Question 1

Table 14-4
The table represents a demand curve faced by a firm in a competitive market.
  
-Refer to Table 14-4. For this firm, the marginal revenue is

Accepted Answer

A)  $0. 
B)  $5. 
C)  $10. 
D)  $15. 
A)  $0. 
B)  $5. 
C)  $10. 
D)  $15.

Question 2

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 3

If a profit-maximizing firm in a competitive market discovers that, at its current level of production, price is greater than marginal cost, it should

Accepted Answer

A)  shut down. 
B)  reduce its output but continue operating. 
C)  continue to produce at the current levels. 
D)  increase its output. 
A)  shut down. 
B)  reduce its output but continue operating. 
C)  continue to produce at the current levels. 
D)  increase its output.

Question 4

At its current level of production a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces and faces an average total cost of $10. At the market price of $12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1,000 units. What is the firm's current profit? What is likely to occur in this market and why?

Accepted Answer

Profit can be calculated as P-

Question 5

In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if

Accepted Answer

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

Question 6

In order to maximize profits in the short run, a firm should produce where

Accepted Answer

A)  marginal revenue exceeds marginal cost by the greatest amount. 
B)  marginal cost is minimized. 
C)  average total cost is minimized. 
D)  marginal cost equals marginal revenue. 
A)  marginal revenue exceeds marginal cost by the greatest amount. 
B)  marginal cost is minimized. 
C)  average total cost is minimized. 
D)  marginal cost equals marginal revenue.

Question 7

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales.
  
-Refer to Table 14-14. What is the marginal revenue of the 4th unit?

Accepted Answer

A)  $2.00 
B)  $3.25 
C)  $10.00 
D)  $13.00 
A)  $2.00 
B)  $3.25 
C)  $10.00 
D)  $13.00

Question 8

The manager of a firm operating in a competitive market can ignore sunk costs when making business decisions.

Accepted Answer

A) True 
 B)False

Question 9

In the long run,

Accepted Answer

A)  competitive firms' profits are zero. 
B)  competitive firms' variable costs are zero. 
C)  competitive firms' ATC curves shift upward or downward to ensure that all demand is satisfied. 
D)  the number of firms in the market is fixed. 
A)  competitive firms' profits are zero. 
B)  competitive firms' variable costs are zero. 
C)  competitive firms' ATC curves shift upward or downward to ensure that all demand is satisfied. 
D)  the number of firms in the market is fixed.

Question 10

A firm's marginal cost has a minimum value of $4, its average variable cost has a minimum value of $6, and its average total cost has a minimum value of $7. Then the firm will shut down in the short run once the price of its product falls below

Accepted Answer

A)  $7. 
B)  $6. 
C)  $4. 
D)  We do not have enough information to answer the question. 
A)  $7. 
B)  $6. 
C)  $4. 
D)  We do not have enough information to answer the question.

Question 11

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 falls below $4.50, 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 in the short run 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 in the short run and shut down. 
D)  zero economic profits in the short run.

Question 12

Consider a competitive market with 50 identical firms. Suppose the market demand is given by the equation QD = 200 - 10P and the market supply is given by the equation QS = 10P. In addition, suppose the following table shows the marginal cost of production for various levels of output for firms in this market.   How many units should a firm in this market produce to maximize profit?

Accepted Answer

A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units 
A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units

Question 13

Regardless of the cost structure of firms in a competitive market, in the long run

Accepted Answer

A)  firms will experience rising demand for their products. 
B)  the marginal firm will earn zero economic profit. 
C)  firms will experience a less competitive market environment. 
D)  exit and entry is likely to lead to a horizontal long-run supply curve. 
A)  firms will experience rising demand for their products. 
B)  the marginal firm will earn zero economic profit. 
C)  firms will experience a less competitive market environment. 
D)  exit and entry is likely to lead to a horizontal long-run supply curve.

