Question 1

The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.

Accepted Answer

A) True 
 B)False

Question 2

Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:
  
-Refer to Table 14-9. At which quantity of output is marginal revenue equal to marginal cost?

Accepted Answer

A)  3 units 
B)  5 units 
C)  7 units 
D)  9 units 
A)  3 units 
B)  5 units 
C)  7 units 
D)  9 units

Question 3

In the short-run, a firm's supply curve is equal to the

Accepted Answer

A)  marginal cost curve above its average variable cost curve. 
B)  marginal cost curve above its average total cost curve. 
C)  average variable cost curve above its marginal cost curve. 
D)  average total cost curve above its marginal cost curve. 
A)  marginal cost curve above its average variable cost curve. 
B)  marginal cost curve above its average total cost curve. 
C)  average variable cost curve above its marginal cost curve. 
D)  average total cost curve above its marginal cost curve.

Question 4

The short-run supply curve for a firm in a perfectly competitive market is

Accepted Answer

A)  horizontal. 
B)  likely to slope downward. 
C)  determined by forces external to the firm. 
D)  the portion of its marginal cost curve that lies above its average variable cost. 
A)  horizontal. 
B)  likely to slope downward. 
C)  determined by forces external to the firm. 
D)  the portion of its marginal cost curve that lies above its average variable cost.

Question 5

In the long run, a firm will enter a competitive industry if

Accepted Answer

A)  total revenue exceeds total cost. 
B)  the price exceeds average total cost. 
C)  the firm can earn economic profits. 
D)  All of the above are correct. 
A)  total revenue exceeds total cost. 
B)  the price exceeds average total cost. 
C)  the firm can earn economic profits. 
D)  All of the above are correct.

Question 6

A competitive firm's short-run supply curve is part of which of the following curves?

Accepted Answer

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

Question 7

Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market?

Accepted Answer

A)  less than $2.50 
B)  more than $2.50 
C)  exactly $2.50 
D)  The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm. 
A)  less than $2.50 
B)  more than $2.50 
C)  exactly $2.50 
D)  The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm.

Question 8

Because nothing can be done about sunk costs, they are irrelevant to decisions about business strategy.

Accepted Answer

A) True 
 B)False

Question 9

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $4.75. The firm should continue to produce 100 units in order to maximize its profits or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 10

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 11

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. Suppose the firm is currently producing and selling 150 units of output. Should the firm increase its output to 151 units?

Accepted Answer

A)  Yes, because the marginal revenue exceeds the marginal cost. 
B)  Yes, because the marginal revenue exceeds the average total cost. 
C)  No, because the marginal cost exceeds the marginal revenue. 
D)  No, because the average total cost exceeds the marginal revenue. 
A)  Yes, because the marginal revenue exceeds the marginal cost. 
B)  Yes, because the marginal revenue exceeds the average total cost. 
C)  No, because the marginal cost exceeds the marginal revenue. 
D)  No, because the average total cost exceeds the marginal revenue.

Question 12

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

Accepted Answer

1) Some resource used in production may

Question 13

In the short run, a market consists of 100 identical firms. The market price is $8, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market?

Accepted Answer

A)  200 units 
B)  300 units 
C)  400 units 
D)  500 units 
A)  200 units 
B)  300 units 
C)  400 units 
D)  500 units

Question 14

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 15

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people

Accepted Answer

A)  consider sunk costs. 
B)  equate prices to the average costs of production. 
C)  prefer to purchase products from smaller rather than larger firms. 
D)  think at the margin. 
A)  consider sunk costs. 
B)  equate prices to the average costs of production. 
C)  prefer to purchase products from smaller rather than larger firms. 
D)  think at the margin.

Question 16

Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's

Accepted Answer

A)  total revenues exceed her total accounting costs. 
B)  marginal revenue exceeds her total cost. 
C)  marginal revenue exceeds her marginal cost. 
D)  marginal cost exceeds her marginal revenue. 
A)  total revenues exceed her total accounting costs. 
B)  marginal revenue exceeds her total cost. 
C)  marginal revenue exceeds her marginal cost. 
D)  marginal cost exceeds her marginal revenue.

Question 17

Suppose a competitive market is comprised of firms that face identical cost curves. The firms experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur? i) New firms will enter the market.
Ii) In the short run, price will rise; in the long run, price will rise further.
Iii) In the long run, all firms will be producing at their efficient scale.

Accepted Answer

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

Question 18

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 = 999, the firm's profits equal

Accepted Answer

A)  $4,990. 
B)  $5,000. 
C)  $5,020. 
D)  $5,030. 
A)  $4,990. 
B)  $5,000. 
C)  $5,020. 
D)  $5,030.

Question 19

Why does a firm in a competitive industry charge the market price?

Accepted Answer

A)  If a firm charges less than the market price, it loses potential revenue. 
B)  If a firm charges more than the market price, it loses all its customers to other firms. 
C)  The firm can sell as many units of output as it wants to at the market price. 
D)  All of the above are correct. 
A)  If a firm charges less than the market price, it loses potential revenue. 
B)  If a firm charges more than the market price, it loses all its customers to other firms. 
C)  The firm can sell as many units of output as it wants to at the market price. 
D)  All of the above are correct.

Question 20

All competitive firms earn zero economic profit in both the short run and the long run.

Accepted Answer

A) True 
 B)False

Exam 13: Firms in Competitive Markets

The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. At which quantity of output is marginal revenue equal to marginal cost?

In the short-run, a firm's supply curve is equal to the

The short-run supply curve for a firm in a perfectly competitive market is

In the long run, a firm will enter a competitive industry if

A competitive firm's short-run supply curve is part of which of the following curves?

Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market?

Because nothing can be done about sunk costs, they are irrelevant to decisions about business strategy.

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $4.75. The firm should continue to produce 100 units in order to maximize its profits or minimize its losses).

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

In the short run, a market consists of 100 identical firms. The market price is $8, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market?

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

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people

Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's

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 = 999, the firm's profits equal

Why does a firm in a competitive industry charge the market price?

All competitive firms earn zero economic profit in both the short run and the long run.

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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