Question 1

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be

Accepted Answer

A)  less than $12. 
B)  more than $12. 
C)  $12. 
D)  Any of the above may be correct depending on the price elasticity of demand for the product.

Question 2

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $4.50.

Accepted Answer

A)  In the short run firms will shut down, and in the long run firms will leave the market. 
B)  In the short run firms will continue to operate, but in the long run firms will leave the market. 
C)  New firms will likely enter this market to capture any remaining economic profits. 
D)  The firm will earn zero profits in both the short run and long run.

Question 3

Use a graph to demonstrate the circumstances that would prevail in a perfectly competitive market where firms are experiencing economic losses. Identify costs, revenue, and the economic losses on your graph. Using your graph, determine whether an individual firm will shut down in the short run, or choose to remain in the market. Explain your answer.

Accepted Answer

The answer of Use a graph to demonstrate the circumstances...

Question 4

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 does not

Accepted Answer

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

Question 5

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves: 
-Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run?

Accepted Answer

A)  Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. 
B)  Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. 
C)  Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. 
D)  Because the price is below the firm's average variable costs, the firms will shut down.

Question 6

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales.
 
-Refer to Table 14-14. Suppose that due to a decrease in the market demand for bread the market price of bread drops to $2.75. At this new price, if Bob produces and sells the profit-maximizing quantity, how much profit will he earn?

Accepted Answer

A)  $0.25 
B)  $1.25 
C)  $2.25 
D)  The firm will lose $6.25.

Question 7

Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-3. If the market price is $10, what is the firm's short­run economic profit?

Accepted Answer

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

Question 8

The competitive firm's short-run supply curve is that portion of the

Accepted Answer

A)  average variable cost curve that lies above marginal cost. 
B)  average total cost curve that lies above marginal cost. 
C)  marginal cost curve that lies above average variable cost. 
D)  marginal cost curve that lies above average total cost.

Question 9

In the short run, there are 500 identical firms in a competitive market. The firms do not use any resources that are available in limited quantities, and each of them has the following cost structure:  Which of the following is a point on the long-run supply curve?

Accepted Answer

A)  P=$10, Q=500. 
B)  P=$6, Q=1,000. 
C)  P=$5, Q=500. 
D)  P=$5, Q=1,500.

Question 10

A long-run supply curve is flatter than a short-run supply curve because

Accepted Answer

A)  firms can enter and exit a market more easily in the long run than in the short run. 
B)  long-run supply curves are sometimes downward sloping. 
C)  competitive firms have more control over demand in the long run. 
D)  firms in a competitive market face identical cost structures.

Question 11

A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run.

Accepted Answer

A) True 
 B)False

Question 12

If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, we would expect that

Accepted Answer

A)  the demand for products in this industry would increase. 
B)  the market price of products in this industry would decrease in the short run but not in the long run. 
C)  the firms in the industry would make a long-run economic profit. 
D)  competition would force producers to pass the lower production costs on to consumers in the long run.

Question 13

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

Accepted Answer

A)  $993. 
B)  $997. 
C)  $1,003. 
D)  $1,007.

Question 14

When a certain competitive firm produces and sells 100 units of output, marginal revenue is $80. When the same firm produces and sells 200 units of output, what is average revenue?

Accepted Answer

A)  $40 
B)  $80 
C)  $160 
D)  This cannot be determined from the given information.

Question 15

In the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

Accepted Answer

A) True 
 B)False

Question 16

Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:
 
-Refer to Table 14-9. If the firm's marginal cost is $5, it should

Accepted Answer

A)  reduce fixed costs by lowering production. 
B)  increase production to maximize profit. 
C)  decrease production to maximize profit. 
D)  maintain its current level of production to maximize profit.

Question 17

Figure 14-10
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 14-10. If there are 500 identical firms in this market, what is the value of Q2?

Accepted Answer

A)  12,000 
B)  60,000 
C)  240,000 
D)  300,000

Question 18

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-6. Firms will earn positive profits in the short run if the market price

Accepted Answer

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

Question 19

Table 14-4
The table represents a demand curve faced by a firm in a competitive market.
 
-Refer to Table 14-4. For this firm, the price is

Accepted Answer

A)  $0. 
B)  $5. 
C)  $10. 
D)  $15.

Question 20

When new entrants into a competitive market have higher costs than existing firms,

Accepted Answer

A)  accounting profits will be the primary determinant of entry into the market. 
B)  sunk costs become an important determinant of the short-run entry strategy. 
C)  market price will rise. 
D)  long-run supply is constant.

Exam 14: Firms in Competitive Markets

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $4.50.

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 does not

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run?

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. If the market price is $10, what is the firm's shortrun economic profit?

The competitive firm's short-run supply curve is that portion of the

In the short run, there are 500 identical firms in a competitive market. The firms do not use any resources that are available in limited quantities, and each of them has the following cost structure: Which of the following is a point on the long-run supply curve?

A long-run supply curve is flatter than a short-run supply curve because

A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run.

If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, we would expect that

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

When a certain competitive firm produces and sells 100 units of output, marginal revenue is $80. When the same firm produces and sells 200 units of output, what is average revenue?

In the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. If the firm's marginal cost is $5, it should

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. Firms will earn positive profits in the short run if the market price

Table 14-4 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-4. For this firm, the price is

When new entrants into a competitive market have higher costs than existing firms,

Exam 14: Firms in Competitive Markets

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $4.50.

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 does not

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run?

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. If the market price is $10, what is the firm's short­run economic profit?

The competitive firm's short-run supply curve is that portion of the

In the short run, there are 500 identical firms in a competitive market. The firms do not use any resources that are available in limited quantities, and each of them has the following cost structure: Which of the following is a point on the long-run supply curve?

A long-run supply curve is flatter than a short-run supply curve because

A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run.

If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, we would expect that

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

When a certain competitive firm produces and sells 100 units of output, marginal revenue is $80. When the same firm produces and sells 200 units of output, what is average revenue?

In the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. If the firm's marginal cost is $5, it should

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. Firms will earn positive profits in the short run if the market price

Table 14-4 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-4. For this firm, the price is

When new entrants into a competitive market have higher costs than existing firms,

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. If the market price is $10, what is the firm's shortrun economic profit?