Question 1

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.

Question 2

Scenario 14-1. A competitive firm sells its output for $20 per unit. When the firm produces 200 units of output, average variable cost is $16, marginal cost is $18, and average total cost is $23.
-Refer to Scenario 14-1. Is the firm maximizing its profit (or minimizing its loss) by producing 200 units of output?

Accepted Answer

The answer of Scenario 14-1. A competitive firm sells its...

Question 3

​In competitive markets where firms are observed to be exiting the market, the firms that remain will obtain economic profits in the long run.

Accepted Answer

A) True 
 B)False

Question 4

When a resource used in the production of a good sold in a competitive market is available in only limited quantities, the long-run supply curve is likely to be upward sloping.

Accepted Answer

A) True 
 B)False

Question 5

Because there are many sellers in a competitive market, individual firms are unable to maximize profits.

Accepted Answer

A) True 
 B)False

Question 6

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. At Q=500, the firm's profits equal

Accepted Answer

A) $1,000. 
B) $4,000. 
C) $7,000. 
D) $10,000.

Question 7

A competitive firm currently produces and sells 500 units of output. Its total revenue is $3,500; the marginal cost of producing the 500^th unit of output is $5.75; and the average total cost of producing the 500^th unit of output is $4.00. Is the firm maximizing its profit, or should it increase or decrease output in order to increase its profit?

Accepted Answer

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

Question 8

Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?

Accepted Answer

A) shut down the business 
B) produce more custom-made shoes 
C) decrease the price 
D) produce fewer custom-made shoes

Question 9

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $12.50 at the profit-maximizing output level, then in the long run

Accepted Answer

A) more firms will enter the market. 
B) some firms will exit from the market. 
C) the equilibrium price per bottle will fall. 
D) average total costs will fall.

Question 10

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price?

Accepted Answer

A) $9 
B) $10 
C) $11 
D) $12

Question 11

​In the long run, if we observe firms in a competitive market earning economic profits, we know that this market is in long-run equilibrium.

Accepted Answer

A) True 
 B)False

Question 12

​Perfectly competitive markets are characterized by

Accepted Answer

A) ​conditions that discourage new firms from entering the market. 
B) ​conditions that allow firms to determine how much they wish to produce, without influencing the market price. 
C) ​conditions that presume that each firm produces a unique product. 
D) ​conditions that force firms to advertise their product heavily, to compete with other producers.

Question 13

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the unit for $6. The firm should produce more than 100 units in order to maximize its profits (or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 14

Total profit for a firm is calculated as

Accepted Answer

A) marginal revenue minus average total cost. 
B) average revenue minus average total cost. 
C) marginal revenue minus marginal cost. 
D) (price minus average cost) times quantity of output.

Question 15

A competitive firm sells 500 units of output and its marginal revenue at 500 units of output is $35. The firm's total revenue amounts to __________.

Accepted Answer

The answer of A competitive firm sells 500 units of...

Question 16

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales. 
-Refer to Table 14-14. Suppose that due to a decrease in the market demand for bread the market price of bread drops to $2.75 per loaf. At this new price, what is Bob's profit-maximizing quantity?

Accepted Answer

A) 5 units 
B) 6 units 
C) 7 units 
D) 8 units

Question 17

Consider a firm that operates in a perfectly competitive market. Currently the firm is producing 50 units of output and at that output level, marginal revenue is $6. Suppose that the firm increases output by 50%. Total revenue will be

Accepted Answer

A) ​$300. 
B) ​$450. 
C) ​$600. 
D) ​the same since price will fall by 50%.

Question 18

Suppose that the organic-produce 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 organic produce to rise. 
D) cause firms in the organic-produce industry to suffer long-run economic losses.

Question 19

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

Accepted Answer

The answer of Give two reasons why the long-run industry...

Question 20

A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.

Accepted Answer

A) True 
 B)False

Exam 14: Firms in Competitive Markets

In a long-run equilibrium, the marginal firm has

​In competitive markets where firms are observed to be exiting the market, the firms that remain will obtain economic profits in the long run.

When a resource used in the production of a good sold in a competitive market is available in only limited quantities, the long-run supply curve is likely to be upward sloping.

Because there are many sellers in a competitive market, individual firms are unable to maximize profits.

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. At Q=500, the firm's profits equal

Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $12.50 at the profit-maximizing output level, then in the long run

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price?

​In the long run, if we observe firms in a competitive market earning economic profits, we know that this market is in long-run equilibrium.

​Perfectly competitive markets are characterized by

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the unit for $6. The firm should produce more than 100 units in order to maximize its profits (or minimize its losses).

Total profit for a firm is calculated as

A competitive firm sells 500 units of output and its marginal revenue at 500 units of output is $35. The firm's total revenue amounts to __________.

Consider a firm that operates in a perfectly competitive market. Currently the firm is producing 50 units of output and at that output level, marginal revenue is $6. Suppose that the firm increases output by 50%. Total revenue will be

Suppose that the organic-produce 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

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.

In competitive markets where firms are observed to be exiting the market, the firms that remain will obtain economic profits in the long run.

In the long run, if we observe firms in a competitive market earning economic profits, we know that this market is in long-run equilibrium.

Perfectly competitive markets are characterized by