Question 1

A market is competitive if

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 2

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

Accepted Answer

A)  $5. 
B)  $6. 
C)  $7. 
D)  $8. 
A)  $5. 
B)  $6. 
C)  $7. 
D)  $8.

Question 3

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 Q2?

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 4

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:  
-Refer to Table 14-11. The marginal revenue from producing the 5th unit equals

Accepted Answer

A)  (i) only 
B)  (i) and (ii) only 
C)  (iii) only 
D)  (i), (ii), and (iii) 
A)  (i) only 
B)  (i) and (ii) only 
C)  (iii) only 
D)  (i), (ii), and (iii)

Question 5

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 6

Cold Duck Airlines flies between Tacoma and Portland. The company leases planes on a year-long contract at a cost that averages $600 per flight. Other costs (fuel, flight attendants, etc.) amount to $550 per flight. Currently, Cold Duck's revenues are $1,000 per flight. All prices and costs are expected to continue at their present levels. If it wants to maximize profit, Cold Duck Airlines should

Accepted Answer

A)  drop the flight immediately. 
B)  continue the flight. 
C)  continue flying until the lease expires and then drop the run. 
D)  drop the flight now but renew the lease if conditions improve. 
A)  drop the flight immediately. 
B)  continue the flight. 
C)  continue flying until the lease expires and then drop the run. 
D)  drop the flight now but renew the lease if conditions improve.

Question 7

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 8

Scenario 14-4
The information below applies to a competitive firm that sells its output for $40 per unit.
-When the firm produces and sells 150 units of output, its average total cost is $24.50.
-When the firm produces and sells 151 units of output, its average total cost is $24.55.
-Refer to Scenario 14-4. How does the firm's marginal revenue (MR) compare to its marginal cost (MC) when it increases its output from 150 units to 151 units?

Accepted Answer

A)  MR exceeds MC by $7.95. 
B)  MR exceeds MC by $11.05. 
C)  MC exceeds MR by $11.05. 
D)  MC exceeds MR by $13.50. 
A)  MR exceeds MC by $7.95. 
B)  MR exceeds MC by $11.05. 
C)  MC exceeds MR by $11.05. 
D)  MC exceeds MR by $13.50.

Question 9

A firm operating in a perfectly competitive market earns zero economic profit in the long run but remains in business because the firm's revenues cover the business owners' opportunity costs.

Accepted Answer

A) True 
 B)False

Question 10

The marginal firm in a competitive market will earn zero economic profit in the long run.

Accepted Answer

A) True 
 B)False

Question 11

Figure 14-7  
-Refer to Figure 14-7. Suppose AVC = $113 when the firm produces 515 units of output. Then the firm's fixed cost amounts to

Accepted Answer

A)  $5,500, and its profit amounts to $20,375. 
B)  $5,750, and its profit amounts to $20,375 
C)  $5,980, and its profit amounts to $25,750. 
D)  $6,180, and its profit amounts to $25,750. 
A)  $5,500, and its profit amounts to $20,375. 
B)  $5,750, and its profit amounts to $20,375 
C)  $5,980, and its profit amounts to $25,750. 
D)  $6,180, and its profit amounts to $25,750.

Question 12

In calculating accounting profit, accountants typically don't include

Accepted Answer

A)  long-run costs. 
B)  sunk costs. 
C)  explicit costs of production. 
D)  opportunity costs that do not involve an outflow of money. 
A)  long-run costs. 
B)  sunk costs. 
C)  explicit costs of production. 
D)  opportunity costs that do not involve an outflow of money.

Question 13

A competitive firm has been selling its output for $10 per unit and has been maximizing its profit. Then, the price rises to $14, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price.Once the firm has adjusted, its

Accepted Answer

A)  marginal revenue is lower than it was previously. 
B)  marginal cost is lower than it was previously. 
C)  quantity of output is higher than it was previously. 
D)  All of the above are correct. 
A)  marginal revenue is lower than it was previously. 
B)  marginal cost is lower than it was previously. 
C)  quantity of output is higher than it was previously. 
D)  All of the above are correct.

Question 14

Which of the following industries is least likely to exhibit the characteristic of free entry?

