Question 1

A firm operating in a perfectly competitive market earns zero economic profit in the long run but remains in business because the firm's revenues cover the business owners' opportunity costs.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Competitive markets are characterized by

Accepted Answer

A)  a small number of buyers and sellers. 
B)  unique products. 
C)  the interdependence of firms. 
D)  free entry and exit by firms.

Question 4

A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob.Which of the following events would decrease the firm's average revenue?

Accepted Answer

A)  The firm increases its output above 500 doorknobs. 
B)  The firm decreases its output below 500 doorknobs. 
C)  The market price of doorknobs rises above $10. 
D)  The market price of doorknobs falls below $10.

Question 5

Table 14-1
 
-Refer to Table 14-1.For a firm operating in a competitive market,the price is

Accepted Answer

A)  $0. 
B)  $7. 
C)  $14. 
D)  $21.

Question 6

In a perfectly competitive market,the process of entry and exit will end when firms face

Accepted Answer

A)  marginal revenue equal to long-run average total cost. 
B)  total revenue equal to average total cost. 
C)  average revenue greater than marginal cost. 
D)  accounting profits equal to zero.

Question 7

Table 14-6
John's Vineyard
 
-Refer to Table 14-6.What is the average revenue when 4 units are sold?

Accepted Answer

A)  $0 
B)  $68 
C)  $80 
D)  $400

Question 8

Figure 14-4 
-Refer to Figure 14-4.Firms would be encouraged to enter this market for all prices that exceed

Accepted Answer

A)  P1. 
B)  P2. 
C)  P3. 
D)  P4.

Question 9

A firm will shut down in the short run if,for all positive levels of output,

Accepted Answer

A)  its loss exceeds its fixed costs. 
B)  its total revenue is less than its variable costs. 
C)  the price of its product is less than its average variable cost. 
D)  All of the above are correct.

Question 10

A competitive firm would benefit from charging a price below the market price because the firm would achieve

Accepted Answer

A)  higher average revenue. 
B)  higher profits. 
C)  lower total costs. 
D)  None of the above is correct.

Question 11

Competitive firms that earn a loss in the short run should

Accepted Answer

A)  shut down if P < AVC. 
B)  raise their price. 
C)  lower their output. 
D)  All of the above are correct.

Question 12

Raiman's Shoe Repair produces custom-made shoes.When Mr.Raiman produces 12 pairs per week,the marginal cost of the twelfth pair is $84,and the marginal revenue of the twelfth 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 13

A firm in a competitive market has the following cost structure:

If the market price is $16,this firm will

Accepted Answer

A)  produce four units in the short run and exit in the long run. 
B)  produce five units in the short run and exit in the long run. 
C)  produce five units in the short run and face competition from new market entrants in the long run. 
D)  shut down in the short run and exit in the long run.

Question 14

Table 14-5
 
-Refer to Table 14-5.At which quantity of output is marginal revenue equal to marginal cost?

Accepted Answer

A)  3 
B)  6 
C)  8 
D)  9

Question 15

A firm's marginal cost has a minimum value of $2,its average variable cost has a minimum value of $4,and its average total cost has a minimum value of $5.Then the firm will shut down if the price of its product falls below

Accepted Answer

A)  $2. 
B)  $4. 
C)  $5. 
D)  There is not enough information given to answer the question.

Question 16

A sunk cost is one that

Accepted Answer

A)  changes as the level of output changes in the short run. 
B)  was paid in the past and will not change regardless of the present decision. 
C)  should determine the rational course of action in the future. 
D)  has the most impact on profit-making decisions.

Question 17

Table 14-4
 
-Refer to Table 14-4.What is the firm's profit-maximizing strategy?

Accepted Answer

A)  produce 1 unit of output because marginal cost is minimized 
B)  produce 4 units of output because marginal revenue exceeds marginal cost 
C)  produce 6 units of output because marginal revenue equals marginal cost 
D)  produce 8 units of output because total revenue is maximized

Question 18

Scenario 14-3
As part of an estate settlement Mary received $1 million.She decided to use the money to purchase a small business in Anywhere,USA.Her business operates in a perfectly competitive industry.If Mary would have invested the $1 million in a risk-free bond fund she could have made $100,000 each year.She also quit her job with Lucky.Com Inc.to devote all of her time to her new business;her salary at Lucky.Com Inc.was $75,000 per year.
-Refer to Scenario 14-3.How large would Mary's accounting profits need to be to allow her to attain zero economic profit?

Accepted Answer

A)  $100,000 
B)  $125,000 
C)  $175,000 
D)  $225,000

Question 19

Which of the following is not a characteristic of a competitive market?

Accepted Answer

A)  Buyers and sellers are price takers. 
B)  Each firm sells a virtually identical product. 
C)  Free entry is limited. 
D)  Each firm chooses an output level that maximizes profits.

Question 20

In the long run,a firm will enter a competitive industry if

Accepted Answer

A)  total revenue exceeds total cost. 
B)  the price exceeds average total cost. 
C)  the firm can earn economic profits. 
D)  All of the above are correct.

Exam 14: Firms in Competitive Markets

A firm operating in a perfectly competitive market earns zero economic profit in the long run but remains in business because the firm's revenues cover the business owners' opportunity costs.

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

Competitive markets are characterized by

A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob.Which of the following events would decrease the firm's average revenue?

Table 14-1 -Refer to Table 14-1.For a firm operating in a competitive market,the price is

In a perfectly competitive market,the process of entry and exit will end when firms face

Table 14-6 John's Vineyard -Refer to Table 14-6.What is the average revenue when 4 units are sold?

Figure 14-4 -Refer to Figure 14-4.Firms would be encouraged to enter this market for all prices that exceed