Question 1

In a perfectly competitive market, the market supply curve is

Accepted Answer

A)  the marginal cost curve above average total cost for a representative firm. 
B)  the horizontal sum of all the individual firms' supply curves. 
C)  the vertical sum of all the individual firms' supply curves. 
D)  always a horizontal line. 
A)  the marginal cost curve above average total cost for a representative firm. 
B)  the horizontal sum of all the individual firms' supply curves. 
C)  the vertical sum of all the individual firms' supply curves. 
D)  always a horizontal line.

Question 2

Which of these curves is the competitive firm's short-run supply curve?

Accepted Answer

A)  the average variable cost curve above marginal cost 
B)  the average total cost curve above marginal cost 
C)  the marginal cost curve above average variable cost 
D)  the average fixed cost curve 
A)  the average variable cost curve above marginal cost 
B)  the average total cost curve above marginal cost 
C)  the marginal cost curve above average variable cost 
D)  the average fixed cost curve

Question 3

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 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 $3. 
B)  production of the 100th unit of output increases the firm's average total cost by $7. 
C)  firm's profit-maximizing level of output is less than 100 units. 
D)  production of the101st unit of output must increase the firm's profit by more than $3. 
A)  production of the 100th unit of output increases the firm's profit by $3. 
B)  production of the 100th unit of output increases the firm's average total cost by $7. 
C)  firm's profit-maximizing level of output is less than 100 units. 
D)  production of the101st unit of output must increase the firm's profit by more than $3.

Question 4

Scenario 14-3
Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20.
-Refer to Scenario 14-3. If the marginal cost of producing the 501st unit would be $19, producing and selling the 501st unit would

Accepted Answer

A)  decrease the firm's profit by $19. 
B)  decrease the firm's profit by $2. 
C)  increase the firm's profit by $1. 
D)  increase the firm's profit by $3. 
A)  decrease the firm's profit by $19. 
B)  decrease the firm's profit by $2. 
C)  increase the firm's profit by $1. 
D)  increase the firm's profit by $3.

Question 5

When market conditions in a competitive industry are such that firms cannot cover their total production costs, then

Accepted Answer

A)  the firms will suffer long-run economic losses. 
B)  the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. 
C)  some firms will exit the market, causing prices to rise until the remaining firms can cover their total production costs. 
D)  all firms will go out of business, since consumers will not pay prices that enable firms to cover their total production costs. 
A)  the firms will suffer long-run economic losses. 
B)  the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. 
C)  some firms will exit the market, causing prices to rise until the remaining firms can cover their total production costs. 
D)  all firms will go out of business, since consumers will not pay prices that enable firms to cover their total production costs.

Question 6

When a profit-maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production.

Accepted Answer

A) True 
 B)False

Question 7

When new firms enter a perfectly competitive market,

Accepted Answer

A)  economic profits of existing firms will continue to be zero. 
B)  entering firms will earn zero economic profit upon entry into the market. 
C)  existing firms may see their costs rise if more firms compete for limited resources. 
D)  prices will rise as existing firms raise prices to keep new firms out of the market. 
A)  economic profits of existing firms will continue to be zero. 
B)  entering firms will earn zero economic profit upon entry into the market. 
C)  existing firms may see their costs rise if more firms compete for limited resources. 
D)  prices will rise as existing firms raise prices to keep new firms out of the market.

Question 8

Mrs. Smith operates a business in a competitive market. The current market price is $7.50. At her profit- maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

Accepted Answer

A)  shut down her business in the short run but continue to operate in the long run. 
B)  continue to operate in the short run but shut down in the long run. 
C)  continue to operate in both the short run and long run. 
D)  shut down in both the short run and long run. 
A)  shut down her business in the short run but continue to operate in the long run. 
B)  continue to operate in the short run but shut down in the long run. 
C)  continue to operate in both the short run and long run. 
D)  shut down in both the short run and long run.

Question 9

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

Accepted Answer

A)  price equals minimum marginal cost. 
B)  marginal revenue equals marginal cost. 
C)  economic profits are zero. 
D)  accounting profits are zero. 
A)  price equals minimum marginal cost. 
B)  marginal revenue equals marginal cost. 
C)  economic profits are zero. 
D)  accounting profits are zero.

Question 10

In the long run, a firm should exit the industry if its total costs exceed its total revenues.

Accepted Answer

A) True 
 B)False

Question 11

In the short run for a particular market, there are 5,000 firms. Each firm has a marginal cost of $7 when it produces 200 units of output. One point on the market supply curve is

Accepted Answer

A)  quantity = 5,000; price = $7. 
B)  quantity = 35,000 price = $35,000. 
C)  quantity = 1,000,000, price = $7. 
D)  quantity = 1,000,000, price = $35,000. 
A)  quantity = 5,000; price = $7. 
B)  quantity = 35,000 price = $35,000. 
C)  quantity = 1,000,000, price = $7. 
D)  quantity = 1,000,000, price = $35,000.

