Question 1

Profit-maximizing firms in a competitive market produce an output level where

Accepted Answer

A)  marginal cost equals marginal revenue. 
B)  marginal cost equals average total cost. 
C)  marginal revenue is increasing. 
D)  price is less than marginal revenue.

Question 2

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. If the market price falls below $4.50, the firm will earn

Accepted Answer

A)  positive economic profits in the short run. 
B)  negative economic profits in the short run but remain in business. 
C)  negative economic profits in the short run and shut down. 
D)  zero economic profits in the short run.

Question 3

When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch, which of the following principles is (are) best demonstrated? (i) Fixed costs are sunk in the short run.
(ii) In the short run, only fixed costs are important to the decision to stay open for lunch.
(iii) If revenue exceeds variable cost, the restaurant owner is making a smart decision to remain open for lunch.

Accepted Answer

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

Question 4

By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that achieves its objective, which we assume to be

Accepted Answer

A)  maximizing total revenue. 
B)  maximizing profit. 
C)  minimizing variable cost. 
D)  minimizing average total cost.

Question 5

Table 14-2
The table represents a demand curve faced by a firm in a competitive market.
 
-Refer to Table 14-2. For this firm, the marginal revenue from selling the 3rd unit is

Accepted Answer

A)  $12. 
B)  $4. 
C)  $3. 
D)  $1.

Question 6

Table 14-15-a
 
-Refer to Table 14-15-a. What is the lowest price at which this firm would operate in the short run?

Accepted Answer

A)  $5. 
B)  $6. 
C)  $7. 
D)  $8.

Question 7

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands rises above the minimum of its average variable cost, but still lies below the minimum of average total cost, in the short run the firm will

Accepted Answer

A)  experience losses but will continue to produce rubber bands. 
B)  shut down. 
C)  earn both economic and accounting profits. 
D)  raise the price of its product.

Question 8

Figure 14-7 
-Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 515 units of output, its total revenue is

Accepted Answer

A)  $100,525. 
B)  $90,125. 
C)  $84,500. 
D)  $75,250.

Question 9

A competitive firm is currently producing a quantity of output at which marginal revenue exceeds marginal cost. In order to increase its profit, the firm should

Accepted Answer

A)  increase the price of the good that it produces and sells. 
B)  increase its quantity of output. 
C)  decrease its total cost. 
D)  decrease its average total cost.

Question 10

When firms are neither entering nor exiting a perfectly competitive market,

Accepted Answer

A)  total revenue must equal total cost for each firm. 
B)  economic profits must be zero. 
C)  price must equal the minimum of marginal cost for each firm. 
D)  Both a and b are correct.

Question 11

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. The firm should shut down if the market price is

Accepted Answer

A)  above $8. 
B)  above $6.30 but less than $8. 
C)  above $4.50 but less than $6.30. 
D)  less than $4.50.

Question 12

A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as

Accepted Answer

A)  average revenue is greater than average total cost. 
B)  average revenue is equal to marginal cost. 
C)  marginal cost is greater than average total cost. 
D)  price is above or below marginal cost.

Question 13

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's total costs

Accepted Answer

A)  can be represented by the area P2 × Q2. 
B)  can be represented by the area P3 × Q2. 
C)  can be represented by the area (P3-P2) × Q3. 
D)  are zero.

Question 14

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales.
 
-Refer to Table 14-14. What is the total revenue from selling 5 units?

Accepted Answer

A)  $2.50 
B)  $3.25 
C)  $12.50 
D)  $16.25

Question 15

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-6. Firms will shut down in the short run 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 16

Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3.
(ii) Average revenue equals $3.
(iii) Total revenue equals $900.

Accepted Answer

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

Question 17

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

Accepted Answer

A)  fixed cost. 
B)  variable cost. 
C)  total cost. 
D)  revenue.

Question 18

Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th 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 19

In the long run the market supply

Accepted Answer

A)  must always be horizontal. 
B)  could be upward sloping if the cost of production falls as new firms enter the market. 
C)  could be upward sloping if the cost of production rises as new firms enter the market. 
D)  could be upward sloping if technological improvements lower the cost of producing in the market.

Question 20

At the profit-maximizing level of output,

Accepted Answer

A)  marginal revenue equals average total cost. 
B)  marginal revenue equals average variable cost. 
C)  marginal revenue equals marginal cost. 
D)  average revenue equals average total cost.

Exam 14: Firms in Competitive Markets

Profit-maximizing firms in a competitive market produce an output level where

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price falls below $4.50, the firm will earn

By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that achieves its objective, which we assume to be

Table 14-2 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-2. For this firm, the marginal revenue from selling the 3rd unit is

Table 14-15-a -Refer to Table 14-15-a. What is the lowest price at which this firm would operate in the short run?

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands rises above the minimum of its average variable cost, but still lies below the minimum of average total cost, in the short run the firm will

Figure 14-7 -Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 515 units of output, its total revenue is

A competitive firm is currently producing a quantity of output at which marginal revenue exceeds marginal cost. In order to increase its profit, the firm should

When firms are neither entering nor exiting a perfectly competitive market,

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. The firm should shut down if the market price is

A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's total costs

Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. -Refer to Table 14-14. What is the total revenue from selling 5 units?

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

Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3. (ii) Average revenue equals $3. (iii) Total revenue equals $900.

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

Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?

In the long run the market supply

At the profit-maximizing level of output,