Question 1

Which of the following statements best reflects a price-taking firm?

Accepted Answer

A)  If the firm were to charge more than the going price, it would sell none of its goods. 
B)  The firm has an incentive to charge less than the market price to earn higher revenue. 
C)  The firm can sell only a limited amount of output at the market price before the market price will fall. 
D)  Price-taking firms maximize profits by charging a price above marginal cost. 
A)  If the firm were to charge more than the going price, it would sell none of its goods. 
B)  The firm has an incentive to charge less than the market price to earn higher revenue. 
C)  The firm can sell only a limited amount of output at the market price before the market price will fall. 
D)  Price-taking firms maximize profits by charging a price above marginal cost.

Question 2

Suppose that a competitive market is initially in equilibrium. Then demand increases. If some resources used in production are not available in sufficient quantities for entering firms,

Accepted Answer

A)  the long-run market supply curve will be upward sloping. 
B)  the long-run market supply curve will be perfectly elastic. 
C)  in the long run firms will suffer economic losses, leading them to exit the industry. 
D)  the number of firms will decrease, and the market will become a monopoly. 
A)  the long-run market supply curve will be upward sloping. 
B)  the long-run market supply curve will be perfectly elastic. 
C)  in the long run firms will suffer economic losses, leading them to exit the industry. 
D)  the number of firms will decrease, and the market will become a monopoly.

Question 3

In a competitive market with free entry and exit, if all firms have the same cost structure, then

Accepted Answer

A)  all firms will operate at their efficient scale in the short run. 
B)  all firms will operate at their efficient scale in the long run. 
C)  the price of the product will differ across firms. 
D)  Both a and b are correct. 
A)  all firms will operate at their efficient scale in the short run. 
B)  all firms will operate at their efficient scale in the long run. 
C)  the price of the product will differ across firms. 
D)  Both a and b are correct.

Question 4

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

Accepted Answer

A)  fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
B)  fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
C)  fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
D)  not fall in the short run because firms will exit to maintain the price. 
A)  fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
B)  fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
C)  fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
D)  not fall in the short run because firms will exit to maintain the price.

Question 5

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 300 identical firms in this market, what level of output will be supplied to the market when price is $1.00?

Accepted Answer

A)  300 
B)  6,000 
C)  30,000 
D)  60,000 
A)  300 
B)  6,000 
C)  30,000 
D)  60,000

Question 6

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.00 and AVC = $4.50.

Accepted Answer

A)  In the short run firms will shut down, and in the long run firms will leave the market. 
B)  In the short run firms will continue to operate, but in the long run firms will leave the market. 
C)  New firms will likely enter this market to capture any remaining economic profits. 
D)  The firm will earn zero profits in both the short run and long run. 
A)  In the short run firms will shut down, and in the long run firms will leave the market. 
B)  In the short run firms will continue to operate, but in the long run firms will leave the market. 
C)  New firms will likely enter this market to capture any remaining economic profits. 
D)  The firm will earn zero profits in both the short run and long run.

Question 7

Which of the following statements is not correct about competitive firms?

Accepted Answer

A)  In a long-run equilibrium, firms must be operating at their efficient scale. 
B)  In the short run, the number of firms in an industry may be fixed. 
C)  In the long run, the number of firms can adjust to changing market conditions. 
D)  In the short run, firms must be operating at a level of output where price equals average variable cost. 
A)  In a long-run equilibrium, firms must be operating at their efficient scale. 
B)  In the short run, the number of firms in an industry may be fixed. 
C)  In the long run, the number of firms can adjust to changing market conditions. 
D)  In the short run, firms must be operating at a level of output where price equals average variable cost.

Question 8

If identical firms that remain in a competitive market over the long run make zero economic profit, why do these firms choose to remain in the market?

Accepted Answer

Because a normal rate of retur

Question 9

For a firm operating in a perfectly competitive industry, total revenue, marginal revenue, and average revenue are all equal.

Accepted Answer

A) True 
 B)False

Question 10

Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-3. If the market price is $10, what is the firm's total revenue?

Accepted Answer

A)  $15 
B)  $30 
C)  $35 
D)  $50 
A)  $15 
B)  $30 
C)  $35 
D)  $50

Question 11

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $11 and a marginal cost of $10. It follows that the

Accepted Answer

A)  production of the 100th unit of output increases the firm's profit by $1. 
B)  production of the 100th unit of output increases the firm's average total cost by $1. 
C)  firm's profit-maximizing level of output is less than 100 units. 
D)  production of the 101st unit of output must increase the firm's profit by more than $1. 
A)  production of the 100th unit of output increases the firm's profit by $1. 
B)  production of the 100th unit of output increases the firm's average total cost by $1. 
C)  firm's profit-maximizing level of output is less than 100 units. 
D)  production of the 101st unit of output must increase the firm's profit by more than $1.