Question 12

In the long-run equilibrium of a market with free entry and exit, if all firms have the same cost structure, then

Accepted Answer

A)  marginal cost exceeds average total cost. 
B)  the price of the good exceeds average total cost. 
C)  average total cost exceeds the price of the good. 
D)  firms are operating at their efficient scale. 
A)  marginal cost exceeds average total cost. 
B)  the price of the good exceeds average total cost. 
C)  average total cost exceeds the price of the good. 
D)  firms are operating at their efficient scale.

Question 13

When firms are neither entering nor exiting a perfectly competitive market,

Accepted Answer

A)  total revenue must equal total cost for each firm. 
B)  economic profits must be zero. 
C)  price must equal the minimum of marginal cost for each firm. 
D)  Both a and b are correct. 
A)  total revenue must equal total cost for each firm. 
B)  economic profits must be zero. 
C)  price must equal the minimum of marginal cost for each firm. 
D)  Both a and b are correct.

Question 14

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output

Accepted Answer

A)  is less than 1,000 pounds. 
B)  is still 1,000 pounds. 
C)  is more than 1,000 pounds. 
D)  becomes zero. 
A)  is less than 1,000 pounds. 
B)  is still 1,000 pounds. 
C)  is more than 1,000 pounds. 
D)  becomes zero.

Question 15

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 $2.00?

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 16

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:  
-Refer to Table 14-11. Marginal revenue equals marginal cost when the firm produces

Accepted Answer

A)  2 units. 
B)  3 units. 
C)  4 units. 
D)  5 units. 
A)  2 units. 
B)  3 units. 
C)  4 units. 
D)  5 units.

Question 17

If a competitive firm is currently producing a level of output at which profit is not maximized, then it must be true that

Accepted Answer

A)  marginal revenue exceeds marginal cost. 
B)  marginal cost exceeds marginal revenue. 
C)  total cost exceeds total revenue. 
D)  None of the above is correct. 
A)  marginal revenue exceeds marginal cost. 
B)  marginal cost exceeds marginal revenue. 
C)  total cost exceeds total revenue. 
D)  None of the above is correct.

Question 18

A firm in a competitive market has the following cost structure:   What is the lowest price at which this firm might choose to operate?

Accepted Answer

A)  $2 
B)  $3 
C)  $4 
D)  $5 
A)  $2 
B)  $3 
C)  $4 
D)  $5

Question 19

In a competitive market, the actions of any single buyer or seller will

Accepted Answer

A)  discourage entry by competitors. 
B)  influence the profits of other firms in the market. 
C)  have a negligible impact on the market price. 
D)  Both a and b are correct. 
A)  discourage entry by competitors. 
B)  influence the profits of other firms in the market. 
C)  have a negligible impact on the market price. 
D)  Both a and b are correct.

Question 20

A firm will shut down in the short run if, for all positive levels of output,

Accepted Answer

A)  its losses exceed its fixed costs. 
B)  its total revenue is less than its variable costs. 
C)  the price of its product is less than its average variable cost. 
D)  All of the above are correct. 
A)  its losses exceed its fixed costs. 
B)  its total revenue is less than its variable costs. 
C)  the price of its product is less than its average variable cost. 
D)  All of the above are correct.

Exam 14: Firms in Competitive Markets

In a perfectly competitive market, the market supply curve is

Which of these curves is the competitive firm's short-run supply curve?

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the

When market conditions in a competitive industry are such that firms cannot cover their total production costs, then

When a profit-maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production.

When new firms enter a perfectly competitive market,

Mrs. Smith operates a business in a competitive market. The current market price is $7.50. At her profit- maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

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

In the long run, a firm should exit the industry if its total costs exceed its total revenues.

In the short run for a particular market, there are 5,000 firms. Each firm has a marginal cost of $7 when it produces 200 units of output. One point on the market supply curve is

In the long-run equilibrium of a market with free entry and exit, if all firms have the same cost structure, then

When firms are neither entering nor exiting a perfectly competitive market,

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output

Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11. Marginal revenue equals marginal cost when the firm produces

If a competitive firm is currently producing a level of output at which profit is not maximized, then it must be true that

A firm in a competitive market has the following cost structure: What is the lowest price at which this firm might choose to operate?

In a competitive market, the actions of any single buyer or seller will

A firm will shut down in the short run if, for all positive levels of output,

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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