Question 1

Scenario 14-2
Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit.
-Refer to Scenario 14-2. To maximize its profit, the firm should

Accepted Answer

A) increase its output. 
B) continue to produce 1,000 units. 
C) decrease its output but continue to produce. 
D) shut down.

Question 2

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is

Accepted Answer

A) downward sloping. 
B) upward sloping. 
C) horizontal. 
D) vertical.

Question 3

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.

Question 4

Table 14-12
Bill's Birdhouses 
-Refer to Table 14-12. What is the total revenue from selling 4 units?

Accepted Answer

A) $80 
B) $137 
C) $320 
D) $480

Question 5

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

Accepted Answer

A) total revenue is equal to variable cost. 
B) total revenue is equal to fixed cost. 
C) total revenue is equal to total cost. 
D) profit is maximized.

Question 6

A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin.

Accepted Answer

A) True 
 B)False

Question 7

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. The firm should shut down if the market price is

Accepted Answer

A) above $8. 
B) above $6.30 but less than $8. 
C) above $4.50 but less than $6.30. 
D) less than $4.50.

Question 8

The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.

Accepted Answer

A) True 
 B)False

Question 9

In a competitive market, is the long-run supply curve typically more elastic than the short-run supply curve, or is it less elastic than the short-run supply curve?

Accepted Answer

The answer of In a competitive market, is the long-run...

Question 10

Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them. He rents each boat for $200 per month. The variable cost for each boat rental is $50. In the off season, Bill should

Accepted Answer

A) operate his business as long as he rents at least 7 boats per month. 
B) operate his business as long as he rents at least 1 boat per month. 
C) operate his business as long as he rents all 10 boats each month. 
D) raise the price he charges per boat rental.

Question 11

A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will

Accepted Answer

A) rise in the short run. Some firms will enter the industry. Price will then rise to reach the new long-run equilibrium. 
B) rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium. 
C) fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. 
D) not rise in the short run because firms will enter to maintain the price.

Question 12

Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

Accepted Answer

The answer of Explain how a firm in a competitive...

Question 13

A firm sells 100 units of output and its total revenue is $800. The firm's average revenue amounts to __________.

Accepted Answer

The answer of A firm sells 100 units of output...

Question 14

If marginal cost exceeds marginal revenue, the firm

Accepted Answer

A) is most likely to be at a profit-maximizing level of output. 
B) should increase the level of production to maximize its profit. 
C) should reduce its average fixed cost in order to lower its marginal cost. 
D) may still be earning a positive accounting profit.

Question 15

If there is an increase in market demand in a perfectly competitive market, then in the short run prices will

Accepted Answer

A) rise. 
B) remain unchanged at the minimum of average total cost. 
C) fall. 
D) remain unchanged at the minimum of marginal cost.

Question 16

The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will

Accepted Answer

A) shift the demand curve outward so that price will rise to the level of production cost. 
B) cause the remaining firms to collude so that they can produce more efficiently. 
C) cause the market supply to decline and the price of textiles to rise. 
D) cause firms in the textile industry to suffer long-run economic losses.

Question 17

Table 14-13
Diana's Dress Emporium 
-Refer to Table 14-13. What is the marginal cost of the 8th unit?

Accepted Answer

A) $0 
B) $100 
C) $120 
D) $140

Question 18

When profit-maximizing firms in competitive markets are earning profits,

Accepted Answer

A) market demand must exceed market supply at the market equilibrium price. 
B) market supply must exceed market demand at the market equilibrium price. 
C) new firms will enter the market. 
D) the most inefficient firms will be encouraged to leave the market.

Question 19

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 = 999, the firm's profits equal

Accepted Answer

A) $993. 
B) $997. 
C) $1,003. 
D) $1,007.

Question 20

A competitive firm is maximizing its profit by selling 150 units of output. The firm's marginal cost is $8 and its average total cost is $6. The firm's profit amounts to __________.

Accepted Answer

The answer of A competitive firm is maximizing its profit...

Exam 14: Firms in Competitive Markets

Scenario 14-2 Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. -Refer to Scenario 14-2. To maximize its profit, the firm should