Question 1

Figure 14-7 
-Refer to Figure 14-7. Let Q represent the quantity of output and suppose the price of the good is $125. Then marginal revenue is

Accepted Answer

A)  $80 at Q = 270. 
B)  $100 at Q = 322. 
C)  $175 at Q = 515. 
D)  None of the above are correct.

Question 2

Which of the following represents the firm's long-run condition for exiting a market?

Accepted Answer

A)  exit if P < MC 
B)  exit if P < FC 
C)  exit if P < ATC 
D)  exit if MR < MC

Question 3

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Explain your answer.

Accepted Answer

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

Question 4

Which of the following is a characteristic of a competitive market?

Accepted Answer

A)  There are many buyers but few sellers. 
B)  Firms sell differentiated products. 
C)  There are many barriers to entry. 
D)  Buyers and sellers are price takers.

Question 5

In the long-run equilibrium of a market with free entry and exit, if all firms have the same cost structure, then

Accepted Answer

A)  marginal cost exceeds average total cost. 
B)  the price of the good exceeds average total cost. 
C)  average total cost exceeds the price of the good. 
D)  firms are operating at their efficient scale.

Question 6

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 total cost?

Accepted Answer

A)  $15 
B)  $30 
C)  $35 
D)  $50

Question 7

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs:
 
-Refer to Table 14-10. Which level of production in the table has the lowest average variable cost?

Accepted Answer

A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units

Question 8

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 unit for $6. The firm should produce more than 100 units in order to maximize its profits or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 9

When existing firms in a competitive market are profitable, an incentive exists for

Accepted Answer

A)  new firms to seek government subsidies that would allow them to enter the market. 
B)  new firms to enter the market, even without government subsidies. 
C)  existing firms to raise prices. 
D)  existing firms to increase production.

Question 10

Table 14-12

-Refer to Table 14-12. What is the marginal cost of the 8th unit?

Accepted Answer

A)  $0 
B)  $72.75 
C)  $120 
D)  $502

Question 11

If identical firms that remain in a competitive market over the long run make zero economic profit, why do these firms choose to remain in the market?

Accepted Answer

The answer of If identical firms that remain in a...

Question 12

Firms operating in competitive markets produce output levels where marginal revenue equals

Accepted Answer

A)  price. 
B)  average revenue. 
C)  total revenue divided by output. 
D)  All of the above are correct.

Question 13

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-2. Which of the four prices corresponds to a firm earning zero economic profits in the short run?

Accepted Answer

A)  Pa 
B)  Pb 
C)  Pc 
D)  Pd

Question 14

If firms are competitive and profit maximizing, the price of a good equals the

Accepted Answer

A)  marginal cost of production. 
B)  fixed cost of production. 
C)  total cost of production. 
D)  average total cost of production.

Question 15

Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is

Accepted Answer

A)  -$1,600. 
B)  $1,600. 
C)  $3,200. 
D)  $8,000.

Question 16

Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In long-run equilibrium, market price is determined by

Accepted Answer

A)  the minimum point on the firms' average variable cost curve. 
B)  the minimum point on the firms' average total cost curve. 
C)  the portion of the marginal cost curve below average variable cost. 
D)  a firm's level of sunk costs.

Question 17

Robin owns a horse stables and riding academy and gives riding lessons for children at "pony camp." Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $200 per child. In order to maximize profits, Robin should

Accepted Answer

A)  give riding lessons to more than 20 children per month. 
B)  give riding lessons to fewer than 20 children per month. 
C)  continue to give riding lessons to 20 children per month. 
D)  We do not have enough information to answer the question.

Question 18

If a competitive firm is currently producing a level of output at which profit is not maximized, then it must be true that

Accepted Answer

A)  marginal revenue exceeds marginal cost. 
B)  marginal cost exceeds marginal revenue. 
C)  total cost exceeds total revenue. 
D)  None of the above is correct.

Question 19

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

Accepted Answer

A)  total revenue exceeds total cost. 
B)  the price exceeds average total cost. 
C)  average total cost exceeds the price. 
D)  Both a and b are correct.

Question 20

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-2. Which of the four prices corresponds to a firm earning positive economic profits in the short run?

Accepted Answer

A)  Pa 
B)  Pb 
C)  Pc 
D)  Pd

Exam 13: Firms in Competitive Markets

Figure 14-7 -Refer to Figure 14-7. Let Q represent the quantity of output and suppose the price of the good is $125. Then marginal revenue is