Question 1

Which of the following statements is not correct?

Accepted Answer

A)  In a long-run equilibrium, marginal firms make zero economic profit. 
B)  To maximize profit, firms should produce at a level of output where price equals average variable cost. 
C)  The amount of gold in the world is limited. Therefore, the gold jewelry market probably has a long-run supply curve that is upward sloping. 
D)  Long-run supply curves are typically more elastic than short-run supply curves. 
A)  In a long-run equilibrium, marginal firms make zero economic profit. 
B)  To maximize profit, firms should produce at a level of output where price equals average variable cost. 
C)  The amount of gold in the world is limited. Therefore, the gold jewelry market probably has a long-run supply curve that is upward sloping. 
D)  Long-run supply curves are typically more elastic than short-run supply curves.

Question 2

In the long run, each firm in a competitive industry earns

Accepted Answer

A)  zero accounting profits. 
B)  zero economic profits. 
C)  positive economic profits. 
D)  positive, negative, or zero economic profits. 
A)  zero accounting profits. 
B)  zero economic profits. 
C)  positive economic profits. 
D)  positive, negative, or zero economic profits.

Question 3

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-5. Firms would be encouraged to enter this market for all prices that exceed

Accepted Answer

A)  P1. 
B)  P2. 
C)  P3. 
D)  P4. 
A)  P1. 
B)  P2. 
C)  P3. 
D)  P4.

Question 4

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves:  
-Refer to Figure 14-13. If the price is $4.50 in the short run, what will happen in the long run?

Accepted Answer

A)  Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. 
B)  Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. 
C)  Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. 
D)  Because the price is below the firm's average variable costs, the firms will shut down. 
A)  Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. 
B)  Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. 
C)  Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. 
D)  Because the price is below the firm's average variable costs, the firms will shut down.

Question 5

If a competitive firm is selling 500 units of its product at a price of $8 per unit and earning a positive profit, then

Accepted Answer

A)  its average revenue is greater than $8. 
B)  its marginal revenue is less than $8. 
C)  its total cost is less than $4,000. 
D)  All of the above are correct. 
A)  its average revenue is greater than $8. 
B)  its marginal revenue is less than $8. 
C)  its total cost is less than $4,000. 
D)  All of the above are correct.

Question 6

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-5. When market price is P2, a profit-maximizing firm's losses can be represented by the area

Accepted Answer

A)  (P4 - P2) × Q2. 
B)  At a market price of P2, the firm earns profits, not losses. 
C)  (P2 - P1) × (Q2-Q1). 
B)  At a market price of P2 the firm has losses, but the reference points in the figure don't identify the losses. 
A)  (P4 - P2) × Q2. 
B)  At a market price of P2, the firm earns profits, not losses. 
C)  (P2 - P1) × (Q2-Q1). 
B)  At a market price of P2 the firm has losses, but the reference points in the figure don't identify the losses.

Question 7

Use a graph to demonstrate the circumstances that would prevail in a perfectly competitive market where firms are experiencing economic losses. Identify costs, revenue, and the economic losses on your graph. Using your graph, determine whether an individual firm will shut down in the short run, or choose to remain in the market. Explain your answer.

Accepted Answer

The losses and revenues are identified o

Question 8

Figure 14-7  
-Refer to Figure 14-7. In the short run, the firm's maximum profit (or minimum loss) is the same at which of the following pairs of prices?

Accepted Answer

A)  $65 and $75 
B)  $75 and $85 
C)  $80 and $100 
D)  $125 and $175 
A)  $65 and $75 
B)  $75 and $85 
C)  $80 and $100 
D)  $125 and $175

Question 9

A competitive firm's short-run supply curve is part of which of the following curves?

Accepted Answer

A)  marginal revenue 
B)  average variable cost 
C)  average total cost 
D)  marginal cost 
A)  marginal revenue 
B)  average variable cost 
C)  average total cost 
D)  marginal cost

Question 10

Which of the following statements regarding a competitive market is not correct?

Accepted Answer

A)  There are many buyers and many sellers in the market. 
B)  Because of firm location or product differences, some firms can charge a higher price than other firms and still maintain their sales volume. 
C)  Price and average revenue are equal. 
D)  Price and marginal revenue are equal. 
A)  There are many buyers and many sellers in the market. 
B)  Because of firm location or product differences, some firms can charge a higher price than other firms and still maintain their sales volume. 
C)  Price and average revenue are equal. 
D)  Price and marginal revenue are equal.

Question 11

Table 14-12
Bill's Birdhouses
  
-Refer to Table 14-12. What is the marginal revenue from selling the 5th unit?

Accepted Answer

A)  $12 
B)  $68 
C)  $80 
D)  $480 
A)  $12 
B)  $68 
C)  $80 
D)  $480

Question 12

A firm in a competitive market has the following cost structure:   If the firm's fixed cost of production is $3, and the market price is $10, how many units should the firm produce to maximize profit?

Accepted Answer

A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units 
A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units

Question 13

Which of the following is not a characteristic of a perfectly competitive market?

