Question 1

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15.

Accepted Answer

A)  In the short run firms will shut down, and in the long run firms will leave the market. 
B)  In the short run firms will continue to operate, but in the long run firms will leave the market. 
C)  New firms will likely enter this market to capture any remaining economic profits. 
D)  The firm will earn zero profits in both the short run and long run. 
A)  In the short run firms will shut down, and in the long run firms will leave the market. 
B)  In the short run firms will continue to operate, but in the long run firms will leave the market. 
C)  New firms will likely enter this market to capture any remaining economic profits. 
D)  The firm will earn zero profits in both the short run and long run.

Question 2

Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8. What would be the firm's marginal revenue if it instead produced and sold 4 units of output?

Accepted Answer

A)  $2 
B)  $8 
C)  $32 
D)  $64 
A)  $2 
B)  $8 
C)  $32 
D)  $64

Question 3

Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, an increase in demand will

Accepted Answer

A)  increase price in the short run but not in the long run. 
B)  increase price in the long run but not in the short run. 
C)  increase price both in the short and the long run. 
D)  not affect price in either the short or the long run. 
A)  increase price in the short run but not in the long run. 
B)  increase price in the long run but not in the short run. 
C)  increase price both in the short and the long run. 
D)  not affect price in either the short or the long run.

Question 4

Jose's restaurant operates in a perfectly competitive market. At the point where marginal cost equals marginal revenue, ATC = $20, AVC = $15, and the price per unit is $10. In this situation,

Accepted Answer

A)  Jose's restaurant is earning a positive economic profit. 
B)  Jose's restaurant should shut down immediately. 
C)  Jose's restaurant is losing money in the short run but should continue to operate. 
D)  the market price will rise in the short run to increase profits. 
A)  Jose's restaurant is earning a positive economic profit. 
B)  Jose's restaurant should shut down immediately. 
C)  Jose's restaurant is losing money in the short run but should continue to operate. 
D)  the market price will rise in the short run to increase profits.

Question 5

The short-run market supply curve in a perfectly competitive industry

Accepted Answer

A)  shows the total quantity supplied by all firms at each possible price. 
B)  is perfectly inelastic at the market price. 
C)  is perfectly elastic at the market price. 
D)  shows the variety of prices that different firms will charge for a given quantity. 
A)  shows the total quantity supplied by all firms at each possible price. 
B)  is perfectly inelastic at the market price. 
C)  is perfectly elastic at the market price. 
D)  shows the variety of prices that different firms will charge for a given quantity.

Question 6

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-5. Firms would be encouraged to enter this market for all prices that exceed

Accepted Answer

A)  P1. 
B)  P2. 
C)  P3. 
D)  P4. 
A)  P1. 
B)  P2. 
C)  P3. 
D)  P4.

Question 7

Figure 14-7  
-Refer to Figure 14-7. When the price of the good is $175, the firm's maximum profit is

Accepted Answer

A)  $16,500. 
B)  $20,375. 
C)  $25,750. 
D)  $90,125. 
A)  $16,500. 
B)  $20,375. 
C)  $25,750. 
D)  $90,125.

Question 8

Figure 14-8
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-8. Which segment of the supply curve represents the firm shutting down?

Accepted Answer

A)  ABCD 
B)  BCD 
C)  CD 
D)  AB 
A)  ABCD 
B)  BCD 
C)  CD 
D)  AB

Question 9

When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit

Accepted Answer

A)  is negative. 
B)  is at least zero. 
C)  is also zero. 
D)  could be positive, negative or zero. 
A)  is negative. 
B)  is at least zero. 
C)  is also zero. 
D)  could be positive, negative or zero.

Question 10

The textile 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 textiles to rise. 
D)  cause firms in the textile 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 textiles to rise. 
D)  cause firms in the textile industry to suffer long-run economic losses.

Question 11

When entry and exit behavior of firms in an industry does not affect a firm's cost structure,

Accepted Answer

A)  the long-run market supply curve must be horizontal. 
B)  the long-run market supply curve must be upward-sloping. 
C)  the long-run market supply curve must be downward-sloping. 
D)  we do not have sufficient information to determine the shape of the long-run market supply curve. 
A)  the long-run market supply curve must be horizontal. 
B)  the long-run market supply curve must be upward-sloping. 
C)  the long-run market supply curve must be downward-sloping. 
D)  we do not have sufficient information to determine the shape of the long-run market supply curve.

