Question 1

In the long run, each firm in a competitive industry earns

Accepted Answer

A) zero accounting profits. 
B) zero economic profits. 
C) positive economic profits. 
D) positive, negative, or zero economic profits.

Question 2

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-2. If the market price is Pd, in the short run the firm will earn

Accepted Answer

A) positive economic profits. 
B) negative economic profits but will try to remain open. 
C) negative economic profits and will shut down. 
D) zero economic profits.

Question 3

Figure 14-14  
-Refer to Figure 14-14. Suppose a firm in a competitive market, like the one depicted in panel (a), observes market price rising from P1 to P2. Which of the following could explain this observation?

Accepted Answer

A) The entry of new firms into the market. 
B) The exit of existing consumers from the market. 
C) An increase in market supply from S0 to S1. 
D) An increase in market demand from D0 to D1.

Question 4

A firm will shut down in the short run if revenue is not sufficient to cover all of its fixed costs of production.

Accepted Answer

A) True 
 B)False

Question 5

When economic profits are zero in equilibrium, the firm's revenue must be sufficient to cover all opportunity costs.

Accepted Answer

A) True 
 B)False

Question 6

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 7

The entry of new firms into a competitive market will

Accepted Answer

A) increase market supply and increase market price. 
B) increase market supply and decrease market price. 
C) decrease market supply and increase market price. 
D) decrease market supply and decrease market price.

Question 8

If a firm operating in a competitive industry shuts down in the short run, it can avoid paying

Accepted Answer

A) fixed costs. 
B) variable costs. 
C) total costs. 
D) The firm must pay all its costs, even if it shuts down.

Question 9

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 10

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

Accepted Answer

A) there will be no change in the demand curves faced by individual firms in the market. 
B) the demand curves for firms will shift downward. 
C) the demand curves for firms will become more elastic. 
D) profits will rise.

Question 11

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 cost is equal to

Accepted Answer

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

Question 12

For an individual firm operating in a competitive market, marginal revenue equals

Accepted Answer

A) average revenue and the price for all levels of output. 
B) average revenue, which is greater than the price for all levels of output. 
C) average revenue, the price, and marginal cost for all levels of output. 
D) marginal cost, which is greater than average revenue for all levels of output.

Question 13

In the short run, a firm operating in a competitive industry will shut down if price is

Accepted Answer

A) less than average total cost. 
B) less than average variable cost. 
C) greater than average variable cost but less than average total cost. 
D) greater than marginal cost.

Question 14

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs: 
-Refer to Table 14-11. If the firm is producing 3 units of output, it should produce

Accepted Answer

A) more units of output because its marginal revenue is greater than its marginal cost. 
B) fewer units of output because its marginal revenue is less than its marginal cost. 
C) more units of output because its marginal revenue is less than its marginal cost. 
D) fewer units of output because its marginal revenue is greater than its marginal cost.

Question 15

Table 14-6
The following table presents cost and revenue information for a firm operating in a competitive industry. 
-Refer to Table 14-6. What is the total revenue from selling 7 units?

Accepted Answer

A) $120 
B) $490 
C) $562 
D) $840

Question 16

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 17

The idea of "spilt milk" is associated with what type of cost?

Accepted Answer

The answer of The idea of "spilt milk" is associated...

Question 18

What is the relationship between price and marginal revenue for a competitive firm?

Accepted Answer

The answer of What is the relationship between price and...

Question 19

When a competitive firm produces and sells 600 units of output, its total revenue is $35,970. What is the firm's total revenue when it produces and sells 620 units of output?

Accepted Answer

The answer of When a competitive firm produces and sells...

Question 20

Table 14-13 
-Refer to Table 14-13. What is Diana's economic profit at the profit maximizing point?

Accepted Answer

A) $78 
B) $243 
C) $278 
D) $375

Exam 14: Firms in Competitive Markets