Question 1

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

Accepted Answer

1) Some resource used in production may

Question 2

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Explain your answer.

Accepted Answer

In a competitive market where firms are

Question 3

Figure 14-7  
-Refer to Figure 14-7. At what price is the firm's maximum profit zero?

Accepted Answer

A)  $80 
B)  $90 
C)  $100 
D)  $125 
A)  $80 
B)  $90 
C)  $100 
D)  $125

Question 4

Consider a competitive market with 50 identical firms. Suppose the market demand is given by the equation QD = 200 - 10P and the market supply is given by the equation QS = 10P. In addition, suppose the following table shows the marginal cost of production for various levels of output for firms in this market.   How many units should a firm in this market produce to maximize profit?

Accepted Answer

A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units 
A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units

Question 5

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue

Accepted Answer

A)  increases if MR  ATC. 
B)  does not change. 
C)  increases. 
D)  decreases. 
A)  increases if MR  ATC. 
B)  does not change. 
C)  increases. 
D)  decreases.

Question 6

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 falls below $4.50, 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 in the short run 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 in the short run and shut down. 
D)  zero economic profits in the short run.

Question 7

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

Accepted Answer

A)  6,000 
B)  12,000 
C)  60,000 
D)  120,000 
A)  6,000 
B)  12,000 
C)  60,000 
D)  120,000

Question 8

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 total revenue if it instead produced and sold 4 units of output?

Accepted Answer

A)  $4 
B)  $8 
C)  $32 
D)  $64 
A)  $4 
B)  $8 
C)  $32 
D)  $64

Question 9

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 10

Figure 14-14  
-Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b) and that panel (a) illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is not correct?

Accepted Answer

A)  Point W is a long-run equilibrium point. 
B)  Points W, Y, and Z are short-run equilibria points. 
C)  Point Y is a long-run equilibrium point. 
D)  Point Z is a long-run equilibrium point. 
A)  Point W is a long-run equilibrium point. 
B)  Points W, Y, and Z are short-run equilibria points. 
C)  Point Y is a long-run equilibrium point. 
D)  Point Z is a long-run equilibrium point.

Question 11

Table 14-3
The table represents a demand curve faced by a firm in a competitive market.  
-Refer to Table 14-3. For this firm, the price is

Accepted Answer

A)  $39. 
B)  $26. 
C)  $13. 
D)  $0. 
A)  $39. 
B)  $26. 
C)  $13. 
D)  $0.

Question 12

Profit-maximizing firms in a competitive market produce an output level where

Accepted Answer

A)  marginal cost equals marginal revenue. 
B)  marginal cost equals average total cost. 
C)  marginal revenue is increasing. 
D)  price is less than marginal revenue. 
A)  marginal cost equals marginal revenue. 
B)  marginal cost equals average total cost. 
C)  marginal revenue is increasing. 
D)  price is less than marginal revenue.

Question 13

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

Accepted Answer

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

Question 14

In the long run,

Accepted Answer

A)  competitive firms' profits are zero. 
B)  competitive firms' variable costs are zero. 
C)  competitive firms' ATC curves shift upward or downward to ensure that all demand is satisfied. 
D)  the number of firms in the market is fixed. 
A)  competitive firms' profits are zero. 
B)  competitive firms' variable costs are zero. 
C)  competitive firms' ATC curves shift upward or downward to ensure that all demand is satisfied. 
D)  the number of firms in the market is fixed.

Question 15

Table 14-6
The following table presents cost and revenue information for a firm operating in a competitive industry.  
-Refer to Table 14-6. What is the total revenue from selling 7 units?

Accepted Answer

A)  $120 
B)  $490 
C)  $562 
D)  $840 
A)  $120 
B)  $490 
C)  $562 
D)  $840

Question 16

In the long run the market supply

Accepted Answer

A)  must always be horizontal. 
B)  could be upward sloping if the cost of production falls as new firms enter the market. 
C)  could be upward sloping if the cost of production rises as new firms enter the market. 
D)  could be upward sloping if technological improvements lower the cost of producing in the market. 
A)  must always be horizontal. 
B)  could be upward sloping if the cost of production falls as new firms enter the market. 
C)  could be upward sloping if the cost of production rises as new firms enter the market. 
D)  could be upward sloping if technological improvements lower the cost of producing in the market.

Question 17

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 18

Suppose a competitive market has a horizontal long-run supply curve and is in long-run equilibrium. If demand decreases, we can be certain that in the short-run,

Accepted Answer

A)  at least some firms will shut down. 
B)  price will fall below marginal cost for some firms. 
C)  price will fall below average total cost for some firms. 
D)  at least some firms will enter the industry. 
A)  at least some firms will shut down. 
B)  price will fall below marginal cost for some firms. 
C)  price will fall below average total cost for some firms. 
D)  at least some firms will enter the industry.

Question 19

Table 14-2
The table represents a demand curve faced by a firm in a competitive market.  
-Refer to Table 14-2. For this firm, the marginal revenue from selling the 3rd unit is

Accepted Answer

A)  $12. 
B)  $4. 
C)  $3. 
D)  $1. 
A)  $12. 
B)  $4. 
C)  $3. 
D)  $1.

Question 20

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 marginal revenue is

Accepted Answer

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

Exam 14: Firms in Competitive Markets

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Explain your answer.

Figure 14-7 -Refer to Figure 14-7. At what price is the firm's maximum profit zero?

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue

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 falls below $4.50, the firm will earn

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 total revenue if it instead produced and sold 4 units of output?

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?

Figure 14-14 -Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b) and that panel (a) illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is not correct?

Table 14-3 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-3. For this firm, the price is

Profit-maximizing firms in a competitive market produce an output level where

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

In the long run,

Table 14-6 The following table presents cost and revenue information for a firm operating in a competitive industry. -Refer to Table 14-6. What is the total revenue from selling 7 units?

In the long run the market supply

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

Suppose a competitive market has a horizontal long-run supply curve and is in long-run equilibrium. If demand decreases, we can be certain that in the short-run,

Table 14-2 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-2. For this firm, the marginal revenue from selling the 3rd unit is

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 marginal revenue is

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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