Question 1

If marginal cost exceeds marginal revenue, the firm

Accepted Answer

A)  is most likely to be at a profit-maximizing level of output. 
B)  should increase the level of production to maximize its profit. 
C)  should reduce its average fixed cost in order to lower its marginal cost. 
D)  may still be earning a positive accounting profit. 
A)  is most likely to be at a profit-maximizing level of output. 
B)  should increase the level of production to maximize its profit. 
C)  should reduce its average fixed cost in order to lower its marginal cost. 
D)  may still be earning a positive accounting profit.

Question 2

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 total costs equal

Accepted Answer

A)  $24,970. 
B)  $24,975. 
C)  $24,980. 
D)  $25,025. 
A)  $24,970. 
B)  $24,975. 
C)  $24,980. 
D)  $25,025.

Question 3

When price is below average variable cost, a firm in a competitive market will

Accepted Answer

A)  shut down and incur fixed costs. 
B)  shut down and incur both variable and fixed costs. 
C)  continue to operate as long as average revenue exceeds marginal cost. 
D)  continue to operate as long as average revenue exceeds average fixed cost. 
A)  shut down and incur fixed costs. 
B)  shut down and incur both variable and fixed costs. 
C)  continue to operate as long as average revenue exceeds marginal cost. 
D)  continue to operate as long as average revenue exceeds average fixed cost.

Question 4

When new firms have an incentive to enter a competitive market, their entry will

Accepted Answer

A)  increase the price of the product. 
B)  drive down profits of existing firms in the market. 
C)  shift the market supply curve to the left. 
D)  increase demand for the product. 
A)  increase the price of the product. 
B)  drive down profits of existing firms in the market. 
C)  shift the market supply curve to the left. 
D)  increase demand for the product.

Question 5

In the short run, there are 500 identical firms in a competitive market. The firms do not use any resources that are available in limited quantities, and each of them has the following cost structure:   The long-run supply curve for this market is

Accepted Answer

A)  positively sloped for all prices above $10. 
B)  horizontal at a price of $5. 
C)  horizontal at a price of $6. 
D)  horizontal at a price of $7. 
A)  positively sloped for all prices above $10. 
B)  horizontal at a price of $5. 
C)  horizontal at a price of $6. 
D)  horizontal at a price of $7.

Question 6

Table 14-15
  
-Refer to Table 14-15. What is the lowest price at which this firm would operate in the short run?

Accepted Answer

A)  $3. 
B)  $4. 
C)  $5. 
D)  $6. 
A)  $3. 
B)  $4. 
C)  $5. 
D)  $6.

Question 7

The firm will make the most profits if it produces the quantity of output at which

Accepted Answer

A)  marginal cost equals average cost. 
B)  profit per unit is greatest. 
C)  marginal revenue equals total revenue. 
D)  marginal revenue equals marginal cost. 
A)  marginal cost equals average cost. 
B)  profit per unit is greatest. 
C)  marginal revenue equals total revenue. 
D)  marginal revenue equals marginal cost.

Question 8

If a firm operating in a competitive industry shuts down in the short run, it can avoid paying

Accepted Answer

A)  fixed costs. 
B)  variable costs. 
C)  total costs. 
D)  The firm must pay all its costs, even if it shuts down. 
A)  fixed costs. 
B)  variable costs. 
C)  total costs. 
D)  The firm must pay all its costs, even if it shuts down.

Question 9

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit- maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

Accepted Answer

A)  shut down her business in the short run but continue to operate in the long run. 
B)  continue to operate in the short run but shut down in the long run. 
C)  continue to operate in both the short run and long run. 
D)  shut down in both the short run and long run. 
A)  shut down her business in the short run but continue to operate in the long run. 
B)  continue to operate in the short run but shut down in the long run. 
C)  continue to operate in both the short run and long run. 
D)  shut down in both the short run and long run.

Question 10

When a profit-maximizing firm is earning profits, those profits can be identified by

Accepted Answer

A)  P × Q. 
B)  MC - AV
C)  × Q. 
C)  P - AT
C)  × Q. 
D)  P - AV
C)  × Q. 
A)  P × Q. 
B)  MC - AV
C)  × Q. 
C)  P - AT
C)  × Q. 
D)  P - AV
C)  × Q.

Question 11

A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the short run.

