Question 1

Which of the following represents the firm's long-run condition for exiting a market?

Accepted Answer

A)  exit if P < MC 
B)  exit if P < FC 
C)  exit if P < ATC 
D)  exit if MR < MC 
A)  exit if P < MC 
B)  exit if P < FC 
C)  exit if P < ATC 
D)  exit if MR < MC

Question 2

Figure 14-7  
-Refer to Figure 14-7. In the long run, the firm will exit the market if the price of the good is

Accepted Answer

A)  $75. 
B)  $85. 
C)  $95. 
D)  All of the above are correct. 
A)  $75. 
B)  $85. 
C)  $95. 
D)  All of the above are correct.

Question 3

A firm that shuts down temporarily has to pay

Accepted Answer

A)  its variable costs but not its fixed costs. 
B)  its fixed costs but not its variable costs. 
C)  both its variable costs and its fixed costs. 
D)  neither its variable costs nor its fixed costs. 
A)  its variable costs but not its fixed costs. 
B)  its fixed costs but not its variable costs. 
C)  both its variable costs and its fixed costs. 
D)  neither its variable costs nor its fixed costs.

Question 4

Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct?

Accepted Answer

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

Question 5

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 6

Why does a firm in a competitive industry charge the market price?

Accepted Answer

A)  If a firm charges less than the market price, it loses potential revenue. 
B)  If a firm charges more than the market price, it loses all its market power. 
C)  The firm can only sell limited number of units of output, so it wants to sell at the market price in order to lower its costs. 
D)  All of the above are correct. 
A)  If a firm charges less than the market price, it loses potential revenue. 
B)  If a firm charges more than the market price, it loses all its market power. 
C)  The firm can only sell limited number of units of output, so it wants to sell at the market price in order to lower its costs. 
D)  All of the above are correct.

Question 7

In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if

Accepted Answer

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

Question 8

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. When 100 identical firms participate in this market, at what price will 15,000 units be supplied to this market?

Accepted Answer

A)  $1.00 
B)  $1.50 
C)  $2.00 
D)  The price cannot be determined from the information provided. 
A)  $1.00 
B)  $1.50 
C)  $2.00 
D)  The price cannot be determined from the information provided.

Question 9

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people

Accepted Answer

A)  consider sunk costs. 
B)  equate prices to the average costs of production. 
C)  prefer to purchase products from smaller rather than larger firms. 
D)  think at the margin. 
A)  consider sunk costs. 
B)  equate prices to the average costs of production. 
C)  prefer to purchase products from smaller rather than larger firms. 
D)  think at the margin.

Question 10

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 11

Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:  
-Refer to Table 14-9. If the firm produces 3 units of output,

Accepted Answer

A)  marginal cost is $4. 
B)  total revenue is greater than variable cost. 
C)  marginal revenue is less than marginal cost. 
D)  the firm is maximizing profit. 
A)  marginal cost is $4. 
B)  total revenue is greater than variable cost. 
C)  marginal revenue is less than marginal cost. 
D)  the firm is maximizing profit.

Question 12

If Bradley's Butcher Shop sells its product in a competitive market, then

Accepted Answer

A)  the price of that product depends on the quantity of the product that Bradley's Butcher Shop produces and sells because the firm's demand curve is downward sloping. 
B)  Bradley's Butcher Shop's total cost must be a constant multiple of its quantity of output. 
C)  Bradley's Butcher Shop's total revenue must be proportional to its quantity of output. 
D)  Bradley's Butcher Shop's total revenue must be equal to its average revenue. 
A)  the price of that product depends on the quantity of the product that Bradley's Butcher Shop produces and sells because the firm's demand curve is downward sloping. 
B)  Bradley's Butcher Shop's total cost must be a constant multiple of its quantity of output. 
C)  Bradley's Butcher Shop's total revenue must be proportional to its quantity of output. 
D)  Bradley's Butcher Shop's total revenue must be equal to its average revenue.