Question 14

When firms in a perfectly competitive market face the same costs, in the long run they must be operating

Accepted Answer

A)  under diseconomies of scale. 
B)  with small, but positive, levels of profit. 
C)  at their efficient scale. 
D)  where price is equal to average fixed cost. 
A)  under diseconomies of scale. 
B)  with small, but positive, levels of profit. 
C)  at their efficient scale. 
D)  where price is equal to average fixed cost.

Question 15

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales.
  
-Refer to Table 14-14. Suppose that due to a decrease in the market demand for bread the market price of bread drops to $2.75 per loaf. At this new price, what is Bob's profit­maximizing quantity?

Accepted Answer

A)  5 units 
B)  6 units 
C)  7 units 
D)  8 units 
A)  5 units 
B)  6 units 
C)  7 units 
D)  8 units

Question 16

A firm has market power if it can

Accepted Answer

A)  maximize profits. 
B)  minimize costs. 
C)  influence the market price of the good it sells. 
D)  hire as many workers as it needs at the prevailing wage rate. 
A)  maximize profits. 
B)  minimize costs. 
C)  influence the market price of the good it sells. 
D)  hire as many workers as it needs at the prevailing wage rate.

Question 17

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:
  
-Refer to Table 14-11. In order to maximize profits, the firm should stop producing after it makes the

Accepted Answer

A)  first unit. 
B)  second unit. 
C)  fourth unit. 
D)  fifth unit. 
A)  first unit. 
B)  second unit. 
C)  fourth unit. 
D)  fifth unit.

Question 18

In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is

Accepted Answer

A)  zero. 
B)  equal to the industry profits. 
C)  the market supply curve. 
D)  a horizontal line. 
A)  zero. 
B)  equal to the industry profits. 
C)  the market supply curve. 
D)  a horizontal line.

Question 19

In a market with a fixed number of firms, as long as price is above average

Accepted Answer

A)  variable cost, each firm's marginal­cost curve is its supply curve. 
B)  variable cost, each firm's average­total­cost curve is its supply curve. 
C)  total cost, each firm's marginal­cost curve is its supply curve. 
D)  total cost, each firm's average­total­cost curve is its supply curve. 
A)  variable cost, each firm's marginal­cost curve is its supply curve. 
B)  variable cost, each firm's average­total­cost curve is its supply curve. 
C)  total cost, each firm's marginal­cost curve is its supply curve. 
D)  total cost, each firm's average­total­cost curve is its supply curve.

Question 20

When firms in a competitive market have different costs, it is likely that

Accepted Answer

A)  free entry and exit in the market will be violated. 
B)  the market will no longer be considered competitive. 
C)  long-run market supply will be downward sloping. 
D)  some firms will earn positive economic profits in the long run. 
A)  free entry and exit in the market will be violated. 
B)  the market will no longer be considered competitive. 
C)  long-run market supply will be downward sloping. 
D)  some firms will earn positive economic profits in the long run.

Exam 13: Firms in Competitive Markets

Table 14-4 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-4. For this firm, the marginal revenue is

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?

If a profit-maximizing firm in a competitive market discovers that, at its current level of production, price is greater than marginal cost, it should

In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if

In order to maximize profits in the short run, a firm should produce where

Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. -Refer to Table 14-14. What is the marginal revenue of the 4th unit?

The manager of a firm operating in a competitive market can ignore sunk costs when making business decisions.

In the long run,

A firm's marginal cost has a minimum value of $4, its average variable cost has a minimum value of $6, and its average total cost has a minimum value of $7. Then the firm will shut down in the short run once the price of its product falls below

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 falls below $4.50, the firm will earn

Regardless of the cost structure of firms in a competitive market, in the long run

When firms in a perfectly competitive market face the same costs, in the long run they must be operating

A firm has market power if it can

Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11. In order to maximize profits, the firm should stop producing after it makes the

In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is

In a market with a fixed number of firms, as long as price is above average

When firms in a competitive market have different costs, it is likely that

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

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?