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 price is

Accepted Answer

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

Question 2

In a long-run equilibrium, the marginal firm has

Accepted Answer

A)  price equal to average total cost. 
B)  total revenue equal to total cost. 
C)  economic profit equal to zero. 
D)  All of the above are correct. 
A)  price equal to average total cost. 
B)  total revenue equal to total cost. 
C)  economic profit equal to zero. 
D)  All of the above are correct.

Question 3

Suppose that the organic-produce industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will

Accepted Answer

A)  shift the demand curve outward so that price will rise to the level of production cost. 
B)  cause the remaining firms to collude so that they can produce more efficiently. 
C)  cause the market supply to decline and the price of organic produce to rise. 
D)  cause firms in the organic-produce industry to suffer long-run economic losses. 
A)  shift the demand curve outward so that price will rise to the level of production cost. 
B)  cause the remaining firms to collude so that they can produce more efficiently. 
C)  cause the market supply to decline and the price of organic produce to rise. 
D)  cause firms in the organic-produce industry to suffer long-run economic losses.

Question 4

A market might have an upward-sloping long-run supply curve if

Accepted Answer

A)  firms have different costs. 
B)  consumers exercise market power over producers. 
C)  all factors of production are essentially available in unlimited supply. 
D)  the entry of new firms into the market has no effect on the cost structure of firms in the market. 
A)  firms have different costs. 
B)  consumers exercise market power over producers. 
C)  all factors of production are essentially available in unlimited supply. 
D)  the entry of new firms into the market has no effect on the cost structure of firms in the market.

Question 5

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 $5. 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 6

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 fall. 
C)  its profits to fall. 
D)  All of the above are correct. 
A)  new firms to enter the market. 
B)  the market price to fall. 
C)  its profits to fall. 
D)  All of the above are correct.

Question 7

A firm will shut down in the short run if, for all positive levels of output,

Accepted Answer

A)  its losses exceed its fixed costs. 
B)  its total revenue is less than its variable costs. 
C)  the price of its product is less than its average variable cost. 
D)  All of the above are correct. 
A)  its losses exceed its fixed costs. 
B)  its total revenue is less than its variable costs. 
C)  the price of its product is less than its average variable cost. 
D)  All of the above are correct.

Question 8

A firm in a competitive market has the following cost structure:   What is the lowest price at which this firm might choose to operate?

Accepted Answer

A)  $2 
B)  $3 
C)  $4 
D)  $5 
A)  $2 
B)  $3 
C)  $4 
D)  $5

Question 9

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves:  
-Refer to Figure 14-1. The firm will earn a negative economic profit but remain in business in the short run if the market price is

Accepted Answer

A)  above $6.30 but less than $8. 
B)  above $6.30. 
C)  less than $6.30 but more than $4.50. 
D)  less than $4.50. 
A)  above $6.30 but less than $8. 
B)  above $6.30. 
C)  less than $6.30 but more than $4.50. 
D)  less than $4.50.

Question 10

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the short run and shutting down?

Accepted Answer

A)  Pa 
B)  Pb 
C)  Pc 
D)  Pd 
A)  Pa 
B)  Pb 
C)  Pc 
D)  Pd

Question 11

If identical firms that remain in a competitive market over the long run make zero economic profit, why do these firms choose to remain in the market?

Accepted Answer

Because a normal rate of retur

Question 12

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands rises above the minimum of its average variable cost, but still lies below the minimum of average total cost, in the short run the firm will

Accepted Answer

A)  experience losses but will continue to produce rubber bands. 
B)  shut down. 
C)  earn both economic and accounting profits. 
D)  raise the price of its product. 
A)  experience losses but will continue to produce rubber bands. 
B)  shut down. 
C)  earn both economic and accounting profits. 
D)  raise the price of its product.

Question 13

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $145,000. Because of this information, in the short run, the Brookside Racquet Club should

Accepted Answer

A)  shut down. 
B)  exit the industry. 
C)  stay open because shutting down would be more expensive. 
D)  stay open because the firm is making an economic profit. 
A)  shut down. 
B)  exit the industry. 
C)  stay open because shutting down would be more expensive. 
D)  stay open because the firm is making an economic profit.