Question 13

In a market with 1,000 identical firms, the short-run market supply is the

Accepted Answer

A)  marginal cost curve above average variable cost for a typical firm in the market. 
B)  quantity supplied by the typical firm in the market at each price. 
C)  sum of the prices charged by each of the 1,000 individual firms at each quantity. 
D)  sum of the quantities supplied by each of the 1,000 individual firms at each price. 
A)  marginal cost curve above average variable cost for a typical firm in the market. 
B)  quantity supplied by the typical firm in the market at each price. 
C)  sum of the prices charged by each of the 1,000 individual firms at each quantity. 
D)  sum of the quantities supplied by each of the 1,000 individual firms at each price.

Question 14

A firm that exits its market has to pay

Accepted Answer

A)  its variable costs but not its fixed costs. 
B)  its fixed costs but not its variable costs. 
C)  both its variable costs and its fixed costs. 
D)  neither its variable costs nor its fixed costs. 
A)  its variable costs but not its fixed costs. 
B)  its fixed costs but not its variable costs. 
C)  both its variable costs and its fixed costs. 
D)  neither its variable costs nor its fixed costs.

Question 15

Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market?

Accepted Answer

A)  less than $2.50 
B)  more than $2.50 
C)  exactly $2.50 
D)  The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm. 
A)  less than $2.50 
B)  more than $2.50 
C)  exactly $2.50 
D)  The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm.

Question 16

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales.  
-Refer to Table 14-14. What is Bob's total fixed cost?

Accepted Answer

A)  $0 
B)  $3 
C)  $5 
D)  $9 
A)  $0 
B)  $3 
C)  $5 
D)  $9

Question 17

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

Accepted Answer

A)  selling running apparel 
B)  satellite radio 
C)  yoga studios 
D)  wheat farming 
A)  selling running apparel 
B)  satellite radio 
C)  yoga studios 
D)  wheat farming

Question 18

In a perfectly competitive market,

Accepted Answer

A)  no one seller can influence the price of the product. 
B)  price exceeds marginal revenue for each unit sold. 
C)  average revenue exceeds marginal revenue for each unit sold. 
D)  All of the above are correct. 
A)  no one seller can influence the price of the product. 
B)  price exceeds marginal revenue for each unit sold. 
C)  average revenue exceeds marginal revenue for each unit sold. 
D)  All of the above are correct.

Question 19

When new firms enter a perfectly competitive market,

Accepted Answer

A)  demand increases. 
B)  the short-run market supply curve shifts right. 
C)  the short-run market supply curve shifts left. 
D)  existing firms will increase prices to keep the new firms from entering. 
A)  demand increases. 
B)  the short-run market supply curve shifts right. 
C)  the short-run market supply curve shifts left. 
D)  existing firms will increase prices to keep the new firms from entering.

Question 20

When firms are said to be price takers, it implies that if a firm raises its price,

Accepted Answer

A)  buyers will go elsewhere. 
B)  buyers will pay the higher price in the short run. 
C)  competitors will also raise their prices. 
D)  firms in the industry will exercise market power. 
A)  buyers will go elsewhere. 
B)  buyers will pay the higher price in the short run. 
C)  competitors will also raise their prices. 
D)  firms in the industry will exercise market power.

Exam 14: Firms in Competitive Markets

Which of the following represents the firm's long-run condition for exiting a market?

Figure 14-7 -Refer to Figure 14-7. In the long run, the firm will exit the market if the price of the good is

A firm that shuts down temporarily has to pay

Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct?

The entry of new firms into a competitive market will

Why does a firm in a competitive industry charge the market price?

In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people

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

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. If the firm produces 3 units of output,

If Bradley's Butcher Shop sells its product in a competitive market, then

In a market with 1,000 identical firms, the short-run market supply is the

A firm that exits its market has to pay

Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market?

Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. -Refer to Table 14-14. What is Bob's total fixed cost?

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

In a perfectly competitive market,

When new firms enter a perfectly competitive market,

When firms are said to be price takers, it implies that if a firm raises its price,

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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