Accepted Answer

A)  There are many buyers and sellers. 
B)  Firms can freely enter and exit the market. 
C)  Many firms have market power. 
D)  Firms sell very similar products. 
A)  There are many buyers and sellers. 
B)  Firms can freely enter and exit the market. 
C)  Many firms have market power. 
D)  Firms sell very similar products.

Question 14

In the short run for a particular market, there are 300 firms. Each firm has a marginal cost of $30 when it produces 200 units of output. One point on the market supply curve is

Accepted Answer

A)  quantity = 100,000; price = $30. 
B)  quantity = 300; price = $30. 
C)  quantity = 600,000; price = $30. 
B)  quantity = 600,000; price = $90,000. 
A)  quantity = 100,000; price = $30. 
B)  quantity = 300; price = $30. 
C)  quantity = 600,000; price = $30. 
B)  quantity = 600,000; price = $90,000.

Question 15

Because there are many sellers in a competitive market, individual firms are unable to maximize profits.

Accepted Answer

A) True 
 B)False

Question 16

Consider a competitive market with 50 identical firms. Suppose the market demand is given by the equation QD = 200 - 10P and the market supply is given by the equation QS = 10P. In addition, suppose the following table shows the marginal cost of production for various levels of output for firms in this market.   How many units should a firm in this market produce to maximize profit?

Accepted Answer

A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units 
A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units

Question 17

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. Let Q represent the quantity of output. Which of the following magnitudes has the same value at Q = 150 and at Q = 151?

Accepted Answer

A)  average fixed cost 
B)  average revenue 
C)  total cost 
D)  total revenue 
A)  average fixed cost 
B)  average revenue 
C)  total cost 
D)  total revenue

Question 18

If firms are competitive and profit maximizing, the price of a good equals the

Accepted Answer

A)  marginal cost of production. 
B)  fixed cost of production. 
C)  total cost of production. 
D)  average total cost of production. 
A)  marginal cost of production. 
B)  fixed cost of production. 
C)  total cost of production. 
D)  average total cost of production.

Question 19

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run

Accepted Answer

A)  more firms will enter the market. 
B)  some firms will exit from the market. 
C)  the equilibrium price per bottle will rise 
D)  average total costs will rise. 
A)  more firms will enter the market. 
B)  some firms will exit from the market. 
C)  the equilibrium price per bottle will rise 
D)  average total costs will rise.

Question 20

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, in the short run the firm will

Accepted Answer

A)  experience losses but will continue to produce rubber bands. 
B)  shut down. 
C)  earn both economic and accounting profits. 
D)  raise the price of its product. 
A)  experience losses but will continue to produce rubber bands. 
B)  shut down. 
C)  earn both economic and accounting profits. 
D)  raise the price of its product.

Which of the following statements is not correct?

In the long run, each firm in a competitive industry earns

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. Firms would be encouraged to enter this market for all prices that exceed

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $4.50 in the short run, what will happen in the long run?

If a competitive firm is selling 500 units of its product at a price of $8 per unit and earning a positive profit, then

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. When market price is P2, a profit-maximizing firm's losses can be represented by the area

Figure 14-7 -Refer to Figure 14-7. In the short run, the firm's maximum profit (or minimum loss) is the same at which of the following pairs of prices?

A competitive firm's short-run supply curve is part of which of the following curves?

Which of the following statements regarding a competitive market is not correct?

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the marginal revenue from selling the 5th unit?

A firm in a competitive market has the following cost structure: If the firm's fixed cost of production is $3, and the market price is $10, how many units should the firm produce to maximize profit?

Which of the following is not a characteristic of a perfectly competitive market?

In the short run for a particular market, there are 300 firms. Each firm has a marginal cost of $30 when it produces 200 units of output. One point on the market supply curve is

Because there are many sellers in a competitive market, individual firms are unable to maximize profits.

If firms are competitive and profit maximizing, the price of a good equals the

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, in the short run the firm will

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

Which of the following statements is not correct?

In the long run, each firm in a competitive industry earns

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. Firms would be encouraged to enter this market for all prices that exceed

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $4.50 in the short run, what will happen in the long run?

If a competitive firm is selling 500 units of its product at a price of $8 per unit and earning a positive profit, then

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. When market price is P2, a profit-maximizing firm's losses can be represented by the area

Figure 14-7 -Refer to Figure 14-7. In the short run, the firm's maximum profit (or minimum loss) is the same at which of the following pairs of prices?

A competitive firm's short-run supply curve is part of which of the following curves?

Which of the following statements regarding a competitive market is not correct?

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the marginal revenue from selling the 5th unit?

A firm in a competitive market has the following cost structure: If the firm's fixed cost of production is $3, and the market price is $10, how many units should the firm produce to maximize profit?

Which of the following is not a characteristic of a perfectly competitive market?

In the short run for a particular market, there are 300 firms. Each firm has a marginal cost of $30 when it produces 200 units of output. One point on the market supply curve is

Because there are many sellers in a competitive market, individual firms are unable to maximize profits.

If firms are competitive and profit maximizing, the price of a good equals the

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, in the short run the firm will

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