Question 14

Figure 14-7  
-Refer to Figure 14-7. Let Q represent the quantity of output and suppose the price of the good is $125. Then marginal revenue is $125 at

Accepted Answer

A)  Q = 270. 
B)  Q = 322. 
C)  Q = 515. 
D)  All of the above are correct. 
A)  Q = 270. 
B)  Q = 322. 
C)  Q = 515. 
D)  All of the above are correct.

Question 15

Figure 14-14
  
-Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel b). An increase in demand from D0 to D1 will result in

Accepted Answer

A)  a new market equilibrium at point X. 
B)  an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z. 
C)  rising prices and falling profits for existing firms in the market. 
D)  falling prices and falling profits for existing firms in the market. 
A)  a new market equilibrium at point X. 
B)  an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z. 
C)  rising prices and falling profits for existing firms in the market. 
D)  falling prices and falling profits for existing firms in the market.

Question 16

Robin owns a horse stables and riding academy and gives riding lessons for children at "pony camp." Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $250 per child. In order to maximize profits, Robin should

Accepted Answer

A)  give riding lessons to more than 20 children per month. 
B)  give riding lessons to fewer than 20 children per month. 
C)  continue to give riding lessons to 20 children per month. 
D)  We do not have enough information to answer the question. 
A)  give riding lessons to more than 20 children per month. 
B)  give riding lessons to fewer than 20 children per month. 
C)  continue to give riding lessons to 20 children per month. 
D)  We do not have enough information to answer the question.

Question 17

The entry of new firms into a competitive market will

Accepted Answer

A)  increase market supply and increase market price. 
B)  increase market supply and decrease market price. 
C)  decrease market supply and increase market price. 
D)  decrease market supply and decrease market price. 
A)  increase market supply and increase market price. 
B)  increase market supply and decrease market price. 
C)  decrease market supply and increase market price. 
D)  decrease market supply and decrease market price.

Question 18

Scenario 14-1
Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.
-Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

Accepted Answer

A)  -$200. 
B)  $1,000. 
C)  $3,000. 
D)  $4,000. 
A)  -$200. 
B)  $1,000. 
C)  $3,000. 
D)  $4,000.

Question 19

The assumption of a fixed number of firms is appropriate for analysis of

Accepted Answer

A)  the short run but not the long run. 
B)  the long run but not the short run. 
C)  both the short run and the long run. 
D)  neither the short run nor the long run. 
A)  the short run but not the long run. 
B)  the long run but not the short run. 
C)  both the short run and the long run. 
D)  neither the short run nor the long run.

Question 20

If your local gasoline station raised its price by 20 percent, its sales of gasoline would decrease substantially because your local gas station

Accepted Answer

A)  has little or no market power. 
B)  is small relative to the size of the gasoline market. 
C)  is a competitive firm. 
D)  All of the above are correct. 
A)  has little or no market power. 
B)  is small relative to the size of the gasoline market. 
C)  is a competitive firm. 
D)  All of the above are correct.

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 price is

In a long-run equilibrium, the marginal firm has

Suppose that the organic-produce industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will

A market might have an upward-sloping long-run supply curve if

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 $5. The firm should continue to produce 100 units in order to maximize its profits or minimize its losses).

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

A firm will shut down in the short run if, for all positive levels of output,

A firm in a competitive market has the following cost structure: What is the lowest price at which this firm might choose to operate?

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. The firm will earn a negative economic profit but remain in business in the short run if the market price is

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the short run and shutting down?

If identical firms that remain in a competitive market over the long run make zero economic profit, why do these firms choose to remain in the market?

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands rises above the minimum of its average variable cost, but still lies below the minimum of average total cost, in the short run the firm will

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $145,000. Because of this information, in the short run, the Brookside Racquet Club should

Figure 14-7 -Refer to Figure 14-7. Let Q represent the quantity of output and suppose the price of the good is $125. Then marginal revenue is $125 at

Figure 14-14 -Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel b). An increase in demand from D0 to D1 will result in

The entry of new firms into a competitive market will

Scenario 14-1 Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. -Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

The assumption of a fixed number of firms is appropriate for analysis of

If your local gasoline station raised its price by 20 percent, its sales of gasoline would decrease substantially because your local gas station

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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