Accepted Answer

A)  bookstores 
B)  hairstyling salons 
C)  yoga studios 
D)  satellite radio 
A)  bookstores 
B)  hairstyling salons 
C)  yoga studios 
D)  satellite radio

Question 15

Scenario 14-4
The information below applies to a competitive firm that sells its output for $40 per unit.
-When the firm produces and sells 150 units of output, its average total cost is $24.50.
-When the firm produces and sells 151 units of output, its average total cost is $24.55.
-Refer to Scenario 14-4. When the firm increases its output from 150 units to 151 units, its marginal cost is

Accepted Answer

A)  $29.95. 
B)  $32.05. 
C)  $33.00. 
D)  $34.25. 
A)  $29.95. 
B)  $32.05. 
C)  $33.00. 
D)  $34.25.

Question 16

If all existing firms and all potential firms have the same cost curves, there are no inputs in limited quantities, and the market is characterized by free entry and exit, then the long-run market supply curve

Accepted Answer

A)  is horizontal and equal to the minimum of long-run marginal cost for each firm. 
B)  must slope downward. 
C)  must slope upward. 
D)  is horizontal and equal to the minimum of long-run average cost for each firm. 
A)  is horizontal and equal to the minimum of long-run marginal cost for each firm. 
B)  must slope downward. 
C)  must slope upward. 
D)  is horizontal and equal to the minimum of long-run average cost for each firm.

Question 17

Because the goods offered for sale in a competitive market are largely the same,

Accepted Answer

A)  there will be few sellers in the market. 
B)  there will be few buyers in the market. 
C)  only a few buyers will have market power. 
D)  sellers will have little reason to charge less than the going market price. 
A)  there will be few sellers in the market. 
B)  there will be few buyers in the market. 
C)  only a few buyers will have market power. 
D)  sellers will have little reason to charge less than the going market price.

Question 18

When all firms and potential firms in a market have the same cost curves, the long-run equilibrium of a competitive market with free entry and exit will be characterized by firms

Accepted Answer

A)  earning small but positive economic profits. 
B)  facing the prospect of future losses. 
C)  operating at the efficient scale. 
D)  that work together to raise market prices. 
A)  earning small but positive economic profits. 
B)  facing the prospect of future losses. 
C)  operating at the efficient scale. 
D)  that work together to raise market prices.

Question 19

Suppose a firm is considering producing zero units of output. We call this exiting an industry in the short run and shutting down in the long run.

Accepted Answer

A) True 
 B)False

Question 20

In a competitive market, the actions of any single buyer or seller will

Accepted Answer

A)  have a negligible impact on the market price. 
B)  have little effect on market equilibrium quantity but will affect market equilibrium price. 
C)  affect marginal revenue and average revenue but not price. 
D)  adversely affect the profitability of more than one firm in the market. 
A)  have a negligible impact on the market price. 
B)  have little effect on market equilibrium quantity but will affect market equilibrium price. 
C)  affect marginal revenue and average revenue but not price. 
D)  adversely affect the profitability of more than one firm in the market.

Exam 14: Firms in Competitive Markets

A market is competitive if

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

Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11. The marginal revenue from producing the 5th unit equals

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

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

A firm operating in a perfectly competitive market earns zero economic profit in the long run but remains in business because the firm's revenues cover the business owners' opportunity costs.

The marginal firm in a competitive market will earn zero economic profit in the long run.

Figure 14-7 -Refer to Figure 14-7. Suppose AVC = $113 when the firm produces 515 units of output. Then the firm's fixed cost amounts to

In calculating accounting profit, accountants typically don't include

A competitive firm has been selling its output for $10 per unit and has been maximizing its profit. Then, the price rises to $14, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price.Once the firm has adjusted, its

Which of the following industries is least likely to exhibit the characteristic of free entry?

If all existing firms and all potential firms have the same cost curves, there are no inputs in limited quantities, and the market is characterized by free entry and exit, then the long-run market supply curve

Because the goods offered for sale in a competitive market are largely the same,

When all firms and potential firms in a market have the same cost curves, the long-run equilibrium of a competitive market with free entry and exit will be characterized by firms

Suppose a firm is considering producing zero units of output. We call this exiting an industry in the short run and shutting down in the long run.

In a competitive market, the actions of any single buyer or seller will

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

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