Question 1

Scenario 14-1
Assume a certain firm 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 = 1,000,the firm's profits equal

Accepted Answer

A)  $-200. 
B)  $1,000. 
C)  $3,000. 
D)  $4,000.

Question 2

The Wheeler Wheat Farm sells wheat to a grain broker in Seattle,Washington.Since the market for wheat is generally considered to be competitive,the Wheeler Farm does not

Accepted Answer

A)  choose the quantity of wheat to produce. 
B)  choose the price at which it sells its wheat. 
C)  have any fixed costs of production. 
D)  set marginal revenue equal to marginal cost to maximize profit.

Question 3

When a profit-maximizing firm is earning profits,those profits can be identified by

Accepted Answer

A)  PQ. 
B)  (MC - AV
C) Q. 
C)  (P - AT
C) Q. 
D)  (P - AV
C) Q.

Question 4

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

Accepted Answer

A)  fall in the short run.All firms will shut down,and some of them will exit the industry.Price will then rise to reach the new long-run equilibrium. 
B)  fall in the short run.No firms will shut down,but some of them will exit the industry.Price will then rise 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 fall in the short run because firms will exit to maintain the price.

Question 5

Figure 14-3 
-Refer to Figure 14-3.When price rises from P3 to P4,the firm finds that

Accepted Answer

A)  fixed costs decrease as output increases from Q3 to Q4. 
B)  it can earn a positive profit by increasing production to Q4. 
C)  profit is still maximized at a production level of Q3. 
D)  average revenue exceeds marginal revenue at a production level of Q4.

Question 6

The firm will make the most profits if it produces the quantity of output at which

Accepted Answer

A)  marginal cost equals average cost. 
B)  profit per unit is greatest. 
C)  marginal revenue equals total revenue. 
D)  marginal revenue equals marginal cost.

Question 7

The long-run market supply curve in a competitive market will

Accepted Answer

A)  always be horizontal. 
B)  be the portion of the MC that lies above the minimum of AVC for the marginal firm. 
C)  typically be more elastic than the short-run supply curve. 
D)  be above the competitive firm's efficient scale.

Question 8

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 9

Susan quit her job as a teacher,which paid her $36,000 per year,in order to start her own catering business.She spent $12,000 of her savings,which had been earning 10 percent interest per year,on equipment for her business.She also borrowed $12,000 from her bank at 10 percent interest,which she also spent on equipment.For the past several months she has spent $1,000 per month on ingredients and other variable costs.Also for the past several months she has taken in $3,500 in monthly revenue.

Accepted Answer

A)  In the short run,Susan should shut down her business,and in the long run she should exit the industry. 
B)  In the short run,Susan should continue to operate her business,but in the long run she should exit the industry. 
C)  In the short run,Susan should continue to operate her business,but in the long run she will probably face competition from newly entering firms. 
D)  In the short run,Susan should continue to operate her business,and she is also in long-run equilibrium.

Question 10

Figure 14-2 
-Refer to Figure 14-2.If the market price is $10,what is the firm's short-run economic profit?

Accepted Answer

A)  $9 
B)  $15 
C)  $30 
D)  $50

Question 11

In a competitive market with identical firms,

Accepted Answer

A)  an increase in demand in the short run will result in a new price above the minimum of average total cost,allowing firms to earn a positive economic profit in both the short run and the long run. 
B)  firms cannot earn positive economic profit in either the short run or long run. 
C)  firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping. 
D)  free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.

Question 12

For a firm operating in a perfectly competitive industry,marginal revenue and average revenue are equal.

Accepted Answer

A) True 
 B)False

Question 13

When new firms enter a perfectly competitive market,

Accepted Answer

A)  demand increases. 
B)  the short-run market supply curve shifts right. 
C)  the short-run market supply curve shifts left. 
D)  existing firms will increase prices to keep the new firms from entering.

Question 14

Figure 14-3 
-Refer to Figure 14-3.When price falls from P3 to P1,the firm finds that it

Accepted Answer

A)  decreases its fixed costs. 
B)  should produce Q1 units of output. 
C)  should produce Q3 units of output. 
D)  should shut down immediately.

Question 15

Which of the following characteristics of competitive markets is necessary for firms to be price takers?

Accepted Answer

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

Question 16

Which of the following statements best reflects a price-taking firm?

Accepted Answer

A)  If the firm were to charge more than the going price,it would sell none of its goods. 
B)  The firm has an incentive to charge less than the market price to earn higher revenue. 
C)  The firm can sell only a limited amount of output at the market price before the market price will fall. 
D)  Price-taking firms maximize profits by charging a price above marginal cost.

Question 17

List and describe the characteristics of a perfectly competitive market.

Accepted Answer

The answer of List and describe the characteristics of a...

Question 18

Which of the following statements regarding a competitive market is not correct?

Accepted Answer

A)  There are many buyers and many sellers in the market. 
B)  Firms can freely enter or exit the market. 
C)  Price equals average revenue. 
D)  Price exceeds marginal revenue.

Question 19

Table 14-6
John's Vineyard
 
-Refer to Table 14-6.What is the total revenue from selling 7 units?

Accepted Answer

A)  $80 
B)  $382 
C)  $540 
D)  $560

Question 20

In the transition from the short run to the long run,the number of firms in a competitive industry is

Accepted Answer

A)  fixed. 
B)  increasing at a constant rate. 
C)  decreasing. 
D)  able to adjust to market conditions.

Exam 14: Firms in Competitive Markets

Scenario 14-1 Assume a certain firm 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 = 1,000,the firm's profits equal