Question 1

A profit-maximizing firm in a competitive market will decrease production when marginal cost exceeds average revenue.

Accepted Answer

A) True 
 B)False

Question 2

In competitive markets, firms that raise their prices are typically rewarded with larger profits.

Accepted Answer

A) True 
 B)False

Question 3

By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that achieves its objective, which we assume to be

Accepted Answer

A)  maximizing total revenue. 
B)  maximizing profit. 
C)  minimizing variable cost. 
D)  minimizing average total cost. 
A)  maximizing total revenue. 
B)  maximizing profit. 
C)  minimizing variable cost. 
D)  minimizing average total cost.

Question 4

A popular resort restaurant will maximize profits if it chooses to stay open during the less­crowded "off season" when its total revenues exceed its fixed costs.

Accepted Answer

A) True 
 B)False

Question 5

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 6

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 7

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 8

A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will

Accepted Answer

A)  rise in the short run. Some firms will enter the industry. Price will then rise to reach the new long-run equilibrium. 
B)  rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium. 
C)  fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
D)  not rise in the short run because firms will enter to maintain the price. 
A)  rise in the short run. Some firms will enter the industry. Price will then rise to reach the new long-run equilibrium. 
B)  rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium. 
C)  fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
D)  not rise in the short run because firms will enter to maintain the price.

Question 9

Use a graph to demonstrate the circumstances that would prevail in a perfectly competitive market where firms are experiencing economic losses. Identify costs, revenue, and the economic losses on your graph. Using your graph, determine whether an individual firm will shut down in the short run, or choose to remain in the market. Explain your answer.

Accepted Answer

The losses and revenues are identified o

Question 10

Which of the following expressions is correct for a competitive firm?

Accepted Answer

A)  profit = (quantity of output) x (price - average total cost) 
B)  marginal revenue = (change in total revenue)/(quantity of output) 
C)  average total cost = total variable cost/quantity of output 
D)  average revenue = (marginal revenue) x (quantity of output) 
A)  profit = (quantity of output) x (price - average total cost) 
B)  marginal revenue = (change in total revenue)/(quantity of output) 
C)  average total cost = total variable cost/quantity of output 
D)  average revenue = (marginal revenue) x (quantity of output)

Question 11

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 12

Suppose a firm in each of the two markets listed below were to increase its price by 25 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

Accepted Answer

A)  restaurants and MP3 players 
B)  electricity and natural gas 
C)  corn and satellite radio 
D)  rice and soybeans 
A)  restaurants and MP3 players 
B)  electricity and natural gas 
C)  corn and satellite radio 
D)  rice and soybeans

Question 13

Table 14-12
Bill's Birdhouses  
-Refer to Table 14-12. What is the marginal cost of the 5th unit?

Accepted Answer

A)  $55 
B)  $60 
C)  $68 
D)  $80 
A)  $55 
B)  $60 
C)  $68 
D)  $80

Question 14

A firm's marginal cost has a minimum value of $4, its average variable cost has a minimum value of $6, and its average total cost has a minimum value of $7. Then the firm will shut down in the short run once the price of its product falls below

Accepted Answer

A)  $7. 
B)  $6. 
C)  $4. 
D)  We do not have enough information to answer the question. 
A)  $7. 
B)  $6. 
C)  $4. 
D)  We do not have enough information to answer the question.

Question 15

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 average revenue is

Accepted Answer

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

Question 16

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 $6.30, 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 17

If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market, then the individual farmer's elasticity of demand

Accepted Answer

A)  will also be -0.3. 
B)  depends on how large a crop the farmer produces. 
C)  will range between -0.3 and -1.0. 
D)  will be infinite. 
A)  will also be -0.3. 
B)  depends on how large a crop the farmer produces. 
C)  will range between -0.3 and -1.0. 
D)  will be infinite.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

At its current level of production a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces and faces an average total cost of $10. At the market price of $12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1,000 units. What is the firm's current profit? What is likely to occur in this market and why?

Accepted Answer

Profit can be calculated as (P

Question 20

Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

Accepted Answer

The firm selects the level of output at

Exam 14: Firms in Competitive Markets

A profit-maximizing firm in a competitive market will decrease production when marginal cost exceeds average revenue.

In competitive markets, firms that raise their prices are typically rewarded with larger profits.

By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that achieves its objective, which we assume to be

A popular resort restaurant will maximize profits if it chooses to stay open during the less­crowded "off season" when its total revenues exceed its fixed costs.

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

In a long-run equilibrium, the marginal firm has

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

A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will

Which of the following expressions is correct for a competitive firm?

Suppose a firm in each of the two markets listed below were to increase its price by 25 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the marginal cost of the 5th unit?

A firm's marginal cost has a minimum value of $4, its average variable cost has a minimum value of $6, and its average total cost has a minimum value of $7. Then the firm will shut down in the short run once the price of its product falls below

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 average revenue is

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 $6.30, the firm will earn

If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market, then the individual farmer's elasticity of demand

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

Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

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 Design of the Tax System

The Costs of Production

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

A popular resort restaurant will maximize profits if it chooses to stay open during the lesscrowded "off season" when its total revenues exceed its fixed costs.