Question 12

For an individual firm operating in a competitive market, marginal revenue equals

Accepted Answer

A)  average revenue and the price for all levels of output. 
B)  average revenue, which is greater than the price for all levels of output. 
C)  average revenue, the price, and marginal cost for all levels of output. 
D)  marginal cost, which is greater than average revenue for all levels of output. 
A)  average revenue and the price for all levels of output. 
B)  average revenue, which is greater than the price for all levels of output. 
C)  average revenue, the price, and marginal cost for all levels of output. 
D)  marginal cost, which is greater than average revenue for all levels of output.

Question 13

Suppose that the organic-produce industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will

Accepted Answer

A)  shift the demand curve outward so that price will rise to the level of production cost. 
B)  cause the remaining firms to collude so that they can produce more efficiently. 
C)  cause the market supply to decline and the price of organic produce to rise. 
D)  cause firms in the organic-produce industry to suffer long-run economic losses. 
A)  shift the demand curve outward so that price will rise to the level of production cost. 
B)  cause the remaining firms to collude so that they can produce more efficiently. 
C)  cause the market supply to decline and the price of organic produce to rise. 
D)  cause firms in the organic-produce industry to suffer long-run economic losses.

Question 14

The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will

Accepted Answer

A)  shift the demand curve outward so that price will rise to the level of production cost. 
B)  cause the remaining firms to collude so that they can produce more efficiently. 
C)  cause the market supply to decline and the price of textiles to rise. 
D)  cause firms in the textile industry to suffer long-run economic losses. 
A)  shift the demand curve outward so that price will rise to the level of production cost. 
B)  cause the remaining firms to collude so that they can produce more efficiently. 
C)  cause the market supply to decline and the price of textiles to rise. 
D)  cause firms in the textile industry to suffer long-run economic losses.

Question 15

In a long-run equilibrium where firms have identical costs, it is possible that some firms in a competitive market are making a positive economic profit.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A)  nuclear power 
B)  municipal water and sewer 
C)  dairy farming 
D)  airport security 
A)  nuclear power 
B)  municipal water and sewer 
C)  dairy farming 
D)  airport security

Question 17

For a competitive firm,

Accepted Answer

A)  total revenue equals average revenue. 
B)  total revenue equals marginal revenue. 
C)  total cost equals marginal revenue. 
D)  average revenue equals marginal revenue. 
A)  total revenue equals average revenue. 
B)  total revenue equals marginal revenue. 
C)  total cost equals marginal revenue. 
D)  average revenue equals marginal revenue.

Question 18

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 100 identical firms in this market, what is the value of Q2?

Accepted Answer

A)  10,000 
B)  20,000 
C)  40,000 
D)  80,000 
A)  10,000 
B)  20,000 
C)  40,000 
D)  80,000

Question 19

Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:  
-Refer to Table 14-9. At which quantity of output is marginal revenue equal to marginal cost?

Accepted Answer

A)  3 units 
B)  5 units 
C)  7 units 
D)  9 units 
A)  3 units 
B)  5 units 
C)  7 units 
D)  9 units

Question 20

Which of the following statements best expresses a firm's profit­maximizing decision rule?

Accepted Answer

A)  If marginal revenue is greater than marginal cost, the firm should increase its output. 
B)  If marginal revenue is less than marginal cost, the firm should decrease its output. 
C)  If marginal revenue equals marginal cost, the firm should continue producing its current level of output. 
D)  All of the above are correct. 
A)  If marginal revenue is greater than marginal cost, the firm should increase its output. 
B)  If marginal revenue is less than marginal cost, the firm should decrease its output. 
C)  If marginal revenue equals marginal cost, the firm should continue producing its current level of output. 
D)  All of the above are correct.

Exam 14: Firms in Competitive Markets

Which of the following statements best reflects a price-taking firm?

Suppose that a competitive market is initially in equilibrium. Then demand increases. If some resources used in production are not available in sufficient quantities for entering firms,

In a competitive market with free entry and exit, if all firms have the same cost structure, then

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.00 and AVC = $4.50.

Which of the following statements is not correct about competitive firms?

If identical firms that remain in a competitive market over the long run make zero economic profit, why do these firms choose to remain in the market?

For a firm operating in a perfectly competitive industry, total revenue, marginal revenue, and average revenue are all equal.

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. If the market price is $10, what is the firm's total revenue?

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $11 and a marginal cost of $10. It follows that the

For an individual firm operating in a competitive market, marginal revenue equals

Suppose that the organic-produce industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will

The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will

In a long-run equilibrium where firms have identical costs, it is possible that some firms in a competitive market are making a positive economic profit.

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

For a competitive firm,

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. At which quantity of output is marginal revenue equal to marginal cost?

Which of the following statements best expresses a firm's profit­maximizing decision rule?

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

Filters

Which of the following statements best expresses a firm's profitmaximizing decision rule?