Question 1

Figure 14-5
 
-Refer to Figure 14-5.When market price is P5,which area represents a profit-maximizing firm's profits

Accepted Answer

A) (P5 - P4) × Q₂ 
B) (P5 - P₃) × Q₂ 
C) (P5 - P4) × Q₃ 
D) (P5 - P₃) × Q₃

Question 2

Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In long-run equilibrium,how is market price determined

Accepted Answer

A) by demand 
B) by the minimum point on the firms' average-total-cost curve 
C) by the minimum point on the firms' average-variable-cost curve 
D) by the number of firms in the industry

Question 3

What signals the entry and exit decisions of firms in a competitive market

Accepted Answer

A) high or low demand for a firm's product 
B) high capital costs 
C) low capital costs 
D) profits and losses

Question 4

Why in the perfectly competitive market is the long-run supply curve more elastic than the short-run supply curve

Accepted Answer

The answer of Why in the perfectly competitive market is...

Question 5

When total revenue is less than variable costs in the short run,what will a firm in a competitive market do

Accepted Answer

A) It will continue to operate as long as average revenue exceeds marginal cost. 
B) It will continue to operate as long as average revenue exceeds average fixed cost. 
C) It will shut down. 
D) It will always exit the industry.

Question 6

Table 14-4
A firm in a competitive market has the following cost structure:
 
-Refer to Table 14-4.When will this firm shut down and exit

Accepted Answer

A) It will shut down if price falls below $3.33 and exit if it falls below $5. 
B) It will shut down if price falls below $5 and exit if it falls below $3.33. 
C) It will shut down and exit if price falls below $5. 
D) It will shut down if price falls below $7 and exit if it falls below $10.

Question 7

The competitive firm's short-run supply curve is that portion of the marginal-cost curve that lies above which average cost

Accepted Answer

A) average fixed cost 
B) average variable cost 
C) average total cost 
D) average marginal cost

Question 8

As a general rule,what do we know about the level at which profit-maximizing producers in a competitive market produce output

Accepted Answer

A) Marginal cost is increasing. 
B) Marginal cost is decreasing. 
C) Marginal revenue is increasing. 
D) Marginal revenue is decreasing.

Question 9

In a competitive market,firms are unable to differentiate their product from that of other producers.

Accepted Answer

A) True 
 B)False

Question 10

When a firm makes a short-run decision not to produce anything during a specified period of time because of current market conditions,what is the firm said to do

Accepted Answer

A) shut down 
B) exit 
C) withdraw 
D) leave the industry

Question 11

How is total profit for a firm calculated

Accepted Answer

A) marginal revenue minus average cost 
B) average revenue minus average cost 
C) marginal revenue minus marginal cost 
D) total revenue minus total cost

Question 12

Figure 14-7
In the figure, 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 14-7.If at a market price of $2.50,62,500 units of output are supplied to this market.How many identical firms are participating in this market

Accepted Answer

A) 75 
B) 100 
C) 250 
D) 300

Question 13

The goods offered for sale in a competitive market are largely the same.As a result,what do we expect in the market

Accepted Answer

A) There will be few sellers in the market. 
B) There will be few buyers in the market. 
C) Buyers will have market power. 
D) Sellers will have little reason to charge less than the going market price.

Question 14

When firms are said to be price takers,what will happen if a firm raises its price

Accepted Answer

A) Buyers will go elsewhere. 
B) Buyers will pay the higher price in the short run. 
C) Competitors will also raise their prices. 
D) Firms in the industry will exercise market power.

Question 15

The Wheeler Wheat Farm sells wheat to a grain broker in Regina,Saskatchewan.Since the market for wheat is generally considered to be competitive,what does the Wheeler Farm do

Accepted Answer

A) It chooses the quantity of wheat to produce. 
B) It chooses the price at which it sells its wheat. 
C) It eliminates any fixed costs of production. 
D) It enjoys a markup over marginal cost.

Question 16

Table 14-2
 
-Refer to Table 14-2.If this firm chooses to maximize profit,it will choose a level of output where marginal cost is equal to what dollar amount

Accepted Answer

A) $6 
B) $8 
C) $10 
D) $12

Question 17

In competitive markets,firms that raise their prices are typically rewarded with larger profits.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Market demand is given as QD = 220 - 3P.Market supply is given as QS = 3P + 40.Each identical firm has MC = 0.3Q and ATC = 0.2Q.What is a firm's average total cost

Accepted Answer

A) $5 
B) $12 
C) $18 
D) $30

Question 20

Figure 14-9
 
-Refer to Figure 14-9.When a firm in a competitive market,like the one depicted in panel (a),observes market price rising from P₁ to P₂,what is most likely the cause

Accepted Answer

A) the entrance of new firms into the market 
B) the exit of existing firms in the market 
C) an increase in market supply from Supply0 to Supply1 
D) an increase in market demand from Demand0 to DemanD₁

Exam 14: Firms in Competitive Markets

Figure 14-5 -Refer to Figure 14-5.When market price is P5,which area represents a profit-maximizing firm's profits