Question 1

Table 14-6
The following table presents cost and revenue information for a firm operating in a competitive industry.
 
-Refer to Table 14-6. What is the average revenue when 4 units are sold?

Accepted Answer

A)  $60 
B)  $120 
C)  $125 
D)  $197

Question 2

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales.
 
-Refer to Table 14-14. At what quantity will Bob maximize his profit?

Accepted Answer

A)  5 units 
B)  6 units 
C)  7 units 
D)  8 units

Question 3

Scenario 14-4
The information below applies to a competitive firm that sells its output for $40 per unit.
• When the firm produces and sells 150 units of output, its average total cost is $24.50.
• When the firm produces and sells 151 units of output, its average total cost is $24.55.
-Refer to Scenario 14-4. Suppose the firm is producing 150 units of output and its fixed cost is $975. Then its variable cost amounts to

Accepted Answer

A)  $2,360.25. 
B)  $2,500.00. 
C)  $2,612.75. 
D)  $2,700.00.

Question 4

When an individual firm in a competitive market decreases its production, it is likely that the market price will rise.

Accepted Answer

A) True 
 B)False

Question 5

Because the goods offered for sale in a competitive market are largely the same,

Accepted Answer

A)  there will be few sellers in the market. 
B)  there will be few buyers in the market. 
C)  only a few buyers will have market power. 
D)  sellers will have little reason to charge less than the going market price.

Question 6

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 7

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 8

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:
 
-Refer to Table 14-11. If the firm is producing 3 units of output, it should produce

Accepted Answer

A)  more units of output because its marginal revenue is greater than its marginal cost. 
B)  fewer units of output because its marginal revenue is less than its marginal cost. 
C)  more units of output because its marginal revenue is less than its marginal cost. 
D)  fewer units of output because its marginal revenue is greater than its marginal cost.

Question 9

Scenario 14-4
Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year.
-Refer to Scenario 14-4. How large would Victor's accounting profits need to be to allow him to attain zero economic profit?

Accepted Answer

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

Question 10

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

Accepted Answer

The answer of Describe the difference between average revenue and...

Question 11

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 12

Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-4. At which price range will the firm continue to operate in the short run but earn negative profits?

Accepted Answer

A)  any price higher than P4 
B)  any price higher than P3 but less than P4 
C)  any price higher than P2 but less than P3 
D)  any price lower than P1

Question 13

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-5. In the short run, if the market price is P4, individual firms in a competitive industry will earn

Accepted Answer

A)  positive profits. 
B)  zero profits. 
C)  losses but will remain in business. 
D)  losses and will shut down.

Question 14

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 15

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 16

Table 14-12

-Refer to Table 14-12. What is Bill's economic profit at the profit-maximizing output level?

Accepted Answer

A)  $25 
B)  $75 
C)  $115 
D)  $225

Question 17

If there is an increase in market demand in a perfectly competitive market, then in the short run

Accepted Answer

A)  there will be no change in the demand curves faced by individual firms in the market. 
B)  the demand curves for firms will shift downward. 
C)  the demand curves for firms will become more elastic. 
D)  profits will rise.

Question 18

List and describe the characteristics of a perfectly competitive market.

Accepted Answer

The answer of List and describe the characteristics of a...

Question 19

Figure 14-12
-Refer to Figure 14-12. If the figure in panel a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market, the figure in panel b) most likely reflects

Accepted Answer

A)  perfectly inelastic long-run market supply. 
B)  perfectly elastic long-run market supply. 
C)  the entry of firms into the industry when some resources used in production are available only in limited quantities. 
D)  the fact that zero profits cannot be sustained in the long run.

Question 20

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.

Exam 13: Firms in Competitive Markets

Table 14-6 The following table presents cost and revenue information for a firm operating in a competitive industry. -Refer to Table 14-6. What is the average revenue when 4 units are sold?

Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. -Refer to Table 14-14. At what quantity will Bob maximize his profit?

When an individual firm in a competitive market decreases its production, it is likely that the market price will rise.

Because the goods offered for sale in a competitive market are largely the same,

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

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

Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11. If the firm is producing 3 units of output, it should produce

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

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 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. At which price range will the firm continue to operate in the short run but earn negative profits?

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. In the short run, if the market price is P4, individual firms in a competitive industry will earn

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

Table 14-12 -Refer to Table 14-12. What is Bill's economic profit at the profit-maximizing output level?

If there is an increase in market demand in a perfectly competitive market, then in the short run

List and describe the characteristics of a perfectly competitive market.

Figure 14-12 -Refer to Figure 14-12. If the figure in panel a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market, the figure in panel b) most likely reflects

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