Question 1

Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect

Accepted Answer

A)  new firms to enter the market. 
B)  the market price to rise. 
C)  its profits to rise. 
D)  Both b and c are correct. 
A)  new firms to enter the market. 
B)  the market price to rise. 
C)  its profits to rise. 
D)  Both b and c are correct.

Question 2

All firms maximize profits by producing an output level where marginal revenue equals marginal cost; for firms operating in perfectly competitive industries, maximizing profits also means producing an output level where price equals marginal cost.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following characteristics of competitive markets is necessary for firms to be price takers? i) There are many sellers.
Ii) Firms can freely enter or exit the market.
Iii) Goods offered for sale are largely the same.

Accepted Answer

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

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

For a firm operating in a perfectly competitive industry, marginal revenue and average revenue are equal.

Accepted Answer

A) True 
 B)False

Question 6

Figure 14-10
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 14-10. If there are 700 identical firms in this market, what is the value of Q2?

Accepted Answer

A)  140,000 
B)  210,000 
C)  280,000 
D)  420,000 
A)  140,000 
B)  210,000 
C)  280,000 
D)  420,000

Question 7

If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, we would expect that

Accepted Answer

A)  the demand for products in this industry would increase. 
B)  the market price of products in this industry would decrease in the short run but not in the long run. 
C)  the firms in the industry would make a long-run economic profit. 
D)  competition would force producers to pass the lower production costs on to consumers in the long run. 
A)  the demand for products in this industry would increase. 
B)  the market price of products in this industry would decrease in the short run but not in the long run. 
C)  the firms in the industry would make a long-run economic profit. 
D)  competition would force producers to pass the lower production costs on to consumers in the long run.

Question 8

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 is $5.00, 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 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 and shut down. 
D)  zero economic profits in the short run.

Question 9

For any competitive market, the supply curve is closely related to the

Accepted Answer

A)  preferences of consumers who purchase products in that market. 
B)  income tax rates of consumers in that market. 
C)  firms' costs of production in that market. 
D)  interest rates on government bonds. 
A)  preferences of consumers who purchase products in that market. 
B)  income tax rates of consumers in that market. 
C)  firms' costs of production in that market. 
D)  interest rates on government bonds.

Question 10

Table 14-7
Suppose that a firm in a competitive market faces the following revenues and costs:
  
-Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners?

Accepted Answer

A)  decrease quantity to 13 units 
B)  increase quantity to 15 units 
C)  continue to operate at 14 units 
D)  increase quantity to 16 units 
A)  decrease quantity to 13 units 
B)  increase quantity to 15 units 
C)  continue to operate at 14 units 
D)  increase quantity to 16 units

Question 11

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)  Because of firm location or product differences, some firms can charge a higher price than other firms and still maintain their sales volume. 
C)  Price and average revenue are equal. 
D)  Price and marginal revenue are equal. 
A)  There are many buyers and many sellers in the market. 
B)  Because of firm location or product differences, some firms can charge a higher price than other firms and still maintain their sales volume. 
C)  Price and average revenue are equal. 
D)  Price and marginal revenue are equal.

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has taken in $3,500 in monthly revenue. In the short run, Susan should

Accepted Answer

A)  shut down her business, and in the long run she should exit the industry. 
B)  continue to operate her business, but in the long run she should exit the industry. 
C)  continue to operate her business, but in the long run she will probably face competition from newly entering firms. 
D)  continue to operate her business, and she is also in long-run equilibrium. 
A)  shut down her business, and in the long run she should exit the industry. 
B)  continue to operate her business, but in the long run she should exit the industry. 
C)  continue to operate her business, but in the long run she will probably face competition from newly entering firms. 
D)  continue to operate her business, and she is also in long-run equilibrium.

Question 14

Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? i) Marginal revenue equals $3.
Ii) Average revenue equals $3.
Iii) Total revenue equals $900.

Accepted Answer

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

Question 15

The stable, long-run equilibrium in a competitive market occurs when the market price equals the lowest point on a firm's average total cost curve.

Accepted Answer

A) True 
 B)False

Question 16

In the transition from the short run to the long run, the number of firms in a competitive industry is

Accepted Answer

A)  fixed. 
B)  increasing at a constant rate. 
C)  decreasing. 
D)  able to adjust to market conditions. 
A)  fixed. 
B)  increasing at a constant rate. 
C)  decreasing. 
D)  able to adjust to market conditions.

Question 17

When new entrants into a competitive market have higher costs than existing firms,

Accepted Answer

A)  accounting profits will be the primary determinant of entry into the market. 
B)  sunk costs become an important determinant of the short-run entry strategy. 
C)  market price will rise. 
D)  long-run supply is constant. 
A)  accounting profits will be the primary determinant of entry into the market. 
B)  sunk costs become an important determinant of the short-run entry strategy. 
C)  market price will rise. 
D)  long-run supply is constant.

Question 18

In the long run, a firm should exit the industry if its total costs exceed its total revenues.

Accepted Answer

A) True 
 B)False

Question 19

When firms have an incentive to exit a competitive market, their exit will

Accepted Answer

A)  lower the market price. 
B)  necessarily raise the costs for the firms that remain in the market. 
C)  raise the profits of the firms that remain in the market. 
D)  shift the demand for the product to the left. 
A)  lower the market price. 
B)  necessarily raise the costs for the firms that remain in the market. 
C)  raise the profits of the firms that remain in the market. 
D)  shift the demand for the product to the left.

Question 20

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 total cost is

Accepted Answer

A)  $3,450.00. 
B)  $3,525.75. 
C)  $3,675.00. 
D)  $3,850.25. 
A)  $3,450.00. 
B)  $3,525.75. 
C)  $3,675.00. 
D)  $3,850.25.

Exam 13: Firms in Competitive Markets

Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect

All firms maximize profits by producing an output level where marginal revenue equals marginal cost; for firms operating in perfectly competitive industries, maximizing profits also means producing an output level where price equals marginal cost.

Which of the following characteristics of competitive markets is necessary for firms to be price takers? i) There are many sellers. Ii) Firms can freely enter or exit the market. Iii) Goods offered for sale are largely the same.

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

For a firm operating in a perfectly competitive industry, marginal revenue and average revenue are equal.

If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, we would expect that

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 is $5.00, the firm will earn

For any competitive market, the supply curve is closely related to the

Table 14-7 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners?

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

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.

Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? i) Marginal revenue equals $3. Ii) Average revenue equals $3. Iii) Total revenue equals $900.

The stable, long-run equilibrium in a competitive market occurs when the market price equals the lowest point on a firm's average total cost curve.

In the transition from the short run to the long run, the number of firms in a competitive industry is

When new entrants into a competitive market have higher costs than existing firms,

In the long run, a firm should exit the industry if its total costs exceed its total revenues.

When firms have an incentive to exit a competitive market, their exit will

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