12 value on reading a book.

Accepted Answer

A)  You should stay and watch the remainder of the show. 
B)  You should go home and watch TV. 
C)  You should go home and read a book. 
D)  You should go home and either watch TV or read a book. 
A)  You should stay and watch the remainder of the show. 
B)  You should go home and watch TV. 
C)  You should go home and read a book. 
D)  You should go home and either watch TV or read a book.

Question 19

Which of the following statements best expresses a firm's profit­maximizing decision rule?

Accepted Answer

A)  If marginal revenue is greater than marginal cost, the firm should increase its output. 
B)  If marginal revenue is less than marginal cost, the firm should decrease its output. 
C)  If marginal revenue equals marginal cost, the firm should continue producing its current level of output. 
D)  All of the above are correct. 
A)  If marginal revenue is greater than marginal cost, the firm should increase its output. 
B)  If marginal revenue is less than marginal cost, the firm should decrease its output. 
C)  If marginal revenue equals marginal cost, the firm should continue producing its current level of output. 
D)  All of the above are correct.

Question 20

Table 14-12
Bill's Birdhouses
  
-Refer to Table 14-12. At what quantity does Bill maximize profits?

Accepted Answer

A)  3 
B)  6 
C)  7 
D)  8 
A)  3 
B)  6 
C)  7 
D)  8

Which of the following statements is correct?

Table 14-1 -Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will

The firm will make the most profits if it produces the quantity of output at which

Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. At which level of production will the firm maximize profit?

Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect

The marginal firm in a competitive market will earn zero economic profit in the long run.

Table 14-6 The following table presents cost and revenue information for a firm operating in a competitive industry. -Refer to Table 14-6. What is the average revenue when 4 units are sold?

Figure 14-11 -Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were eight identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve?

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price is $4.00, the firm will earn

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

When firms have an incentive to exit a competitive market, their exit will

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people

Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's

Suppose you bought a ticket to a football game for $30 and that you place a $35 value on seeing the game. If you lose the ticket, then what is the maximum price you should pay for another ticket? Assume that losing the ticket does not alter how you value it.

A sunk cost is one that

Which of the following statements best expresses a firm's profitmaximizing decision rule?

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. At what quantity does Bill maximize profits?

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

Which of the following statements is correct?

Table 14-1 -Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will

The firm will make the most profits if it produces the quantity of output at which

Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. At which level of production will the firm maximize profit?

Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect

The marginal firm in a competitive market will earn zero economic profit in the long run.

Table 14-6 The following table presents cost and revenue information for a firm operating in a competitive industry. -Refer to Table 14-6. What is the average revenue when 4 units are sold?

Figure 14-11 -Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were eight identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve?

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price is $4.00, the firm will earn

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

When firms have an incentive to exit a competitive market, their exit will

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people

Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's

Suppose you bought a ticket to a football game for $30 and that you place a $35 value on seeing the game. If you lose the ticket, then what is the maximum price you should pay for another ticket? Assume that losing the ticket does not alter how you value it.

A sunk cost is one that

Which of the following statements best expresses a firm's profit­maximizing decision rule?

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. At what quantity does Bill maximize profits?

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

Which of the following statements best expresses a firm's profitmaximizing decision rule?