Question 1

Table 14-1
  
-Refer to Table 14-1. The price and quantity relationship in the table is most likely a demand curve faced by a firm in a

Accepted Answer

A)  monopoly. 
B)  concentrated market. 
C)  competitive market. 
D)  strategic market. 
A)  monopoly. 
B)  concentrated market. 
C)  competitive market. 
D)  strategic market.

Question 2

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

Accepted Answer

The firm could not sell any more of its

Question 3

Which of the following industries is least likely to exhibit the characteristic of free entry?

Accepted Answer

A)  ethnic restaurants 
B)  municipal water and sewer 
C)  corn farming 
D)  grocery stores 
A)  ethnic restaurants 
B)  municipal water and sewer 
C)  corn farming 
D)  grocery stores

Question 4

Table 14-13
Diana's Dress Emporium
  
-Refer to Table 14-13. What is the marginal cost of the 1st unit?

Accepted Answer

A)  $50 
B)  $75 
C)  $80 
D)  $150 
A)  $50 
B)  $75 
C)  $80 
D)  $150

Question 5

Figure 14-11  
-Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were four 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 6

A competitive firm would benefit from charging a price below the market price because the firm would achieve i) higher average revenue.
Ii) higher profits.
Iii) lower total costs.

Accepted Answer

A)  i) only 
B)  ii) and iii) only 
C)  i), ii), and iii) 
D)  None of the above is correct. 
A)  i) only 
B)  ii) and iii) only 
C)  i), ii), and iii) 
D)  None of the above is correct.

Question 7

The long-run supply curve for a competitive industry may be upward sloping if

Accepted Answer

A)  there are barriers to entry. 
B)  firms that enter the industry are able to do so at lower average total costs than the existing firms in the industry. 
C)  some resources are available only in limited quantities. 
D)  accounting profits are positive. 
A)  there are barriers to entry. 
B)  firms that enter the industry are able to do so at lower average total costs than the existing firms in the industry. 
C)  some resources are available only in limited quantities. 
D)  accounting profits are positive.

Question 8

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 9

Profit-maximizing firms in a competitive market produce an output level where

Accepted Answer

A)  marginal cost equals marginal revenue. 
B)  marginal cost equals average total cost. 
C)  marginal revenue is increasing. 
D)  price is less than marginal revenue. 
A)  marginal cost equals marginal revenue. 
B)  marginal cost equals average total cost. 
C)  marginal revenue is increasing. 
D)  price is less than marginal revenue.

Question 10

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing

Accepted Answer

A)  to produce the quantity at which average variable cost is minimized. 
B)  to produce the quantity at which average fixed cost is minimized. 
C)  the quantity at which market price is equal to Mr. McDonald's marginal cost of production. 
D)  the quantity at which market price exceeds Mr. McDonald's marginal cost of production by the greatest amount. 
A)  to produce the quantity at which average variable cost is minimized. 
B)  to produce the quantity at which average fixed cost is minimized. 
C)  the quantity at which market price is equal to Mr. McDonald's marginal cost of production. 
D)  the quantity at which market price exceeds Mr. McDonald's marginal cost of production by the greatest amount.

Question 11

If some resources used in the production of a good are only available in limited quantities, then the long run market supply curve will be perfectly elastic.

Accepted Answer

A) True 
 B)False

Question 12

Table 14-3
The table represents a demand curve faced by a firm in a competitive market.
  
-Refer to Table 14-3. For this firm, the marginal revenue is

Accepted Answer

A)  $39. 
B)  $26. 
C)  $13. 
D)  $0. 
A)  $39. 
B)  $26. 
C)  $13. 
D)  $0.

Question 13

Table 14-8
Suppose that a firm in a competitive market faces the following revenues and costs:
  
-Refer to Table 14-8. In order to maximize profits, the firm will produce

Accepted Answer

A)  1 unit of output because marginal cost is minimized. 
B)  4 units of output because marginal revenue exceeds marginal cost. 
C)  5 units of output because marginal revenue equals marginal cost. 
D)  7 units of output because total revenue is maximized. 
A)  1 unit of output because marginal cost is minimized. 
B)  4 units of output because marginal revenue exceeds marginal cost. 
C)  5 units of output because marginal revenue equals marginal cost. 
D)  7 units of output because total revenue is maximized.

Question 14

Which of the following statements best reflects a price-taking firm?

Accepted Answer

A)  If the firm were to charge more than the going price, it would sell none of its goods. 
B)  The firm has an incentive to charge less than the market price to earn higher revenue. 
C)  The firm can sell only a limited amount of output at the market price before the market price will fall. 
D)  Price-taking firms maximize profits by charging a price above marginal cost. 
A)  If the firm were to charge more than the going price, it would sell none of its goods. 
B)  The firm has an incentive to charge less than the market price to earn higher revenue. 
C)  The firm can sell only a limited amount of output at the market price before the market price will fall. 
D)  Price-taking firms maximize profits by charging a price above marginal cost.

Question 15

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 16

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 output in the table is average variable cost equal to $6?

Accepted Answer

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

Question 17

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 18

At the profit-maximizing level of output,

Accepted Answer

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

Question 19

A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost but greater than the firm's average fixed cost.

Accepted Answer

A) True 
 B)False

Question 20

For a particular competitive firm, the minimum value of average variable cost AVC) is $12 and is reached when 200 units of output are produced. For the same firm, the minimum value of average total cost ATC) is $15 and is reached when 230 units of output are produced. Which of the following statements is correct?

Accepted Answer

A)  In the short run, the firm will shut down if the price of its product is $14. 
B)  In the long run, the firm will shut down if the price of its product is $11. 
C)  For this firm, the minimum value of variable cost V
C)  is $2,400. 
D)  If the firm's fixed cost F
C)  amounts to $500, then the firm cannot earn a positive profit unless the price of its product exceeds $16. 
A)  In the short run, the firm will shut down if the price of its product is $14. 
B)  In the long run, the firm will shut down if the price of its product is $11. 
C)  For this firm, the minimum value of variable cost V
C)  is $2,400. 
D)  If the firm's fixed cost F
C)  amounts to $500, then the firm cannot earn a positive profit unless the price of its product exceeds $16.

Exam 13: Firms in Competitive Markets

Table 14-1 -Refer to Table 14-1. The price and quantity relationship in the table is most likely a demand curve faced by a firm in a

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

Which of the following industries is least likely to exhibit the characteristic of free entry?

Table 14-13 Diana's Dress Emporium -Refer to Table 14-13. What is the marginal cost of the 1st unit?

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

A competitive firm would benefit from charging a price below the market price because the firm would achieve i) higher average revenue. Ii) higher profits. Iii) lower total costs.

The long-run supply curve for a competitive industry may be upward sloping if

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

Profit-maximizing firms in a competitive market produce an output level where

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing

If some resources used in the production of a good are only available in limited quantities, then the long run market supply curve will be perfectly elastic.

Table 14-3 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-3. For this firm, the marginal revenue is

Table 14-8 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-8. In order to maximize profits, the firm will produce

Which of the following statements best reflects a price-taking firm?

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

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 output in the table is average variable cost equal to $6?

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

At the profit-maximizing level of output,

A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost but greater than the firm's average fixed cost.

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

Filters

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