Question 1

A competitive market will typically experience entry and exit until accounting profits are zero.

Accepted Answer

A) True 
 B)False

Question 2

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

Accepted Answer

A)  fixed cost. 
B)  variable cost. 
C)  total cost. 
D)  revenue. 
A)  fixed cost. 
B)  variable cost. 
C)  total cost. 
D)  revenue.

Question 3

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 4

Who is a price taker in a competitive market?

Accepted Answer

A)  buyers only 
B)  sellers only 
C)  both buyers and sellers 
D)  neither buyers nor sellers 
A)  buyers only 
B)  sellers only 
C)  both buyers and sellers 
D)  neither buyers nor sellers

Question 5

If there is an increase in market demand in a perfectly competitive market, then in the short run

Accepted Answer

A)  there will be no change in the demand curves faced by individual firms in the market. 
B)  the demand curves for firms will shift downward. 
C)  the demand curves for firms will become more elastic. 
D)  profits will rise. 
A)  there will be no change in the demand curves faced by individual firms in the market. 
B)  the demand curves for firms will shift downward. 
C)  the demand curves for firms will become more elastic. 
D)  profits will rise.

Question 6

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. Suppose the firm is producing 150 units of output and its fixed cost is $975. Then its average variable cost amounts to

Accepted Answer

A)  $16.40. 
B)  $17.00. 
C)  $18.00. 
D)  $19.60. 
A)  $16.40. 
B)  $17.00. 
C)  $18.00. 
D)  $19.60.

Question 7

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales.  
-Refer to Table 14-14. At what quantity will Bob maximize his profit?

Accepted Answer

A)  5 units 
B)  6 units 
C)  7 units 
D)  8 units 
A)  5 units 
B)  6 units 
C)  7 units 
D)  8 units

Question 8

Scenario 14-2
Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit.
-Refer to Scenario 14-2. At Q = 999, the firm's total costs equal

Accepted Answer

A)  $24,970. 
B)  $24,975. 
C)  $24,980. 
D)  $25,025. 
A)  $24,970. 
B)  $24,975. 
C)  $24,980. 
D)  $25,025.

Question 9

In the transition from the short run to the long run, the number of firms in a competitive industry is

Accepted Answer

A)  fixed. 
B)  increasing at a constant rate. 
C)  decreasing. 
D)  able to adjust to market conditions. 
A)  fixed. 
B)  increasing at a constant rate. 
C)  decreasing. 
D)  able to adjust to market conditions.

Question 10

In the short run, a market consists of 100 identical firms. The market price is $8, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market?

Accepted Answer

A)  200 units 
B)  300 units 
C)  400 units 
D)  500 units 
A)  200 units 
B)  300 units 
C)  400 units 
D)  500 units

Question 11

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales.  
-Refer to Table 14-14. Suppose that due to a decrease in the market demand for bread the market price of bread drops to $2.75 per loaf. At this new price, what is Bob's profit­maximizing quantity?

Accepted Answer

A)  5 units 
B)  6 units 
C)  7 units 
D)  8 units 
A)  5 units 
B)  6 units 
C)  7 units 
D)  8 units

Question 12

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-6. Firms will be encouraged to enter this market for all prices that exceed

Accepted Answer

A)  P1. 
B)  P2. 
C)  P3. 
D)  None of the above is correct. 
A)  P1. 
B)  P2. 
C)  P3. 
D)  None of the above is correct.

Question 13

Figure 14-8
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-8. Which line segment best reflects the short-run supply curve for this firm?

Accepted Answer

A)  ABCF 
B)  CD 
C)  DF 
D)  BCD 
A)  ABCF 
B)  CD 
C)  DF 
D)  BCD

Question 14

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, in the short run the firm will

Accepted Answer

A)  experience losses but will continue to produce rubber bands. 
B)  shut down. 
C)  earn both economic and accounting profits. 
D)  raise the price of its product. 
A)  experience losses but will continue to produce rubber bands. 
B)  shut down. 
C)  earn both economic and accounting profits. 
D)  raise the price of its product.

Question 15

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the short run and shutting down?

Accepted Answer

A)  Pa 
B)  Pb 
C)  Pc 
D)  Pd 
A)  Pa 
B)  Pb 
C)  Pc 
D)  Pd

Question 16

A sunk cost is one that

Accepted Answer

A)  changes as the level of output changes in the short run. 
B)  was paid in the past and will not change regardless of the present decision. 
C)  should determine the rational course of action in the future. 
D)  has the most impact on profit-making decisions. 
A)  changes as the level of output changes in the short run. 
B)  was paid in the past and will not change regardless of the present decision. 
C)  should determine the rational course of action in the future. 
D)  has the most impact on profit-making decisions.

Question 17

Because there are many sellers in a competitive market, individual firms are unable to maximize profits.

Accepted Answer

A) True 
 B)False

Question 18

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run

Accepted Answer

A)  more firms will enter the market. 
B)  some firms will exit from the market. 
C)  the equilibrium price per bottle will rise 
D)  average total costs will rise. 
A)  more firms will enter the market. 
B)  some firms will exit from the market. 
C)  the equilibrium price per bottle will rise 
D)  average total costs will rise.

Question 19

If a firm operating in a competitive industry shuts down in the short run, it can avoid paying

Accepted Answer

A)  fixed costs. 
B)  variable costs. 
C)  total costs. 
D)  The firm must pay all its costs, even if it shuts down. 
A)  fixed costs. 
B)  variable costs. 
C)  total costs. 
D)  The firm must pay all its costs, even if it shuts down.

Question 20

When determining whether to shut down in the short run, a competitive firm should ignore

Accepted Answer

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

Exam 14: Firms in Competitive Markets

A competitive market will typically experience entry and exit until accounting profits are zero.

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

Who is a price taker in a competitive market?

If there is an increase in market demand in a perfectly competitive market, then in the short run

Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. -Refer to Table 14-14. At what quantity will Bob maximize his profit?

Scenario 14-2 Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. -Refer to Scenario 14-2. At Q = 999, the firm's total costs equal

In the transition from the short run to the long run, the number of firms in a competitive industry is

In the short run, a market consists of 100 identical firms. The market price is $8, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market?

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. Firms will be encouraged to enter this market for all prices that exceed

Figure 14-8 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-8. Which line segment best reflects the short-run supply curve for this firm?

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, in the short run the firm will

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the short run and shutting down?

A sunk cost is one that

Because there are many sellers in a competitive market, individual firms are unable to maximize profits.

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run

If a firm operating in a competitive industry shuts down in the short run, it can avoid paying

When determining whether to shut down in the short run, a competitive firm should ignore

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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