Question 1

When an individual firm in a competitive market increases its production, it is likely that the market price will fall.

Accepted Answer

A) True 
 B)False

Question 2

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs:  
-Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will the firm earn?

Accepted Answer

A)  $2 
B)  $4 
C)  $6 
D)  $8 
A)  $2 
B)  $4 
C)  $6 
D)  $8

Question 3

When a profit-maximizing competitive firm finds itself minimizing losses because it is unable to earn a positive profit, this task is accomplished by producing the quantity at which price is equal to

Accepted Answer

A)  sunk cost. 
B)  average fixed cost. 
C)  average variable cost. 
D)  marginal cost. 
A)  sunk cost. 
B)  average fixed cost. 
C)  average variable cost. 
D)  marginal cost.

Question 4

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 500 identical firms in this market, what is the value of Q1?

Accepted Answer

A)  10,000 
B)  20,000 
C)  50,000 
D)  150,000 
A)  10,000 
B)  20,000 
C)  50,000 
D)  150,000

Question 5

Suppose that firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  We do not have enough information with which to answer this question. 
A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  We do not have enough information with which to answer this question.

Question 6

Which of the following characteristics of competitive markets is necessary for firms to be price takers?

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 7

Table 14-5
The table represents a demand curve faced by a firm in a competitive market.  
-Refer to Table 14-5. For this firm, the marginal revenue of the 12th unit is

Accepted Answer

A)  $9. 
B)  $10. 
C)  $11 
D)  The marginal revenue cannot be determined without knowing the total revenue when 11 units are sold. 
A)  $9. 
B)  $10. 
C)  $11 
D)  The marginal revenue cannot be determined without knowing the total revenue when 11 units are sold.

Question 8

Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to

Accepted Answer

A)  increase. 
B)  remain unchanged. 
C)  decrease by less than 20 percent. 
D)  decrease by more than 20 percent. 
A)  increase. 
B)  remain unchanged. 
C)  decrease by less than 20 percent. 
D)  decrease by more than 20 percent.

Question 9

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 Q1?

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 10

For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price.

Accepted Answer

A) True 
 B)False

Question 11

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-5. When market price is P2, a profit-maximizing firm's losses can be represented by the area

Accepted Answer

A)  (P4 - P2) × Q2. 
B)  At a market price of P2, the firm earns profits, not losses. 
C)  (P2 - P1) × (Q2-Q1). 
D)  At a market price of P2 the firm has losses, but the reference points in the figure don't identify the losses. 
A)  (P4 - P2) × Q2. 
B)  At a market price of P2, the firm earns profits, not losses. 
C)  (P2 - P1) × (Q2-Q1). 
D)  At a market price of P2 the firm has losses, but the reference points in the figure don't identify the losses.

Question 12

The long-run supply curve for a competitive industry may be upward sloping if

Accepted Answer

A)  there are barriers to entry. 
B)  firms that enter the industry are able to do so at lower average total costs than the existing firms in the industry. 
C)  some resources are available only in limited quantities. 
D)  accounting profits are positive. 
A)  there are barriers to entry. 
B)  firms that enter the industry are able to do so at lower average total costs than the existing firms in the industry. 
C)  some resources are available only in limited quantities. 
D)  accounting profits are positive.

Question 13

When existing firms in a competitive market are profitable, an incentive exists for

Accepted Answer

A)  new firms to seek government subsidies that would allow them to enter the market. 
B)  new firms to enter the market, even without government subsidies. 
C)  existing firms to raise prices. 
D)  existing firms to increase production. 
A)  new firms to seek government subsidies that would allow them to enter the market. 
B)  new firms to enter the market, even without government subsidies. 
C)  existing firms to raise prices. 
D)  existing firms to increase production.

Question 14

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-6. Firms will shut down in the short run if the market price

Accepted Answer

A)  exceeds P3. 
B)  is less than P1. 
C)  is greater than P1 but less than P3. 
D)  exceeds P2. 
A)  exceeds P3. 
B)  is less than P1. 
C)  is greater than P1 but less than P3. 
D)  exceeds P2.

