Question 1

A firm has market power if it can

Accepted Answer

A)  maximize profits. 
B)  minimize costs. 
C)  influence the market price of the good it sells. 
D)  hire as many workers as it needs at the prevailing wage rate. 
A)  maximize profits. 
B)  minimize costs. 
C)  influence the market price of the good it sells. 
D)  hire as many workers as it needs at the prevailing wage rate.

Question 2

Which of the following statements is correct regarding a firm's decision-making?

Accepted Answer

A)  The decision to shut down and the decision to exit are both short-run decisions. 
B)  The decision to shut down and the decision to exit are both long-run decisions. 
C)  The decision to shut down is a short-run decision, whereas the decision to exit is a long-run decision. 
D)  The decision to exit is a short-run decision, whereas the decision to shut down is a long-run decision. 
A)  The decision to shut down and the decision to exit are both short-run decisions. 
B)  The decision to shut down and the decision to exit are both long-run decisions. 
C)  The decision to shut down is a short-run decision, whereas the decision to exit is a long-run decision. 
D)  The decision to exit is a short-run decision, whereas the decision to shut down is a long-run decision.

Question 3

In the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

Accepted Answer

A) True 
 B)False

Question 4

Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:  
-Refer to Table 14-9. In order to maximize profit, the firm will produce a level of output where marginal revenue is equal to

Accepted Answer

A)  $6. 
B)  $7. 
C)  $8. 
D)  $9. 
A)  $6. 
B)  $7. 
C)  $8. 
D)  $9.

Question 5

Figure 14-7  
-Refer to Figure 14-7. The firm will shut down in the short run if the price of the good is

Accepted Answer

A)  $75. 
B)  $85. 
C)  $95. 
D)  All of the above are correct. 
A)  $75. 
B)  $85. 
C)  $95. 
D)  All of the above are correct.

Question 6

Suppose you value a special watch at $100. You purchase it for $75. On your way home from class one day, you lose the watch. The store is still selling the same watch, but the price has risen to $85. Assume that losing the watch has not altered how you value it. What should you do?

Accepted Answer

A)  Pay the $85 to buy the watch. 
B)  Wait to see if the watch goes on sale. If the price drops to $75 or less, buy the watch. 
C)  Wait to see if the watch goes on sale. If the price drops to $25 or less, buy the watch. 
D)  Do not buy the watch. 
A)  Pay the $85 to buy the watch. 
B)  Wait to see if the watch goes on sale. If the price drops to $75 or less, buy the watch. 
C)  Wait to see if the watch goes on sale. If the price drops to $25 or less, buy the watch. 
D)  Do not buy the watch.

Question 7

Figure 14-14  
-Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b). An increase in demand from D0 to D1 will result in

Accepted Answer

A)  a new market equilibrium at point X. 
B)  an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z. 
C)  rising prices and falling profits for existing firms in the market. 
D)  falling prices and falling profits for existing firms in the market. 
A)  a new market equilibrium at point X. 
B)  an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z. 
C)  rising prices and falling profits for existing firms in the market. 
D)  falling prices and falling profits for existing firms in the market.

Question 8

For a firm operating in a competitive industry, which of the following statements is not correct?

Accepted Answer

A)  Price equals average revenue. 
B)  Price equals marginal revenue. 
C)  Total revenue is constant. 
D)  Marginal revenue is constant. 
A)  Price equals average revenue. 
B)  Price equals marginal revenue. 
C)  Total revenue is constant. 
D)  Marginal revenue is constant.

Question 9

News reports from the western United States occasionally report incidents of cattle ranchers slaughtering a large number of newborn calves and burying them in mass graves rather than transporting them to markets. Assuming that this is rational behavior by profit-maximizing "firms," explain what economic factors may influence such behavior.

Accepted Answer

If the selling price is not su

Question 10

A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its

Accepted Answer

A)  opportunity costs. 
B)  fixed costs. 
C)  variable costs. 
D)  total costs. 
A)  opportunity costs. 
B)  fixed costs. 
C)  variable costs. 
D)  total costs.

Question 11

For a firm in a perfectly competitive market, the price of the good is always

Accepted Answer

A)  equal to marginal revenue. 
B)  equal to total revenue. 
C)  greater than average revenue. 
D)  equal to the firm's efficient scale of output. 
A)  equal to marginal revenue. 
B)  equal to total revenue. 
C)  greater than average revenue. 
D)  equal to the firm's efficient scale of output.

Question 12

The stable, long-run equilibrium in a competitive market occurs when the market price equals the lowest point on a firm's average total cost curve.

Accepted Answer

A) True 
 B)False

Question 13

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 average revenue is

Accepted Answer

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

Question 14

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct?

Accepted Answer

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

Question 15

All competitive firms earn zero economic profit in both the short run and the long run.

Accepted Answer

A) True 
 B)False

Question 16

Table 14-8
Suppose that a firm in a competitive market faces the following revenues and costs:  
-Refer to Table 14-8. The firm will produce a quantity greater than 3 because at 3 units of output, marginal cost

Accepted Answer

A)  is greater than marginal revenue. 
B)  equals marginal revenue. 
C)  is less than marginal revenue. 
D)  is minimized. 
A)  is greater than marginal revenue. 
B)  equals marginal revenue. 
C)  is less than marginal revenue. 
D)  is minimized.

Question 17

A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the
market price is less than that firm's average variable cost.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  electricity 
B)  satellite radio 
C)  mineral mining 
D)  tennis shoes 
A)  electricity 
B)  satellite radio 
C)  mineral mining 
D)  tennis shoes

Question 19

Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has earned $4,500 in monthly revenue. In the short run, Susan should

Accepted Answer

A)  shut down her business, and in the long run she should exit the industry. 
B)  continue to operate her business, but in the long run she should exit the industry. 
C)  continue to operate her business, but in the long run she will probably face competition from newly entering firms. 
D)  continue to operate her business, and she is also in long-run equilibrium. 
A)  shut down her business, and in the long run she should exit the industry. 
B)  continue to operate her business, but in the long run she should exit the industry. 
C)  continue to operate her business, but in the long run she will probably face competition from newly entering firms. 
D)  continue to operate her business, and she is also in long-run equilibrium.

Question 20

Suppose a firm is considering producing zero units of output. We call this shutting down in the short run and exiting an industry in the long run.

Accepted Answer

A) True 
 B)False

Exam 14: Firms in Competitive Markets

A firm has market power if it can

Which of the following statements is correct regarding a firm's decision-making?

In the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. In order to maximize profit, the firm will produce a level of output where marginal revenue is equal to

Figure 14-7 -Refer to Figure 14-7. The firm will shut down in the short run if the price of the good is

Suppose you value a special watch at $100. You purchase it for $75. On your way home from class one day, you lose the watch. The store is still selling the same watch, but the price has risen to $85. Assume that losing the watch has not altered how you value it. What should you do?

Figure 14-14 -Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b). An increase in demand from D0 to D1 will result in

For a firm operating in a competitive industry, which of the following statements is not correct?

A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its

For a firm in a perfectly competitive market, the price of the good is always

The stable, long-run equilibrium in a competitive market occurs when the market price equals the lowest point on a firm's average total cost curve.

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 average revenue is

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct?

All competitive firms earn zero economic profit in both the short run and 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. The firm will produce a quantity greater than 3 because at 3 units of output, marginal cost

A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost.

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

Suppose a firm is considering producing zero units of output. We call this shutting down in the short run and exiting an industry in the long run.

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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