Accepted Answer

A) True 
 B)False

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

Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At her profit- maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

Accepted Answer

A)  shut down her business in the short run but continue to operate in the long run. 
B)  continue to operate in the short run but shut down in the long run. 
C)  continue to operate in both the short run and long run. 
D)  shut down in both the short run and long run. 
A)  shut down her business in the short run but continue to operate in the long run. 
B)  continue to operate in the short run but shut down in the long run. 
C)  continue to operate in both the short run and long run. 
D)  shut down in both the short run and long run.

Question 14

Table 14-12
 
-Refer to Table 14-12. What is the marginal revenue from selling the 1st unit?

Accepted Answer

A)  $30 
B)  $50 
C)  $80 
D)  $160 
A)  $30 
B)  $50 
C)  $80 
D)  $160

Question 15

Suppose you bought a ticket to a football game for $30 and that you place a $35 value on seeing the game. If you lose the ticket, then what is the maximum price you should pay for another ticket? Assume that losing the ticket does not alter how you value it.

Accepted Answer

A)  $5 
B)  $30 
C)  $35 
D)  $65 
A)  $5 
B)  $30 
C)  $35 
D)  $65

Question 16

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 there are 400 identical firms in this market, what level of output will be supplied to the market when price is $2.00?

Accepted Answer

A)  10,000 
B)  20,000 
C)  40,000 
D)  80,000 
A)  10,000 
B)  20,000 
C)  40,000 
D)  80,000

Question 17

When profit-maximizing firms in competitive markets are earning profits,

Accepted Answer

A)  market demand must exceed market supply at the market equilibrium price. 
B)  market supply must exceed market demand at the market equilibrium price. 
C)  new firms will enter the market. 
D)  the most inefficient firms will be encouraged to leave the market. 
A)  market demand must exceed market supply at the market equilibrium price. 
B)  market supply must exceed market demand at the market equilibrium price. 
C)  new firms will enter the market. 
D)  the most inefficient firms will be encouraged to leave the market.

Question 18

When a certain competitive firm produces and sells 100 units of output, marginal revenue is $80. When the same firm produces and sells 200 units of output, what is average revenue?

Accepted Answer

A)  $40 
B)  $80 
C)  $160 
D)  This cannot be determined from the given information. 
A)  $40 
B)  $80 
C)  $160 
D)  This cannot be determined from the given information.

Question 19

For a firm operating in a competitive industry, which of the following statements is not correct?

Accepted Answer

A)  Price equals average revenue. 
B)  Price equals marginal revenue. 
C)  Total revenue is constant. 
D)  Marginal revenue is constant. 
A)  Price equals average revenue. 
B)  Price equals marginal revenue. 
C)  Total revenue is constant. 
D)  Marginal revenue is constant.

Question 20

Mrs. Smith operates a business in a competitive market. The current market price is $7.50. At her profit- maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

Accepted Answer

A)  shut down her business in the short run but continue to operate in the long run. 
B)  continue to operate in the short run but shut down in the long run. 
C)  continue to operate in both the short run and long run. 
D)  shut down in both the short run and long run. 
A)  shut down her business in the short run but continue to operate in the long run. 
B)  continue to operate in the short run but shut down in the long run. 
C)  continue to operate in both the short run and long run. 
D)  shut down in both the short run and long run.

Exam 13: Firms in Competitive Markets

If marginal cost exceeds marginal revenue, the firm

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 total costs equal

When price is below average variable cost, a firm in a competitive market will

When new firms have an incentive to enter a competitive market, their entry will

In the short run, there are 500 identical firms in a competitive market. The firms do not use any resources that are available in limited quantities, and each of them has the following cost structure: The long-run supply curve for this market is

Table 14-15 -Refer to Table 14-15. What is the lowest price at which this firm would operate in the short run?

The firm will make the most profits if it produces the quantity of output at which

If a firm operating in a competitive industry shuts down in the short run, it can avoid paying

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit- maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

When a profit-maximizing firm is earning profits, those profits can be identified by

A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the short run.

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

Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At her profit- maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

Table 14-12 -Refer to Table 14-12. What is the marginal revenue from selling the 1st unit?

Suppose you bought a ticket to a football game for $30 and that you place a $35 value on seeing the game. If you lose the ticket, then what is the maximum price you should pay for another ticket? Assume that losing the ticket does not alter how you value it.

When profit-maximizing firms in competitive markets are earning profits,

When a certain competitive firm produces and sells 100 units of output, marginal revenue is $80. When the same firm produces and sells 200 units of output, what is average revenue?

For a firm operating in a competitive industry, which of the following statements is not correct?

Mrs. Smith operates a business in a competitive market. The current market price is $7.50. At her profit- maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

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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