Question 15

We can measure the profits earned by a firm in a competitive industry as

Accepted Answer

A)  (P - AT
C)  × Q. 
B)  (P - M
C)  × Q. 
C)  MR × MC. 
D)  (MC - AT
C)  × Q. 
A)  (P - AT
C)  × Q. 
B)  (P - M
C)  × Q. 
C)  MR × MC. 
D)  (MC - AT
C)  × Q.

Question 16

Which of the following statements regarding a competitive firm is correct?

Accepted Answer

A)  Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output. 
B)  If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. 
C)  By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price. 
D)  For all firms, average revenue equals the price of the good. 
A)  Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output. 
B)  If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. 
C)  By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price. 
D)  For all firms, average revenue equals the price of the good.

Question 17

For a particular competitive firm, the minimum value of average variable cost (AVC) is $12 and is reached when 200 units of output are produced. For the same firm, the minimum value of average total cost (ATC) is $15 and is reached when 230 units of output are produced. Which of the following statements is correct?

Accepted Answer

A)  In the short run, the firm will shut down if the price of its product is $14. 
B)  In the long run, the firm will shut down if the price of its product is $11. 
C)  For this firm, the minimum value of variable cost (V
C)  is $2,400. 
D)  If the firm's fixed cost (F
C)  amounts to $500, then the firm cannot earn a positive profit unless the price of its product exceeds $16. 
A)  In the short run, the firm will shut down if the price of its product is $14. 
B)  In the long run, the firm will shut down if the price of its product is $11. 
C)  For this firm, the minimum value of variable cost (V
C)  is $2,400. 
D)  If the firm's fixed cost (F
C)  amounts to $500, then the firm cannot earn a positive profit unless the price of its product exceeds $16.

Question 18

The manager of a firm operating in a competitive market can ignore sunk costs when making business decisions.

Accepted Answer

A) True 
 B)False

Question 19

Suppose that a firm in a competitive market is currently maximizing its short-run profit at an output of 50 units. If the current price is $9, the marginal cost of the 50th unit is $9, and the average total cost of producing 50 units is $4, what is the firm's profit?

Accepted Answer

A)  $0 
B)  $200 
C)  $250 
D)  $450 
A)  $0 
B)  $200 
C)  $250 
D)  $450

Question 20

In the short run, a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the

Accepted Answer

A)  price is less than average total cost. 
B)  marginal revenue exceeds the marginal cost. 
C)  price is greater than average variable cost. 
D)  price is greater than average fixed cost but less than average variable cost. 
A)  price is less than average total cost. 
B)  marginal revenue exceeds the marginal cost. 
C)  price is greater than average variable cost. 
D)  price is greater than average fixed cost but less than average variable cost.

Exam 14: Firms in Competitive Markets

When an individual firm in a competitive market increases its production, it is likely that the market price will fall.

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will the firm earn?

When a profit-maximizing competitive firm finds itself minimizing losses because it is unable to earn a positive profit, this task is accomplished by producing the quantity at which price is equal to

Suppose that firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to

Which of the following characteristics of competitive markets is necessary for firms to be price takers?

Table 14-5 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-5. For this firm, the marginal revenue of the 12th unit is

Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to

For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price.

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. When market price is P2, a profit-maximizing firm's losses can be represented by the area

The long-run supply curve for a competitive industry may be upward sloping if

When existing firms in a competitive market are profitable, an incentive exists for

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. Firms will shut down in the short run if the market price

We can measure the profits earned by a firm in a competitive industry as

Which of the following statements regarding a competitive firm is correct?

The manager of a firm operating in a competitive market can ignore sunk costs when making business decisions.

Suppose that a firm in a competitive market is currently maximizing its short-run profit at an output of 50 units. If the current price is $9, the marginal cost of the 50th unit is $9, and the average total cost of producing 50 units is $4, what is the firm's profit?

In the short run, a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the

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