Question 12

Table 14-2
The table represents a demand curve faced by a firm in a competitive market.
  
-Refer to Table 14-2. This firm maximizes total revenue by producing

Accepted Answer

A)  1 units. 
B)  3 units. 
C)  5 units. 
D)  as many units as possible. 
A)  1 units. 
B)  3 units. 
C)  5 units. 
D)  as many units as possible.

Question 13

A market is competitive if i) firms have the flexibility to price their own product.
Ii) each buyer is small compared to the market.
Iii) each seller is small compared to the market.

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 14

Figure 14-9
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-9. The firm will exit the market for any price on the line segment

Accepted Answer

A)  ABCD. 
B)  AB. 
C)  CD. 
D)  None of the above is correct. 
A)  ABCD. 
B)  AB. 
C)  CD. 
D)  None of the above is correct.

Question 15

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-5. In the short run, if the market price is higher than P1 but less than P4, individual firms in a competitive industry will earn

Accepted Answer

A)  positive profits. 
B)  zero profits. 
C)  losses but will remain in business. 
D)  losses and will shut down. 
A)  positive profits. 
B)  zero profits. 
C)  losses but will remain in business. 
D)  losses and will shut down.

Question 16

Which of the following is not a characteristic of a perfectly competitive market?

Accepted Answer

A)  Firms are price takers. 
B)  Firms have difficulty entering the market. 
C)  There are many sellers in the market. 
D)  Goods offered for sale are largely the same. 
A)  Firms are price takers. 
B)  Firms have difficulty entering the market. 
C)  There are many sellers in the market. 
D)  Goods offered for sale are largely the same.

Question 17

Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-4. When price rises from P3 to P4, the firm finds that

Accepted Answer

A)  fixed costs decrease as output increases from Q3 to Q4. 
B)  it can earn a positive profit by increasing production to Q4. 
C)  profit is still maximized at a production level of Q3. 
D)  average revenue exceeds marginal revenue at a production level of Q4. 
A)  fixed costs decrease as output increases from Q3 to Q4. 
B)  it can earn a positive profit by increasing production to Q4. 
C)  profit is still maximized at a production level of Q3. 
D)  average revenue exceeds marginal revenue at a production level of Q4.

Question 18

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 300 identical firms in this market, what level of output will be supplied to the market when price is $1.00?

Accepted Answer

A)  300 
B)  6,000 
C)  30,000 
D)  60,000 
A)  300 
B)  6,000 
C)  30,000 
D)  60,000

Question 19

Table 14-13
Diana's Dress Emporium
  
-Refer to Table 14-13. What is the marginal cost of the 8th unit?

Accepted Answer

A)  $0 
B)  $100 
C)  $120 
D)  $140 
A)  $0 
B)  $100 
C)  $120 
D)  $140

Question 20

A competitive firm's profit will be increasing as long as marginal revenue is greater than marginal cost.

Accepted Answer

A) True 
 B)False

Exam 13: Firms in Competitive Markets

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15.

Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8. What would be the firm's marginal revenue if it instead produced and sold 4 units of output?

Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, an increase in demand will

Jose's restaurant operates in a perfectly competitive market. At the point where marginal cost equals marginal revenue, ATC = $20, AVC = $15, and the price per unit is $10. In this situation,

The short-run market supply curve in a perfectly competitive industry

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. Firms would be encouraged to enter this market for all prices that exceed

Figure 14-7 -Refer to Figure 14-7. When the price of the good is $175, the firm's maximum profit is

Figure 14-8 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-8. Which segment of the supply curve represents the firm shutting down?

When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit

The textile 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

When entry and exit behavior of firms in an industry does not affect a firm's cost structure,

Table 14-2 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-2. This firm maximizes total revenue by producing

A market is competitive if i) firms have the flexibility to price their own product. Ii) each buyer is small compared to the market. Iii) each seller is small compared to the market.

Figure 14-9 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-9. The firm will exit the market for any price on the line segment

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. In the short run, if the market price is higher than P1 but less than P4, individual firms in a competitive industry will earn

Which of the following is not a characteristic of a perfectly competitive market?

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. When price rises from P3 to P4, the firm finds that

Table 14-13 Diana's Dress Emporium -Refer to Table 14-13. What is the marginal cost of the 8th unit?

A competitive firm's profit will be increasing as long as marginal revenue is greater than marginal cost.

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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