Question 1

Suppose that the organic-produce 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 organic produce to rise. 
D)  cause firms in the organic-produce industry to suffer long-run economic losses.

Question 2

In the long run, when price is greater than average total cost, some firms in a competitive market will choose to enter the market.

Accepted Answer

A) True 
 B)False

Question 3

In a competitive market, the actions of any single buyer or seller will

Accepted Answer

A)  discourage entry by competitors. 
B)  influence the profits of other firms in the market. 
C)  have a negligible impact on the market price. 
D)  Both a and b are correct.

Question 4

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

Accepted Answer

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

Question 5

Figure 14-7 
-Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 514 units of output, its profit is approximately

Accepted Answer

A)  $24,995. 
B)  $25,550. 
C)  $25,750. 
D)  $26,025.

Question 6

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $5. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 7

For any competitive market, the supply curve is closely related to the

Accepted Answer

A)  preferences of consumers who purchase products in that market. 
B)  income tax rates of consumers in that market. 
C)  firms' costs of production in that market. 
D)  interest rates on government bonds.

Question 8

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

Accepted Answer

A)  can choose the price at which it sells its butter but not the quantity of butter that it produces. 
B)  can choose quantity of butter that it produces but not the price at which it sells its butter. 
C)  can choose both the price at which it sells its butter and the quantity of butter that it produces. 
D)  cannot choose either the price at which it sells it butter or the quantity of butter that it produces.

Question 9

Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct? (i) Marginal revenue equals $5.
(ii) Average revenue equals $5.
(iii) Price equals $5.

Accepted Answer

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

Question 10

Table 14-12
Bill's Birdhouses
 
-Refer to Table 14-12. What is the total revenue from selling 7 units?

Accepted Answer

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

Question 11

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, the Brookside Racquet Club should

Accepted Answer

A)  shut down because staying open would be more expensive. 
B)  lower their prices to increase their profits. 
C)  stay open because shutting down would be more expensive. 
D)  stay open because the firm is making an economic profit.

Question 12

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 to answer the question.

Question 13

In the short run, a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the

Accepted Answer

A)  price is less than average total cost. 
B)  marginal revenue exceeds the marginal cost. 
C)  price is greater than average variable cost. 
D)  price is greater than average fixed cost but less than average variable cost.

Question 14

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 Pa, 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 15

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs:
 
-Refer to Table 14-10. At which level of output in the table is average variable cost equal to $6?

Accepted Answer

A)  2 units 
B)  3 units 
C)  4 units 
D)  5 units

Question 16

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

Accepted Answer

The answer of Why would a firm in a perfectly...

Question 17

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-6. Firms will be earn losses in the short run but will remain in business if the market price

Accepted Answer

A)  exceeds P3. 
B)  is less than P1. 
C)  is greater than P1 but less than P3. 
D)  exceeds P2.

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. When 100 identical firms participate in this market, at what price will 15,000 units be supplied to this market?

Accepted Answer

A)  $1.00 
B)  $1.50 
C)  $2.00 
D)  The price cannot be determined from the information provided.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Suppose that some firms in a competitive industry are earning zero economic profits, while others are experiencing losses. All else equal, in the long run, we would expect the number of firms in the industry to

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  We do not have enough information with which to answer this question.

Exam 14: Firms in Competitive Markets

Suppose that the organic-produce 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

In the long run, when price is greater than average total cost, some firms in a competitive market will choose to enter the market.

In a competitive market, the actions of any single buyer or seller will

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

Figure 14-7 -Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 514 units of output, its profit is approximately

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $5. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

For any competitive market, the supply curve is closely related to the

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

Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct? (i) Marginal revenue equals $5. (ii) Average revenue equals $5. (iii) Price equals $5.

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the total revenue from selling 7 units?

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, the Brookside Racquet Club should

In the short run, a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the

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 Pa, in the short run the firm will earn

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. At which level of output in the table is average variable cost equal to $6?

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. Firms will be earn losses in the short run but will remain in business if the market price

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

Suppose that some firms in a competitive industry are earning zero economic profits, while others are experiencing losses. All else equal, in the long run, we would expect the number of firms in the industry to