Question 1

When a profit-maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production.

Accepted Answer

A) True 
 B)False

Question 2

Figure 14-8
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-8. Which line segment best reflects the short-run supply curve for this firm?

Accepted Answer

A)  ABCF 
B)  CD 
C)  DF 
D)  BCD 
A)  ABCF 
B)  CD 
C)  DF 
D)  BCD

Question 3

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 4

Which of the following is a characteristic of a competitive market?

Accepted Answer

A)  There are many buyers but few sellers. 
B)  Many firms have market power because they own patents. 
C)  Buyers and sellers are price takers.. 
D)  Firms sell differentiated products. 
A)  There are many buyers but few sellers. 
B)  Many firms have market power because they own patents. 
C)  Buyers and sellers are price takers.. 
D)  Firms sell differentiated products.

Question 5

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output

Accepted Answer

A)  is less than 1,000 pounds. 
B)  is still 1,000 pounds. 
C)  is more than 1,000 pounds. 
D)  becomes zero. 
A)  is less than 1,000 pounds. 
B)  is still 1,000 pounds. 
C)  is more than 1,000 pounds. 
D)  becomes zero.

Question 6

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Explain your answer.

Accepted Answer

In a competitive market where firms are

Question 7

When market conditions in a competitive industry are such that firms cannot cover their total production costs, then

Accepted Answer

A)  the firms will suffer long-run economic losses. 
B)  the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. 
C)  some firms will exit the market, causing prices to rise until the remaining firms can cover their total production costs. 
D)  all firms will go out of business, since consumers will not pay prices that enable firms to cover their total production costs. 
A)  the firms will suffer long-run economic losses. 
B)  the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. 
C)  some firms will exit the market, causing prices to rise until the remaining firms can cover their total production costs. 
D)  all firms will go out of business, since consumers will not pay prices that enable firms to cover their total production costs.

Question 8

Figure 14-14
  
-Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel b) and that panel a) illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is correct?

Accepted Answer

A)  Points W, Y, and Z represent both short-run and long-run equilibria. 
B)  Points W, Y, Z, and X represent short-run equilibria. 
C)  Points W, Y, and Z represent long-run equilibria. 
D)  Points W and Z represent long-run equilibria. 
A)  Points W, Y, and Z represent both short-run and long-run equilibria. 
B)  Points W, Y, Z, and X represent short-run equilibria. 
C)  Points W, Y, and Z represent long-run equilibria. 
D)  Points W and Z represent long-run equilibria.

Question 9

The two characteristics of a competitive market are 1) many buyers and sellers in the market and 2) the goods offered by the various sellers are highly differentiated.

Accepted Answer

A) True 
 B)False

Question 10

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 produces 150 units of output, its profit is

Accepted Answer

A)  $2,150.00. 
B)  $2,325.00. 
C)  $3,100.75. 
D)  $3,675.00. 
A)  $2,150.00. 
B)  $2,325.00. 
C)  $3,100.75. 
D)  $3,675.00.

Question 11

Figure 14-9
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 14-9. If at a market price of $1.75, 52,500 units of output are supplied to this market, how many identical firms are participating in this market?

Accepted Answer

A)  75 
B)  100 
C)  250 
D)  300 
A)  75 
B)  100 
C)  250 
D)  300

Question 12

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)  Firms can freely enter or exit the market. 
C)  Price equals average revenue. 
D)  Price exceeds marginal revenue. 
A)  There are many buyers and many sellers in the market. 
B)  Firms can freely enter or exit the market. 
C)  Price equals average revenue. 
D)  Price exceeds marginal revenue.

Question 13

When a profit-maximizing competitive firm finds itself minimizing losses because it is unable to earn a positive profit, this task is accomplished by producing the quantity at which price is equal to

Accepted Answer

A)  sunk cost. 
B)  average fixed cost. 
C)  average variable cost. 
D)  marginal cost. 
A)  sunk cost. 
B)  average fixed cost. 
C)  average variable cost. 
D)  marginal cost.

Question 14

Scenario 14-2
Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit.
-Refer to Scenario 14-2. At Q = 1,000, the firm's profits equal

Accepted Answer

A)  -$5,000. 
B)  $2,500. 
C)  $5,000. 
D)  $10,000. 
A)  -$5,000. 
B)  $2,500. 
C)  $5,000. 
D)  $10,000.

Question 15

A popular resort restaurant will maximize profits if it chooses to stay open during the less­crowded "off season" when its total revenues exceed its variable costs.

Accepted Answer

A) True 
 B)False

Question 16

Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?

Accepted Answer

A)  shut down the business 
B)  produce more custom-made shoes 
C)  decrease the price 
D)  produce fewer custom-made shoes 
A)  shut down the business 
B)  produce more custom-made shoes 
C)  decrease the price 
D)  produce fewer custom-made shoes

Question 17

A firm in a competitive market has the following cost structure:   If the market price is $4, this firm will

Accepted Answer

A)  produce 2 units in the short run and exit in the long run. 
B)  produce 3 units in the short run and exit in the long run. 
C)  produce 4 units in the short run and exit in the long run. 
D)  shut down in the short run and exit in the long run. 
A)  produce 2 units in the short run and exit in the long run. 
B)  produce 3 units in the short run and exit in the long run. 
C)  produce 4 units in the short run and exit in the long run. 
D)  shut down in the short run and exit in the long run.

Question 18

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 19

Competitive firms that earn a loss in the short run should

Accepted Answer

A)  shut down if P < AVC. 
B)  raise their price. 
C)  lower their output. 
D)  All of the above are correct. 
A)  shut down if P < AVC. 
B)  raise their price. 
C)  lower their output. 
D)  All of the above are correct.

Question 20

Figure 14-7  
-Refer to Figure 14-7. The firm will shut down in the short run if the price of the good is

Accepted Answer

A)  $75. 
B)  $85. 
C)  $95. 
D)  All of the above are correct. 
A)  $75. 
B)  $85. 
C)  $95. 
D)  All of the above are correct.

Exam 13: Firms in Competitive Markets

When a profit-maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production.

Figure 14-8 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-8. Which line segment best reflects the short-run supply curve for this firm?

In a perfectly competitive market,

Which of the following is a characteristic of a competitive market?

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Explain your answer.

When market conditions in a competitive industry are such that firms cannot cover their total production costs, then

Figure 14-14 -Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel b) and that panel a) illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is correct?

The two characteristics of a competitive market are 1) many buyers and sellers in the market and 2) the goods offered by the various sellers are highly differentiated.

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

When a profit-maximizing competitive firm finds itself minimizing losses because it is unable to earn a positive profit, this task is accomplished by producing the quantity at which price is equal to

Scenario 14-2 Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. -Refer to Scenario 14-2. At Q = 1,000, the firm's profits equal

A popular resort restaurant will maximize profits if it chooses to stay open during the less­crowded "off season" when its total revenues exceed its variable costs.

Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?

A firm in a competitive market has the following cost structure: If the market price is $4, this firm will

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

Competitive firms that earn a loss in the short run should

Figure 14-7 -Refer to Figure 14-7. The firm will shut down in the short run if the price of the good is

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

A popular resort restaurant will maximize profits if it chooses to stay open during the lesscrowded "off season" when its total revenues exceed its variable costs.