Question 1

Which of the following is not a characteristic of a perfectly competitive market?

Accepted Answer

A)  There are many buyers and sellers. 
B)  Firms can freely enter and exit the market. 
C)  Many firms have market power. 
D)  Firms sell very similar products. 
A)  There are many buyers and sellers. 
B)  Firms can freely enter and exit the market. 
C)  Many firms have market power. 
D)  Firms sell very similar products.

Question 2

In the short run, a market consists of 100 identical firms. The market price is $6, 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)  100 units 
B)  200 units 
C)  300 units 
D)  400 units 
A)  100 units 
B)  200 units 
C)  300 units 
D)  400 units

Question 3

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves:  
-Refer to Figure 14-13. If the price is $2 in the short run, what will happen in the long run?

Accepted Answer

A)  Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. 
B)  Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. 
C)  Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. 
D)  Because the price is below the firm's average variable costs, the firms will shut down. 
A)  Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. 
B)  Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. 
C)  Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. 
D)  Because the price is below the firm's average variable costs, the firms will shut down.

Question 4

Table 14-8
Suppose that a firm in a competitive market faces the following revenues and costs:  
-Refer to Table 14-8. In order to maximize profits, the firm will produce

Accepted Answer

A)  1 unit of output because marginal cost is minimized. 
B)  4 units of output because marginal revenue exceeds marginal cost. 
C)  5 units of output because marginal revenue equals marginal cost. 
D)  7 units of output because total revenue is maximized. 
A)  1 unit of output because marginal cost is minimized. 
B)  4 units of output because marginal revenue exceeds marginal cost. 
C)  5 units of output because marginal revenue equals marginal cost. 
D)  7 units of output because total revenue is maximized.

Question 5

In the short run, there are 500 identical firms in a competitive market. The firms do not use any resources that are available in limited quantities, and each of them has the following cost structure:   The long-run supply curve for this market is

Accepted Answer

A)  positively sloped for all prices above $10. 
B)  horizontal at a price of $5. 
C)  horizontal at a price of $6. 
D)  horizontal at a price of $7. 
A)  positively sloped for all prices above $10. 
B)  horizontal at a price of $5. 
C)  horizontal at a price of $6. 
D)  horizontal at a price of $7.

Question 6

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

Accepted Answer

A)  $80 at Q = 270. 
B)  $100 at Q = 322. 
C)  $175 at Q = 515. 
D)  None of the above are correct. 
A)  $80 at Q = 270. 
B)  $100 at Q = 322. 
C)  $175 at Q = 515. 
D)  None of the above are correct.

Question 7

A firm in a competitive market has the following cost structure:   If the firm's fixed cost of production is $3, and the market price is $10, how many units should the firm 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 8

A firm that has little ability to influence market prices operates in a

Accepted Answer

A)  competitive market. 
B)  strategic market. 
C)  thin market. 
D)  power market. 
A)  competitive market. 
B)  strategic market. 
C)  thin market. 
D)  power market.

Question 9

One of the defining characteristics of a perfectly competitive market is

Accepted Answer

A)  a small number of sellers. 
B)  a large number of buyers and a small number of sellers. 
C)  a similar product. 
D)  significant advertising by firms to promote their products. 
A)  a small number of sellers. 
B)  a large number of buyers and a small number of sellers. 
C)  a similar product. 
D)  significant advertising by firms to promote their products.

Question 10

Free entry means that

Accepted Answer

A)  the government pays any entry costs for individual firms. 
B)  government-funded research lowers the costs of patents and other barriers to entry. 
C)  a firm's marginal cost is zero. 
D)  no legal barriers prevent a firm from entering an industry. 
A)  the government pays any entry costs for individual firms. 
B)  government-funded research lowers the costs of patents and other barriers to entry. 
C)  a firm's marginal cost is zero. 
D)  no legal barriers prevent a firm from entering an industry.

