Question 1

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 $6.30, 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 2

Table 14-12
Bill's Birdhouses
  
-Refer to Table 14-12. What is the marginal revenue from selling the 1st unit?

Accepted Answer

A)  $30 
B)  $50 
C)  $80 
D)  $160 
A)  $30 
B)  $50 
C)  $80 
D)  $160

Question 3

Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible

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 4

A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has average revenue of $9 and average total cost of $7. It follows that the firm's

Accepted Answer

A)  average total cost curve intersects the marginal cost curve at an output level of less than 200 units. 
B)  average variable cost curve intersects the marginal cost curve at an output level of less than 200 units. 
C)  profit is $400. 
D)  All of the above are correct. 
A)  average total cost curve intersects the marginal cost curve at an output level of less than 200 units. 
B)  average variable cost curve intersects the marginal cost curve at an output level of less than 200 units. 
C)  profit is $400. 
D)  All of the above are correct.

Question 5

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. When the firm increases its output from 150 units to 151 units, its marginal cost is

Accepted Answer

A)  $29.95. 
B)  $32.05. 
C)  $33.00. 
D)  $34.25. 
A)  $29.95. 
B)  $32.05. 
C)  $33.00. 
D)  $34.25.

Question 6

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)  Both a and b are correct. 
A)  zero accounting profits. 
B)  zero economic profits. 
C)  positive economic profits. 
D)  Both a and b are correct.

Question 7

Suppose that a firm operating in perfectly competitive market sells 50 units of output. Its total revenues from the sale are $500. Which of the following statements is correct? (i) Marginal revenue equals $5.
(ii) Average revenue equals $10.
(iii) Price equals $15.

Accepted Answer

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

Question 8

When new firms have an incentive to enter a competitive market, their entry will

Accepted Answer

A)  increase the price of the product. 
B)  drive down profits of existing firms in the market. 
C)  shift the market supply curve to the left. 
D)  increase demand for the product. 
A)  increase the price of the product. 
B)  drive down profits of existing firms in the market. 
C)  shift the market supply curve to the left. 
D)  increase demand for the product.

Question 9

In a long-run equilibrium where firms have identical costs, it is possible that some firms in a competitive market are making a positive economic profit.

Accepted Answer

A) True 
 B)False

Question 10

When total revenue is less than variable costs, a firm in a competitive market will

Accepted Answer

A)  continue to operate as long as average revenue exceeds marginal cost. 
B)  continue to operate as long as average revenue exceeds average fixed cost. 
C)  shut down. 
D)  raise its price. 
A)  continue to operate as long as average revenue exceeds marginal cost. 
B)  continue to operate as long as average revenue exceeds average fixed cost. 
C)  shut down. 
D)  raise its price.

Question 11

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 fall. 
C)  its profits to fall. 
D)  All of the above are correct. 
A)  new firms to enter the market. 
B)  the market price to fall. 
C)  its profits to fall. 
D)  All of the above are correct.

Question 12

When existing firms in a competitive market are profitable, an incentive exists for

Accepted Answer

A)  new firms to seek government subsidies that would allow them to enter the market. 
B)  new firms to enter the market, even without government subsidies. 
C)  existing firms to raise prices. 
D)  existing firms to increase production. 
A)  new firms to seek government subsidies that would allow them to enter the market. 
B)  new firms to enter the market, even without government subsidies. 
C)  existing firms to raise prices. 
D)  existing firms to increase production.

Question 13

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales.
  
-Refer to Table 14-14. When Bob produces and sells the profit-maximizing quantity, how much profit does he earn?

Accepted Answer

A)  $0.25 
B)  $2.75 
C)  $4.00 
D)  $5.25 
A)  $0.25 
B)  $2.75 
C)  $4.00 
D)  $5.25

Question 14

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves:  
-Refer to Figure 14-1. The firm will earn a positive economic profit in the short run if the market price is

Accepted Answer

A)  above $6.30. 
B)  less than $6.30 but more than $4.50. 
C)  less than $4.50. 
D)  exactly $6.30. 
A)  above $6.30. 
B)  less than $6.30 but more than $4.50. 
C)  less than $4.50. 
D)  exactly $6.30.

