Question 1

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

Accepted Answer

A)  a one-unit increase in output will increase the firm's profit. 
B)  a one-unit decrease in output will increase the firm's profit. 
C)  total revenue exceeds total cost. 
D)  total cost exceeds total revenue. 
A)  a one-unit increase in output will increase the firm's profit. 
B)  a one-unit decrease in output will increase the firm's profit. 
C)  total revenue exceeds total cost. 
D)  total cost exceeds total revenue.

Question 2

Which of these types of costs can be ignored when an individual or a firm is making decisions?

Accepted Answer

A)  sunk costs 
B)  marginal costs 
C)  variable costs 
D)  opportunity costs 
A)  sunk costs 
B)  marginal costs 
C)  variable costs 
D)  opportunity costs

Question 3

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $5. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 4

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, total revenue will be

Accepted Answer

A)  $2,000. 
B)  $2,400. 
C)  $4,200. 
D)  We do not have enough information to answer the question. 
A)  $2,000. 
B)  $2,400. 
C)  $4,200. 
D)  We do not have enough information to answer the question.

Question 5

Table 14-13
Diana's Dress Emporium  
-Refer to Table 14-13. What is the marginal cost of the 1st unit?

Accepted Answer

A)  $50 
B)  $75 
C)  $80 
D)  $150 
A)  $50 
B)  $75 
C)  $80 
D)  $150

Question 6

If a profit-maximizing firm in a competitive market discovers that, at its current level of production, price is greater than marginal cost, it should

Accepted Answer

A)  shut down. 
B)  reduce its output but continue operating. 
C)  continue to produce at the current levels. 
D)  increase its output. 
A)  shut down. 
B)  reduce its output but continue operating. 
C)  continue to produce at the current levels. 
D)  increase its output.

Question 7

A firm in a competitive market has the following cost structure:   If the market price is $8, how many units of output should the firm produce to maximize 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

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, the Brookside Racquet Club should

Accepted Answer

A)  shut down because staying open would be more expensive. 
B)  lower their prices to increase their profits. 
C)  stay open because shutting down would be more expensive. 
D)  stay open because the firm is making an economic profit. 
A)  shut down because staying open would be more expensive. 
B)  lower their prices to increase their profits. 
C)  stay open because shutting down would be more expensive. 
D)  stay open because the firm is making an economic profit.

Question 9

Scenario 14-1
Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.
-Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

Accepted Answer

A)  -$200. 
B)  $1,000. 
C)  $3,000. 
D)  $4,000. 
A)  -$200. 
B)  $1,000. 
C)  $3,000. 
D)  $4,000.

Question 10

If firms are competitive and profit maximizing, the price of a good equals the

Accepted Answer

A)  marginal cost of production. 
B)  fixed cost of production. 
C)  total cost of production. 
D)  average total cost of production. 
A)  marginal cost of production. 
B)  fixed cost of production. 
C)  total cost of production. 
D)  average total cost of production.

Question 11

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

Accepted Answer

Average revenue is total revenue divided

Question 12

A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob. Which of the following events would decrease the firm's average revenue?

Accepted Answer

A)  The firm increases its output above 500 doorknobs. 
B)  The firm decreases its output below 500 doorknobs. 
C)  The market price of doorknobs rises above $10. 
D)  The market price of doorknobs falls below $10. 
A)  The firm increases its output above 500 doorknobs. 
B)  The firm decreases its output below 500 doorknobs. 
C)  The market price of doorknobs rises above $10. 
D)  The market price of doorknobs falls below $10.

Question 13

Which of the following statements regarding a competitive market is not correct?

Accepted Answer

A)  There are many buyers and many sellers in the market. 
B)  Firms can freely enter or exit the market. 
C)  Price equals average revenue. 
D)  Price exceeds marginal revenue. 
A)  There are many buyers and many sellers in the market. 
B)  Firms can freely enter or exit the market. 
C)  Price equals average revenue. 
D)  Price exceeds marginal revenue.

Question 14

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs:  
-Refer to Table 14-10. This firm should continue to produce and sell units as long as the marginal cost of production is less than or equal to

Accepted Answer

A)  $3. 
B)  $5. 
C)  $7. 
D)  $9. 
A)  $3. 
B)  $5. 
C)  $7. 
D)  $9.

Question 15

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 16

When new entrants into a competitive market have higher costs than existing firms,

Accepted Answer

A)  accounting profits will be the primary determinant of entry into the market. 
B)  sunk costs become an important determinant of the short-run entry strategy. 
C)  market price will rise. 
D)  long-run supply is constant. 
A)  accounting profits will be the primary determinant of entry into the market. 
B)  sunk costs become an important determinant of the short-run entry strategy. 
C)  market price will rise. 
D)  long-run supply is constant.

Question 17

When marginal revenue equals marginal cost, the firm

Accepted Answer

A)  should increase the level of production to maximize its profit. 
B)  may be minimizing its losses rather than maximizing its profit. 
C)  must be generating positive economic profits. 
D)  must be generating positive accounting profits. 
A)  should increase the level of production to maximize its profit. 
B)  may be minimizing its losses rather than maximizing its profit. 
C)  must be generating positive economic profits. 
D)  must be generating positive accounting profits.

Question 18

A firm in a competitive market has the following cost structure:   If the market price is $16, this firm will

Accepted Answer

A)  produce 4 units of output in the short run and exit in the long run. 
B)  produce 5 units of output in the short run and exit in the long run. 
C)  produce 5 units of output in the short run and face competition from new market entrants in the long run. 
D)  shut down in the short run and exit in the long run. 
A)  produce 4 units of output in the short run and exit in the long run. 
B)  produce 5 units of output in the short run and exit in the long run. 
C)  produce 5 units of output in the short run and face competition from new market entrants in the long run. 
D)  shut down in the short run and exit in the long run.

Question 19

In a perfectly competitive market, the process of entry and exit will end when

Accepted Answer

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

Question 20

A popular resort restaurant will maximize profits if it chooses to stay open during the less­crowded "off season" when its total revenues exceed its variable costs.

Accepted Answer

A) True 
 B)False

Exam 14: Firms in Competitive Markets

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

Which of these types of costs can be ignored when an individual or a firm is making decisions?

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $5. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, total revenue will be

Table 14-13 Diana's Dress Emporium -Refer to Table 14-13. What is the marginal cost of the 1st unit?

If a profit-maximizing firm in a competitive market discovers that, at its current level of production, price is greater than marginal cost, it should

A firm in a competitive market has the following cost structure: If the market price is $8, how many units of output should the firm produce to maximize profit?

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, the Brookside Racquet Club should

Scenario 14-1 Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. -Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

If firms are competitive and profit maximizing, the price of a good equals the

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob. Which of the following events would decrease the firm's average revenue?

Which of the following statements regarding a competitive market is not correct?

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. This firm should continue to produce and sell units as long as the marginal cost of production is less than or equal to

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?

When new entrants into a competitive market have higher costs than existing firms,

When marginal revenue equals marginal cost, the firm

A firm in a competitive market has the following cost structure: If the market price is $16, this firm will

In a perfectly competitive market, the process of entry and exit will end when

A popular resort restaurant will maximize profits if it chooses to stay open during the less­crowded "off season" when its total revenues exceed its variable costs.

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

A popular resort restaurant will maximize profits if it chooses to stay open during the lesscrowded "off season" when its total revenues exceed its variable costs.