Question 1

A dairy farmer must be able to calculate sunk costs in order to determine how much revenue the farm receives for the typical gallon of milk.

Accepted Answer

A) True 
 B)False

Question 2

In a perfectly competitive market,

Accepted Answer

A)  no one seller can influence the price of the product. 
B)  price exceeds marginal revenue for each unit sold. 
C)  average revenue exceeds marginal revenue for each unit sold. 
D)  All of the above are correct. 
A)  no one seller can influence the price of the product. 
B)  price exceeds marginal revenue for each unit sold. 
C)  average revenue exceeds marginal revenue for each unit sold. 
D)  All of the above are correct.

Question 3

Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-4. When price falls from P3 to P1, the firm finds that it

Accepted Answer

A)  decreases its fixed costs. 
B)  should produce Q1 units of output. 
C)  should produce Q3 units of output. 
D)  should shut down immediately. 
A)  decreases its fixed costs. 
B)  should produce Q1 units of output. 
C)  should produce Q3 units of output. 
D)  should shut down immediately.

Question 4

Figure 14-12
-Refer to Figure 14-12. If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market, the figure in panel (b) most likely reflects

Accepted Answer

A)  perfectly inelastic long-run market supply. 
B)  perfectly elastic long-run market supply. 
C)  the entry of firms into the industry when some resources used in production are available only in limited quantities. 
D)  the fact that zero profits cannot be sustained in the long run. 
A)  perfectly inelastic long-run market supply. 
B)  perfectly elastic long-run market supply. 
C)  the entry of firms into the industry when some resources used in production are available only in limited quantities. 
D)  the fact that zero profits cannot be sustained in the long run.

Question 5

Suppose a competitive market has a horizontal long-run supply curve and is in long-run equilibrium. If demand decreases, we can be certain that in the short-run,

Accepted Answer

A)  at least some firms will shut down. 
B)  price will fall below marginal cost for some firms. 
C)  price will fall below average total cost for some firms. 
D)  at least some firms will enter the industry. 
A)  at least some firms will shut down. 
B)  price will fall below marginal cost for some firms. 
C)  price will fall below average total cost for some firms. 
D)  at least some firms will enter the industry.

Question 6

For a firm operating in a perfectly competitive industry, total revenue, marginal revenue, and average revenue are all equal.

Accepted Answer

A) True 
 B)False

Question 7

In the short run, if the market price is below the firm's average total cost of production, the firm will always shut down.

Accepted Answer

A) True 
 B)False

Question 8

A firm in a competitive market has the following cost structure:   What is the lowest price at which this firm might choose to operate?

Accepted Answer

A)  $2 
B)  $3 
C)  $4 
D)  $5 
A)  $2 
B)  $3 
C)  $4 
D)  $5

Question 9

Figure 14-14
  
-Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b). An increase in demand from D0 to D1 will result in

Accepted Answer

A)  a new market equilibrium at point X. 
B)  an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z. 
C)  rising prices and falling profits for existing firms in the market. 
D)  falling prices and falling profits for existing firms in the market. 
A)  a new market equilibrium at point X. 
B)  an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z. 
C)  rising prices and falling profits for existing firms in the market. 
D)  falling prices and falling profits for existing firms in the market.

Question 10

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $11 and a marginal cost of $10. It follows that the

Accepted Answer

A)  production of the 100th unit of output increases the firm's profit by $1. 
B)  production of the 100th unit of output increases the firm's average total cost by $1. 
C)  firm's profit-maximizing level of output is less than 100 units. 
D)  production of the 101st unit of output must increase the firm's profit by more than $1. 
A)  production of the 100th unit of output increases the firm's profit by $1. 
B)  production of the 100th unit of output increases the firm's average total cost by $1. 
C)  firm's profit-maximizing level of output is less than 100 units. 
D)  production of the 101st unit of output must increase the firm's profit by more than $1.

Question 11

Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, an increase in demand will

Accepted Answer

A)  increase price in the short run but not in the long run. 
B)  increase price in the long run but not in the short run. 
C)  increase price both in the short and the long run. 
D)  not affect price in either the short or the long run. 
A)  increase price in the short run but not in the long run. 
B)  increase price in the long run but not in the short run. 
C)  increase price both in the short and the long run. 
D)  not affect price in either the short or the long run.

