Question 1

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 negative economic profits in the short run but trying to remain open?

Accepted Answer

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

Question 2

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 3

If your local gasoline station raised its price by 20 percent, its sales of gasoline would decrease substantially because your local gas station

Accepted Answer

A)  has little or no market power. 
B)  is small relative to the size of the gasoline market. 
C)  is a competitive firm. 
D)  All of the above are correct.

Question 4

In the long run, each firm in a competitive industry earns

Accepted Answer

A)  zero accounting profits. 
B)  zero economic profits. 
C)  positive economic profits. 
D)  positive, negative, or zero economic profits.

Question 5

Figure 14-11 
-Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were four identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve?

Accepted Answer

A)  A only 
B)  A and C only 
C)  B only 
D)  B and D only

Question 6

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $6, and is earning $240 economic profit in the short run. What is the current market price?

Accepted Answer

A)  $0 
B)  $6 
C)  $10 
D)  $12

Question 7

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. If at a market price of $1.75, 52,500 units of output are supplied to this market, how many identical firms are participating in this market?

Accepted Answer

A)  75 
B)  100 
C)  250 
D)  300

Question 8

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

Accepted Answer

A)  increases in production costs resulting from more firms coming into the market. 
B)  a breakdown of the "free entry and exit" feature of competition. 
C)  a breakdown of the "price taking" feature of competition. 
D)  a stable demand curve for the good, that is, a demand curve that never shifts.

Question 9

Suppose you bought a ticket to a football game for $30 and that you place a $35 value on seeing the game. If you lose the ticket, then what is the maximum price you should pay for another ticket? Assume that losing the ticket does not alter how you value it.

Accepted Answer

A)  $5 
B)  $30 
C)  $35 
D)  $65

Question 10

If all firms have the same costs of production, then in long-run equilibrium,

Accepted Answer

A)  price exceeds average total cost for all firms. 
B)  price exceeds marginal cost for all firms. 
C)  some firms may earn positive economic profits. 
D)  all firms have zero economic profits and just cover their opportunity costs.

Question 11

Scenario 14-3
Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20.
-Refer to Scenario 14-3. At Q=499, the firm's total costs equal

Accepted Answer

A)  $5,983. 
B)  $5,988. 
C)  $5,995. 
D)  $5,999.

Question 12

Table 14-12
Bill's Birdhouses 
-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 13

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. When the firm produces 150 units of output, its profit is

Accepted Answer

A)  $2,150.00. 
B)  $2,325.00. 
C)  $3,100.75. 
D)  $3,675.00.

Question 14

If marginal cost exceeds marginal revenue, the firm

Accepted Answer

A)  is most likely to be at a profit-maximizing level of output. 
B)  should increase the level of production to maximize its profit. 
C)  should reduce its average fixed cost in order to lower its marginal cost. 
D)  may still be earning a positive accounting profit.

Question 15

Which of the following statements best expresses a firm's profit­maximizing decision rule?

Accepted Answer

A)  If marginal revenue is greater than marginal cost, the firm should increase its output. 
B)  If marginal revenue is less than marginal cost, the firm should shut down in the short run. 
C)  If marginal revenue equals marginal cost, the firm should produce exactly one more unit of output. 
D)  All of the above are correct.

Question 16

Figure 14-7 
-Refer to Figure 14-7. In the short run, the firm's maximum profit (or minimum loss) is the same at which of the following pairs of prices?

Accepted Answer

A)  $65 and $75 
B)  $75 and $85 
C)  $80 and $100 
D)  $125 and $175

Question 17

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 18

A key characteristic of a competitive market is that

Accepted Answer

A)  government antitrust laws regulate competition. 
B)  producers sell nearly identical products. 
C)  firms minimize total costs. 
D)  firms have price setting power.

Question 19

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 Pb, 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 20

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.

Exam 14: Firms in Competitive Markets

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 negative economic profits in the short run but trying to remain open?

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

If your local gasoline station raised its price by 20 percent, its sales of gasoline would decrease substantially because your local gas station

In the long run, each firm in a competitive industry earns

Figure 14-11 -Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were four identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve?

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $6, and is earning $240 economic profit in the short run. What is the current market price?

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

Suppose you bought a ticket to a football game for $30 and that you place a $35 value on seeing the game. If you lose the ticket, then what is the maximum price you should pay for another ticket? Assume that losing the ticket does not alter how you value it.

If all firms have the same costs of production, then in long-run equilibrium,

Scenario 14-3 Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. -Refer to Scenario 14-3. At Q=499, the firm's total costs equal

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

If marginal cost exceeds marginal revenue, the firm

Which of the following statements best expresses a firm's profitmaximizing decision rule?

Figure 14-7 -Refer to Figure 14-7. In the short run, the firm's maximum profit (or minimum loss) is the same at which of the following pairs of prices?

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?

A key characteristic of a competitive market is that

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 Pb, in the short run the firm will earn

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

Exam 14: Firms in Competitive Markets

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 negative economic profits in the short run but trying to remain open?

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

If your local gasoline station raised its price by 20 percent, its sales of gasoline would decrease substantially because your local gas station

In the long run, each firm in a competitive industry earns

Figure 14-11 -Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were four identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve?

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $6, and is earning $240 economic profit in the short run. What is the current market price?

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

Suppose you bought a ticket to a football game for $30 and that you place a $35 value on seeing the game. If you lose the ticket, then what is the maximum price you should pay for another ticket? Assume that losing the ticket does not alter how you value it.

If all firms have the same costs of production, then in long-run equilibrium,

Scenario 14-3 Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. -Refer to Scenario 14-3. At Q=499, the firm's total costs equal

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

If marginal cost exceeds marginal revenue, the firm

Which of the following statements best expresses a firm's profit­maximizing decision rule?

Figure 14-7 -Refer to Figure 14-7. In the short run, the firm's maximum profit (or minimum loss) is the same at which of the following pairs of prices?

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?

A key characteristic of a competitive market is that

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 Pb, in the short run the firm will earn

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

Which of the following statements best expresses a firm's profitmaximizing decision rule?