Question 1

Table 14-7
Suppose that a firm in a competitive market faces the following revenues and costs: 
-Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners?

Accepted Answer

A) decrease quantity to 13 units 
B) increase quantity to 15 units 
C) continue to operate at 14 units 
D) increase quantity to 16 units

Question 2

For a particular competitive firm, the minimum value of average variable cost (AVC) is $12 and is reached when 200 units of output are produced. For the same firm, the minimum value of average total cost (ATC) is $15 and is reached when 230 units of output are produced. Which of the following statements is correct?

Accepted Answer

A) In the short run, the firm will shut down if the price of its product is $14. 
B) In the long run, the firm will shut down if the price of its product is $11. 
C) For this firm, the minimum value of variable cost (V
C)  is $2,400. 
D) If the firm's fixed cost (F
C)  amounts to $500, then the firm cannot earn a positive profit unless the price of its product exceeds $16.

Question 3

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales. 
-Refer to Table 14-14. When Bob produces and sells the profit-maximizing quantity, how much profit does he earn?

Accepted Answer

A) $0.25 
B) $2.75 
C) $4.00 
D) $5.25

Question 4

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 but greater than the firm's average fixed cost.

Accepted Answer

A) True 
 B)False

Question 5

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

Accepted Answer

A) increases in production costs resulting from more firms coming into the market. 
B) a breakdown of the "free entry and exit" feature of competition. 
C) a breakdown of the "price taking" feature of competition. 
D) a stable demand curve for the good, that is, a demand curve that never shifts.

Question 6

A competitive firm currently produces and sells 7,500 units of output at a price of $2.50 per unit. The firm's average fixed cost is $0.75 and its average total cost is $2.80. In the short run, should the firm continue to operate?

Accepted Answer

The answer of A competitive firm currently produces and sells...

Question 7

Figure 14-7 
-Refer to Figure 14-7. In the long run, the firm will exit the market if the price of the good is

Accepted Answer

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

Question 8

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

Accepted Answer

A) choose the quantity of butter to produce. 
B) set marginal revenue equal to marginal cost to maximize profit. 
C) have any fixed costs of production. 
D) choose the price at which it sells its butter.

Question 9

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.

Question 10

A firm that has little ability to influence market prices operates in a

Accepted Answer

A) competitive market. 
B) strategic market. 
C) thin market. 
D) power market.

Question 11

When it produces and sells 90 units of output, a competitive firm's average total cost is $42 and its profit is $360. What is the firm's marginal revenue if it sells 100 units of output?

Accepted Answer

The answer of When it produces and sells 90 units...

Question 12

Suppose a competitive market is comprised of firms that face identical cost curves. The firms experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur? (i)
New firms will enter the market.
(ii)
In the short run, price will rise; in the long run, price will rise further.
(iii)
In the long run, all firms will be producing at their efficient scale.

Accepted Answer

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

Question 13

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.

Question 14

Scenario 14-4
The information below applies to a competitive firm that sells its output for $40 per unit.
• When the firm produces and sells 150 units of output, its average total cost is $24.50.
• When the firm produces and sells 151 units of output, its average total cost is $24.55.
-Refer to Scenario 14-4. Suppose the firm is currently producing and selling 150 units of output. Should the firm increase its output to 151 units?

Accepted Answer

A) Yes, because the marginal revenue exceeds the marginal cost. 
B) Yes, because the marginal revenue exceeds the average total cost. 
C) No, because the marginal cost exceeds the marginal revenue. 
D) No, because the average total cost exceeds the marginal revenue.

Question 15

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.

Question 16

Table 14-4
The table represents a demand curve faced by a firm in a competitive market. 
-Refer to Table 14-4. For this firm, the marginal revenue is

Accepted Answer

A) $0. 
B) $5. 
C) $10. 
D) $15.

Question 17

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 18

Which of the following firms is the closest to being a perfectly competitive firm?

Accepted Answer

A) the New York Yankees 
B) Apple, Inc. 
C) DeBeers diamond wholesalers 
D) a wheat farmer in Kansas

Question 19

Scenario 14-4
The information below applies to a competitive firm that sells its output for $40 per unit.
• When the firm produces and sells 150 units of output, its average total cost is $24.50.
• When the firm produces and sells 151 units of output, its average total cost is $24.55.
-Refer to Scenario 14-4. Let Q represent the quantity of output. Which of the following magnitudes has the same value at Q = 150 and at Q = 151?

Accepted Answer

A) average fixed cost 
B) average revenue 
C) total cost 
D) total revenue

Question 20

Table 14-12
Bill's Birdhouses 
-Refer to Table 14-12. What is the average revenue when 4 units are sold?

Accepted Answer

A) $0 
B) $68 
C) $80 
D) $400

Exam 14: Firms in Competitive Markets

Table 14-7 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners?

Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. -Refer to Table 14-14. When Bob produces and sells the profit-maximizing quantity, how much profit does he earn?