Question 12

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-2. If the market price is Pb, in the short run the firm will earn

Accepted Answer

A)  positive economic profits. 
B)  negative economic profits but will try to remain open. 
C)  negative economic profits and will shut down. 
D)  zero economic profits. 
A)  positive economic profits. 
B)  negative economic profits but will try to remain open. 
C)  negative economic profits and will shut down. 
D)  zero economic profits.

Question 13

In a competitive market the current price is $6. The typical firm in the market has ATC = $5.00 and AVC = $4.50.

Accepted Answer

A)  In the short run firms will shut down, and in the long run firms will leave the market. 
B)  In the short run firms will continue to operate, but in the long run firms will leave the market. 
C)  New firms will likely enter this market to capture some of the economic profits. 
D)  The firm will earn zero profits in both the short run and long run. 
A)  In the short run firms will shut down, and in the long run firms will leave the market. 
B)  In the short run firms will continue to operate, but in the long run firms will leave the market. 
C)  New firms will likely enter this market to capture some of the economic profits. 
D)  The firm will earn zero profits in both the short run and long run.

Question 14

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $4.75. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 15

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

Accepted Answer

A)  increases in production costs resulting from more firms coming into the market. 
B)  a breakdown of the "free entry and exit" feature of competition. 
C)  a breakdown of the "price taking" feature of competition. 
D)  a stable demand curve for the good, that is, a demand curve that never shifts. 
A)  increases in production costs resulting from more firms coming into the market. 
B)  a breakdown of the "free entry and exit" feature of competition. 
C)  a breakdown of the "price taking" feature of competition. 
D)  a stable demand curve for the good, that is, a demand curve that never shifts.

Question 16

Scenario 14-3
Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20.
-Refer to Scenario 14-3. At Q=500, the firm's profits equal

Accepted Answer

A)  $1,000. 
B)  $4,000. 
C)  $7,000. 
D)  $10,000. 
A)  $1,000. 
B)  $4,000. 
C)  $7,000. 
D)  $10,000.

Question 17

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

Accepted Answer

Average revenue is total revenue divided

Question 18

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 500 identical firms in this market, what is the value of Q1?

Accepted Answer

A)  10,000 
B)  20,000 
C)  50,000 
D)  150,000 
A)  10,000 
B)  20,000 
C)  50,000 
D)  150,000

Question 19

Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-3. If the market price is $6, what is the firm's short­run economic profit?

Accepted Answer

A)  $0 
B)  $12 
C)  $15 
D)  $18 
A)  $0 
B)  $12 
C)  $15 
D)  $18

Question 20

Which of the following represents the firm's short-run condition for shutting down?

Accepted Answer

A)  shut down if TR < TC 
B)  shut down if TR < FC 
C)  shut down if P < ATC 
D)  shut down if TR < VC 
A)  shut down if TR < TC 
B)  shut down if TR < FC 
C)  shut down if P < ATC 
D)  shut down if TR < VC

Exam 14: Firms in Competitive Markets

A dairy farmer must be able to calculate sunk costs in order to determine how much revenue the farm receives for the typical gallon of milk.

In a perfectly competitive market,

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. When price falls from P3 to P1, the firm finds that it

Figure 14-12 -Refer to Figure 14-12. If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market, the figure in panel (b) most likely reflects

Suppose a competitive market has a horizontal long-run supply curve and is in long-run equilibrium. If demand decreases, we can be certain that in the short-run,

For a firm operating in a perfectly competitive industry, total revenue, marginal revenue, and average revenue are all equal.

In the short run, if the market price is below the firm's average total cost of production, the firm will always shut down.

A firm in a competitive market has the following cost structure: What is the lowest price at which this firm might choose to operate?

Figure 14-14 -Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b). An increase in demand from D0 to D1 will result in

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $11 and a marginal cost of $10. It follows that the

Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, an increase in demand will

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. If the market price is Pb, in the short run the firm will earn

In a competitive market the current price is $6. The typical firm in the market has ATC = $5.00 and AVC = $4.50.

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $4.75. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

Scenario 14-3 Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. -Refer to Scenario 14-3. At Q=500, the firm's profits equal

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. If the market price is $6, what is the firm's short­run economic profit?

Which of the following represents the firm's short-run condition for shutting down?

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

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. If the market price is $6, what is the firm's shortrun economic profit?