Question 11

In a competitive market, no single producer can influence the market price because

Accepted Answer

A)  many other sellers are offering a product that is essentially identical. 
B)  consumers have more influence over the market price than producers do. 
C)  government intervention prevents firms from influencing price. 
D)  producers agree not to change the price. 
A)  many other sellers are offering a product that is essentially identical. 
B)  consumers have more influence over the market price than producers do. 
C)  government intervention prevents firms from influencing price. 
D)  producers agree not to change the price.

Question 12

A firm will shut down in the short run if revenue is not sufficient to cover all of its fixed costs of production.

Accepted Answer

A) True 
 B)False

Question 13

Table 14-12
Bill's Birdhouses  
-Refer to Table 14-12. At what quantity does Bill maximize profits?

Accepted Answer

A)  3 
B)  6 
C)  7 
D)  8 
A)  3 
B)  6 
C)  7 
D)  8

Question 14

A profit-maximizing firm in a competitive market is able to sell its product for $7. At its current level of output, the firm's average total cost is $10. The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units. The firm experiences a

Accepted Answer

A)  profit of more than $27. 
B)  profit of exactly $27. 
C)  loss of more than $27. 
D)  loss of exactly $27. 
A)  profit of more than $27. 
B)  profit of exactly $27. 
C)  loss of more than $27. 
D)  loss of exactly $27.

Question 15

When a competitive firm doubles the quantity of output it sells, its

Accepted Answer

A)  total revenue doubles. 
B)  average revenue doubles. 
C)  marginal revenue doubles. 
D)  profits must increase. 
A)  total revenue doubles. 
B)  average revenue doubles. 
C)  marginal revenue doubles. 
D)  profits must increase.

Question 16

A firm operating in a perfectly competitive industry will continue to operate if it earns zero economic profits because it is likely to be earning positive accounting profits.

Accepted Answer

A) True 
 B)False

Question 17

Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. 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 18

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 = 1,000, the firm's profits equal

Accepted Answer

A)  -$5,000. 
B)  $2,500. 
C)  $5,000. 
D)  $10,000. 
A)  -$5,000. 
B)  $2,500. 
C)  $5,000. 
D)  $10,000.

Question 19

Table 14-12
Bill's Birdhouses  
-Refer to Table 14-12. What is the average revenue when 4 units are sold?

Accepted Answer

A)  $0 
B)  $68 
C)  $80 
D)  $400 
A)  $0 
B)  $68 
C)  $80 
D)  $400

Question 20

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs:  
-Refer to Table 14-10. The marginal cost of producing the 4th unit is

Accepted Answer

A)  $7. 
B)  $8. 
C)  $10. 
D)  $23. 
A)  $7. 
B)  $8. 
C)  $10. 
D)  $23.

Exam 14: Firms in Competitive Markets

Which of the following is not a characteristic of a perfectly competitive market?

In the short run, a market consists of 100 identical firms. The market price is $6, 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 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $2 in the short run, what will happen in the long run?

Table 14-8 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-8. In order to maximize profits, the firm will produce

In the short run, there are 500 identical firms in a competitive market. The firms do not use any resources that are available in limited quantities, and each of them has the following cost structure: The long-run supply curve for this market is

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

A firm in a competitive market has the following cost structure: If the firm's fixed cost of production is $3, and the market price is $10, how many units should the firm produce to maximize profit?

A firm that has little ability to influence market prices operates in a

One of the defining characteristics of a perfectly competitive market is

Free entry means that

In a competitive market, no single producer can influence the market price because

A firm will shut down in the short run if revenue is not sufficient to cover all of its fixed costs of production.

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. At what quantity does Bill maximize profits?

A profit-maximizing firm in a competitive market is able to sell its product for $7. At its current level of output, the firm's average total cost is $10. The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units. The firm experiences a

When a competitive firm doubles the quantity of output it sells, its

A firm operating in a perfectly competitive industry will continue to operate if it earns zero economic profits because it is likely to be earning positive accounting profits.

Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct?

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 = 1,000, the firm's profits equal

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the average revenue when 4 units are sold?

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. The marginal cost of producing the 4th unit 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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