Question 1

In the long run, a profit-maximizing firm will choose to exit a market when

Accepted Answer

A)  average fixed cost is falling. 
B)  variable costs exceed sunk costs. 
C)  marginal cost exceeds marginal revenue at the current level of production. 
D)  total revenue is less than total cost. 
A)  average fixed cost is falling. 
B)  variable costs exceed sunk costs. 
C)  marginal cost exceeds marginal revenue at the current level of production. 
D)  total revenue is less than total cost.

Question 2

A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

Accepted Answer

A) True 
 B)False

Question 3

Jose's restaurant operates in a perfectly competitive market. At the point where marginal cost equals marginal revenue, ATC = $20, AVC = $15, and the price per unit is $10. In this situation,

Accepted Answer

A)  Jose's restaurant is earning a positive economic profit. 
B)  Jose's restaurant should shut down immediately. 
C)  Jose's restaurant is losing money in the short run but should continue to operate. 
D)  the market price will rise in the short run to increase profits. 
A)  Jose's restaurant is earning a positive economic profit. 
B)  Jose's restaurant should shut down immediately. 
C)  Jose's restaurant is losing money in the short run but should continue to operate. 
D)  the market price will rise in the short run to increase profits.

Question 4

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 4 units?

Accepted Answer

A)  $120 
B)  $257 
C)  $317 
D)  $480 
A)  $120 
B)  $257 
C)  $317 
D)  $480

Question 5

In a long-run equilibrium, the marginal firm has

Accepted Answer

A)  price equal to minimum marginal cost. 
B)  total revenue equal to total cost. 
C)  accounting profit equal to zero. 
D)  All of the above are correct. 
A)  price equal to minimum marginal cost. 
B)  total revenue equal to total cost. 
C)  accounting profit equal to zero. 
D)  All of the above are correct.

Question 6

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves:  
-Refer to Figure 14-13. If the price is $6 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 7

Figure 14-11  
-Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were eight identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve?

Accepted Answer

A)  A only 
B)  A and C only 
C)  B only 
D)  B and D only 
A)  A only 
B)  A and C only 
C)  B only 
D)  B and D only

Question 8

In the long-run equilibrium of a market with free entry and exit, marginal firms are operating

Accepted Answer

A)  at the point where average variable cost equals marginal cost. 
B)  at the minimum point on their marginal cost curves. 
C)  at their efficient scale. 
D)  where accounting profit is zero. 
A)  at the point where average variable cost equals marginal cost. 
B)  at the minimum point on their marginal cost curves. 
C)  at their efficient scale. 
D)  where accounting profit is zero.

Question 9

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-5. In the short run,if the market price is higher than P4 but less than P6, individual firms in a competitive industry will earn

Accepted Answer

A)  positive profits. 
B)  zero profits. 
C)  losses but will remain in business. 
D)  losses and will shut down. 
A)  positive profits. 
B)  zero profits. 
C)  losses but will remain in business. 
D)  losses and will shut down.

Question 10

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 marginal revenue is

Accepted Answer

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

Question 11

If a competitive firm is selling 500 units of its product at a price of $8 per unit and earning a positive profit, then

Accepted Answer

A)  its average revenue is greater than $8. 
B)  its marginal revenue is less than $8. 
C)  its total cost is less than $4,000. 
D)  All of the above are correct. 
A)  its average revenue is greater than $8. 
B)  its marginal revenue is less than $8. 
C)  its total cost is less than $4,000. 
D)  All of the above are correct.

Question 12

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:  
-Refer to Table 14-11. The marginal revenue from producing the 3rd unit equals

Accepted Answer

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

Question 13

The firm will make the most profits if it produces the quantity of output at which

Accepted Answer

A)  marginal cost equals average cost. 
B)  profit per unit is greatest. 
C)  marginal revenue equals total revenue. 
D)  marginal revenue equals marginal cost. 
A)  marginal cost equals average cost. 
B)  profit per unit is greatest. 
C)  marginal revenue equals total revenue. 
D)  marginal revenue equals marginal cost.

Question 14

A long-run supply curve is flatter than a short-run supply curve because

Accepted Answer

A)  firms can enter and exit a market more easily in the long run than in the short run. 
B)  long-run supply curves are sometimes downward sloping. 
C)  competitive firms have more control over demand in the long run. 
D)  firms in a competitive market face identical cost structures. 
A)  firms can enter and exit a market more easily in the long run than in the short run. 
B)  long-run supply curves are sometimes downward sloping. 
C)  competitive firms have more control over demand in the long run. 
D)  firms in a competitive market face identical cost structures.

