Question 1

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

Accepted Answer

A)  average revenue exceeds marginal cost. 
B)  the firm is earning a positive profit. 
C)  decreasing output would increase the firm's profit. 
D)  All of the above are correct. 
A)  average revenue exceeds marginal cost. 
B)  the firm is earning a positive profit. 
C)  decreasing output would increase the firm's profit. 
D)  All of the above are correct. C

Question 2

A profit-maximizing firm will shut down in the short run when

Accepted Answer

A)  price is less than average variable cost. 
B)  price is less than average total cost. 
C)  average revenue is greater than marginal cost. 
D)  average revenue is greater than average fixed cost. 
A)  price is less than average variable cost. 
B)  price is less than average total cost. 
C)  average revenue is greater than marginal cost. 
D)  average revenue is greater than average fixed cost. A

Question 3

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 $6 value on reading a book.

Accepted Answer

A)  You should leave the theater since the net benefit from seeing the remainder of the show is -$20, while going home will earn you at least $8 of satisfaction. 
B)  You should stay and watch the remainder of the show. 
C)  You should go home and watch TV. 
D)  You should go home and read a book. 
A)  You should leave the theater since the net benefit from seeing the remainder of the show is -$20, while going home will earn you at least $8 of satisfaction. 
B)  You should stay and watch the remainder of the show. 
C)  You should go home and watch TV. 
D)  You should go home and read a book. B

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

When a competitive market experiences an increase in demand that increases production costs for existing firms and potential new entrants, which of the following is most likely to arise?

Accepted Answer

A)  The long-run market supply curve will be upward sloping. 
B)  The condition of free entry into the market will be violated. 
C)  Producer profits will fall in the long run. 
D)  The long-run market supply curve will be horizontal as new firms enter and drive the price downward. 
A)  The long-run market supply curve will be upward sloping. 
B)  The condition of free entry into the market will be violated. 
C)  Producer profits will fall in the long run. 
D)  The long-run market supply curve will be horizontal as new firms enter and drive the price downward.

Question 6

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 7

News reports from the western United States occasionally report incidents of cattle ranchers slaughtering a large number of newborn calves and burying them in mass graves rather than transporting them to markets. Assuming that this is rational behavior by profit-maximizing "firms," explain what economic factors may influence such behavior.

Accepted Answer

If the selling price is not su

Question 8

Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-3. The firm will earn zero economic profit if the market price is

Accepted Answer

A)  $0. 
B)  $6. 
C)  $7. 
D)  $10. 
A)  $0. 
B)  $6. 
C)  $7. 
D)  $10.

Question 9

In a perfectly competitive market, the process of entry and exit will end when firms face

Accepted Answer

A)  marginal revenue equal to long-run average total cost. 
B)  total revenue equal to average total cost. 
C)  average revenue greater than marginal cost. 
D)  accounting profits equal to zero. 
A)  marginal revenue equal to long-run average total cost. 
B)  total revenue equal to average total cost. 
C)  average revenue greater than marginal cost. 
D)  accounting profits equal to zero.

Question 10

When firms are neither entering nor exiting a perfectly competitive market,

Accepted Answer

A)  total revenue must equal total variable cost for each firm. 
B)  economic profits must be zero. 
C)  price must equal average variable cost for each firm. 
D)  Both a and c are correct. 
A)  total revenue must equal total variable cost for each firm. 
B)  economic profits must be zero. 
C)  price must equal average variable cost for each firm. 
D)  Both a and c are correct.

Question 11

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 Pc, 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 12

Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

Accepted Answer

The firm selects the level of output at

Question 13

Firms operating in perfectly competitive markets produce an output level where marginal revenue equals marginal cost.

Accepted Answer

A) True 
 B)False

Question 14

The exit of existing firms from 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 15

For a firm in a perfectly competitive market, the price of the good is always

Accepted Answer

A)  equal to marginal revenue. 
B)  equal to total revenue. 
C)  greater than average revenue. 
D)  equal to the firm's efficient scale of output. 
A)  equal to marginal revenue. 
B)  equal to total revenue. 
C)  greater than average revenue. 
D)  equal to the firm's efficient scale of output.

Question 16

A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

Accepted Answer

A) True 
 B)False

Question 17

Suppose a firm in each of the two markets listed below were to increase its price by 25 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)  restaurants and MP3 players 
B)  electricity and natural gas 
C)  corn and satellite radio 
D)  rice and soybeans 
A)  restaurants and MP3 players 
B)  electricity and natural gas 
C)  corn and satellite radio 
D)  rice and soybeans

Question 18

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 total revenue from selling 7 units?

Accepted Answer

A)  $120 
B)  $490 
C)  $562 
D)  $840 
A)  $120 
B)  $490 
C)  $562 
D)  $840

Question 19

Willie's Wading Adventures sells hip waders for fishing and duck hunting in a perfectly competitive market. If hip waders sell for $100 each and average total cost per unit is $95 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 unit will rise. 
D)  average total costs will fall. 
A)  more firms will enter the market. 
B)  some firms will exit from the market. 
C)  the equilibrium price per unit will rise. 
D)  average total costs will fall.

Question 20

For a firm, marginal revenue minus marginal cost is equal to

Accepted Answer

A)  profit. 
B)  average total cost. 
C)  change in profit. 
D)  change in average revenue. 
A)  profit. 
B)  average total cost. 
C)  change in profit. 
D)  change in average revenue.

Exam 13: Firms in Competitive Markets

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

A profit-maximizing firm will shut down in the short run when

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?

When a competitive market experiences an increase in demand that increases production costs for existing firms and potential new entrants, which of the following is most likely to arise?

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. The firm will earn zero economic profit if the market price is

In a perfectly competitive market, the process of entry and exit will end when firms face

When firms are neither entering nor exiting a perfectly competitive market,

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 Pc, in the short run the firm will earn

Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

Firms operating in perfectly competitive markets produce an output level where marginal revenue equals marginal cost.

The exit of existing firms from a competitive market will

For a firm in a perfectly competitive market, the price of the good is always

A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

Suppose a firm in each of the two markets listed below were to increase its price by 25 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?

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 total revenue from selling 7 units?

Willie's Wading Adventures sells hip waders for fishing and duck hunting in a perfectly competitive market. If hip waders sell for $100 each and average total cost per unit is $95 at the profit-maximizing output level, then in the long run

For a firm, marginal revenue minus marginal cost is equal to

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 Costs of Production

Monopoly

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

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