Question 15

When a profit-maximizing firm is earning profits, those profits can be identified by

Accepted Answer

A)  P × Q. 
B)  (MC - AV
C)  × Q. 
C)  (P - AT
C)  × Q. 
D)  (P - AV
C)  × Q. 
A)  P × Q. 
B)  (MC - AV
C)  × Q. 
C)  (P - AT
C)  × Q. 
D)  (P - AV
C)  × Q.

Question 16

When price is greater than marginal cost for a firm in a competitive market,

Accepted Answer

A)  marginal cost must be falling. 
B)  the firm must be minimizing its losses. 
C)  there are opportunities to increase profit by increasing production. 
D)  the firm should decrease output to maximize profit. 
A)  marginal cost must be falling. 
B)  the firm must be minimizing its losses. 
C)  there are opportunities to increase profit by increasing production. 
D)  the firm should decrease output to maximize profit.

Question 17

If the profit­maximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm

Accepted Answer

A)  will be earning positive economic profit at the profit-maximizing quantity. 
B)  will have economic profit less than zero at the profit-maximizing quantity. 
C)  will have zero economic profit at the profit-maximizing quantity. 
D)  should increase the quantity of production to increase profit. 
A)  will be earning positive economic profit at the profit-maximizing quantity. 
B)  will have economic profit less than zero at the profit-maximizing quantity. 
C)  will have zero economic profit at the profit-maximizing quantity. 
D)  should increase the quantity of production to increase profit.

Question 18

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:
  
-Refer to Table 14-11. The marginal revenue from producing the 3rd unit equals (i) $6.
(ii) the price.
(iii) the marginal cost.

Accepted Answer

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

Question 19

A seller in a competitive market can

Accepted Answer

A)  sell all he wants at the going price, so he has little reason to charge less. 
B)  influence the market price by adjusting his output. 
C)  influence the profits earned by competing firms by adjusting his output. 
D)  All of the above are correct. 
A)  sell all he wants at the going price, so he has little reason to charge less. 
B)  influence the market price by adjusting his output. 
C)  influence the profits earned by competing firms by adjusting his output. 
D)  All of the above are correct.

Question 20

Table 14-12
Bill's Birdhouses
  
-Refer to Table 14-12. What is the marginal cost of the 8th unit?

Accepted Answer

A)  $0 
B)  $72.75 
C)  $120 
D)  $502 
A)  $0 
B)  $72.75 
C)  $120 
D)  $502

Exam 14: Firms in Competitive Markets

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 $6.30, the firm will earn

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the marginal revenue from selling the 1st unit?

Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible

A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has average revenue of $9 and average total cost of $7. It follows that the firm's

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

Suppose that a firm operating in perfectly competitive market sells 50 units of output. Its total revenues from the sale are $500. Which of the following statements is correct? (i) Marginal revenue equals $5. (ii) Average revenue equals $10. (iii) Price equals $15.

When new firms have an incentive to enter a competitive market, their entry will

In a long-run equilibrium where firms have identical costs, it is possible that some firms in a competitive market are making a positive economic profit.

When total revenue is less than variable costs, a firm in a competitive market will

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

When existing firms in a competitive market are profitable, an incentive exists for

Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. -Refer to Table 14-14. When Bob produces and sells the profit-maximizing quantity, how much profit does he earn?

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. The firm will earn a positive economic profit in the short run if the market price is

When a profit-maximizing firm is earning profits, those profits can be identified by

When price is greater than marginal cost for a firm in a competitive market,

If the profit­maximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm

Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11. The marginal revenue from producing the 3rd unit equals (i) $6. (ii) the price. (iii) the marginal cost.

A seller in a competitive market can

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the marginal cost of the 8th unit?

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

If the profitmaximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm