Question 1

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 2 units of output,it should

Accepted Answer

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

Question 2

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 total cost but greater than the firm's average variable cost.

Accepted Answer

A) True 
 B)False

Question 3

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 4

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.

Question 5

In a long-run equilibrium where firms have identical costs,it is possible that some firms in a competitive market are making a positive economic profit.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Table 14-2
The table represents a demand curve faced by a firm in a competitive market.
 
-Refer to Table 14-2.A firm operating in a competitive market maximizes total revenue by producing

Accepted Answer

A)  2 units. 
B)  3 units. 
C)  4 units. 
D)  as many units as possible.

Question 8

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.

Question 9

If a firm notices that its average revenue equals the current market price,that firm must be participating in a competitive market.

Accepted Answer

A) True 
 B)False

Question 10

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.If the marginal cost of producing the 501st unit would be $19,producing and selling the 501st unit would

Accepted Answer

A)  decrease the firm's profit by $19. 
B)  decrease the firm's profit by $2. 
C)  increase the firm's profit by $1. 
D)  increase the firm's profit by $3.

Question 11

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

Accepted Answer

A)  selling running apparel 
B)  wheat farming 
C)  yoga studios 
D)  satellite radio

Question 12

If a firm in a competitive market doubles its number of units sold,total revenue for the firm will

Accepted Answer

A)  more than double. 
B)  double. 
C)  increase but by less than double. 
D)  may increase or decrease depending on the price elasticity of demand.

Question 13

The short-run market supply curve in a perfectly competitive industry

Accepted Answer

A)  shows the total quantity supplied by all firms at each possible price. 
B)  is perfectly inelastic at the market price. 
C)  is perfectly elastic at the market price. 
D)  shows the variety of prices that different firms will charge for a given quantity.

Question 14

Laura is a gourmet chef who runs a small catering business in a competitive industry.Laura specializes in making wedding cakes.Laura sells 20 wedding cakes per month.Her monthly total revenue is $5,000.The marginal cost of making a wedding cake is $200.In order to maximize profits,Laura should

Accepted Answer

A)  make more than 20 wedding cakes per month. 
B)  make fewer than 20 wedding cakes per month. 
C)  continue to make 20 wedding cakes per month. 
D)  We do not have enough information with which to answer the question.

Question 15

When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch,which of the following principles is (are)best demonstrated?
(i)Fixed costs are sunk in the short run.
(ii)In the short run,only fixed costs are important to the decision to stay open for lunch.
(iii)If revenue exceeds variable cost,the restaurant owner is making a smart decision to remain open for lunch.

Accepted Answer

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

Question 16

A market might have an upward-sloping long-run supply curve if

Accepted Answer

A)  firms have different costs. 
B)  consumers exercise market power over producers. 
C)  all factors of production are essentially available in unlimited supply. 
D)  the entry of new firms into the market has no effect on the cost structure of firms in the market.

Question 17

When a profit-maximizing firm in a competitive market experiences rising prices,it will respond with an increase in production.

Accepted Answer

A) True 
 B)False

Question 18

Figure 14-9
In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms.

-Refer to Figure 14-9.If there are 200 identical firms in this market,what level of output will be supplied to the market when price is $1.00?

Accepted Answer

A)  2,000 
B)  5,000 
C)  10,000 
D)  20,000

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.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 20

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.At Q = 999,the firm's profits equal

Accepted Answer

A)  $4,990. 
B)  $5,000. 
C)  $5,020. 
D)  $5,030.

Exam 14: Firms in Competitive Markets.

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 2 units of output,it should

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 total cost but greater than the firm's average variable cost.

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?

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

In a long-run equilibrium where firms have identical costs,it is possible that some firms in a competitive market are making a positive economic profit.

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?

Table 14-2 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-2.A firm operating in a competitive market maximizes total revenue by producing

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

If a firm notices that its average revenue equals the current market price,that firm must be participating in a competitive market.

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

If a firm in a competitive market doubles its number of units sold,total revenue for the firm will

The short-run market supply curve in a perfectly competitive industry

Laura is a gourmet chef who runs a small catering business in a competitive industry.Laura specializes in making wedding cakes.Laura sells 20 wedding cakes per month.Her monthly total revenue is $5,000.The marginal cost of making a wedding cake is $200.In order to maximize profits,Laura should

A market might have an upward-sloping long-run supply curve if

When a profit-maximizing firm in a competitive market experiences rising prices,it will respond with an increase in production.

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.To maximize its profit,the firm should

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.At Q = 999,the firm's profits equal