Question 15

Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At her profit-maximizing level of output, her average total cost of production is $7.00, and her average variable cost of production is $6.00. Which of the following statements about Mrs. Smith's firm is correct?

Accepted Answer

A)  Mrs. Smith is earning a loss and should shut down in the short run. 
B)  Mrs. Smith is earning a loss but should continue to operate in the short run. 
C)  Mrs. Smith is earning a profit since the price is above the average variable cost. 
D)  Without knowing Mrs. Smith's marginal cost, we cannot determine whether she should stay in business or shut down. 
A)  Mrs. Smith is earning a loss and should shut down in the short run. 
B)  Mrs. Smith is earning a loss but should continue to operate in the short run. 
C)  Mrs. Smith is earning a profit since the price is above the average variable cost. 
D)  Without knowing Mrs. Smith's marginal cost, we cannot determine whether she should stay in business or shut down.

Question 16

If some resources used in the production of a good are only available in limited quantities, then the long run market supply curve will be perfectly elastic.

Accepted Answer

A) True 
 B)False

Question 17

Table 14-12
Bill's Birdhouses  
-Refer to Table 14-12. What is the marginal revenue from selling the 5th unit?

Accepted Answer

A)  $12 
B)  $68 
C)  $80 
D)  $480 
A)  $12 
B)  $68 
C)  $80 
D)  $480

Question 18

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not choose the

Accepted Answer

A)  quantity of butter to produce. 
B)  price at which it sells its butter. 
C)  profits it earns. 
D)  All of the above are correct. 
A)  quantity of butter to produce. 
B)  price at which it sells its butter. 
C)  profits it earns. 
D)  All of the above are correct.

Question 19

Figure 14-14  
-Refer to Figure 14-14. If the market starts in equilibrium at point Z in panel (b), a decrease in demand will ultimately lead to

Accepted Answer

A)  more firms in the industry but lower levels of output for each firm. 
B)  fewer firms in the market. 
C)  a new long-run equilibrium at point X in panel (b). 
D)  lower prices once the new long-run equilibrium is reached. 
A)  more firms in the industry but lower levels of output for each firm. 
B)  fewer firms in the market. 
C)  a new long-run equilibrium at point X in panel (b). 
D)  lower prices once the new long-run equilibrium is reached.

Question 20

Which of the following represents the firm's short-run condition for shutting down?

Accepted Answer

A)  shut down if TR < TC 
B)  shut down if TR < FC 
C)  shut down if P < ATC 
D)  shut down if TR < VC 
A)  shut down if TR < TC 
B)  shut down if TR < FC 
C)  shut down if P < ATC 
D)  shut down if TR < VC

Exam 14: Firms in Competitive Markets

In the long run, a profit-maximizing firm will choose to exit a market when

A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

Jose's restaurant operates in a perfectly competitive market. At the point where marginal cost equals marginal revenue, ATC = $20, AVC = $15, and the price per unit is $10. In this situation,

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 4 units?

In a long-run equilibrium, the marginal firm has

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run?

Figure 14-11 -Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were eight identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve?

In the long-run equilibrium of a market with free entry and exit, marginal firms are operating

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. In the short run,if the market price is higher than P4 but less than P6, individual firms in a competitive industry will earn

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 marginal revenue is

If a competitive firm is selling 500 units of its product at a price of $8 per unit and earning a positive profit, then

Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11. The marginal revenue from producing the 3rd unit equals

The firm will make the most profits if it produces the quantity of output at which

A long-run supply curve is flatter than a short-run supply curve because

Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At her profit-maximizing level of output, her average total cost of production is $7.00, and her average variable cost of production is $6.00. Which of the following statements about Mrs. Smith's firm is correct?

If some resources used in the production of a good are only available in limited quantities, then the long run market supply curve will be perfectly elastic.

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the marginal revenue from selling the 5th unit?

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not choose the

Figure 14-14 -Refer to Figure 14-14. If the market starts in equilibrium at point Z in panel (b), a decrease in demand will ultimately lead to

Which of the following represents the firm's short-run condition for shutting down?

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