Question 1

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 2

If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then

Accepted Answer

A)  its total cost is more than $9,000. 
B)  its marginal revenue is less than $10. 
C)  its average total cost is less than $10. 
D)  the firm cannot be a competitive firm because competitive firms cannot earn positive profits.

Question 3

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 4

Willie's Wading Adventures sells hip waders for fishing and duck hunting in a perfectly competitive market. If hip waders sell for $100 each and average total cost per unit is $95 at the profit-maximizing output level, then in the long run

Accepted Answer

A)  more firms will enter the market. 
B)  some firms will exit from the market. 
C)  the equilibrium price per unit will rise. 
D)  average total costs will fall.

Question 5

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 6

For a firm in a competitive market, an increase in the quantity produced by the firm will result in

Accepted Answer

A)  a decrease in the product's market price. 
B)  an increase in the product's market price. 
C)  no change in the product's market price. 
D)  either an increase or no change in the product's market price depending on the number of firms in the market.

Question 7

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 Pa, 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 8

If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then

Accepted Answer

A)  a one-unit increase in output will increase the firm's profit. 
B)  a one-unit decrease in output will increase the firm's profit. 
C)  total revenue exceeds total cost. 
D)  total cost exceeds total revenue.

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. What is Victor's opportunity costs of operating his new business?

Accepted Answer

A)  $25,000 
B)  $75,000 
C)  $100,000 
D)  $175,000

Question 10

When economists refer to a production cost that has already been committed and cannot be recovered, they use the term

Accepted Answer

A)  implicit cost. 
B)  explicit cost. 
C)  variable cost. 
D)  sunk cost.

Question 11

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 12

A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost but greater than the firm's average fixed cost.

Accepted Answer

A) True 
 B)False

Question 13

A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

Accepted Answer

A) True 
 B)False

Question 14

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-5. When market price is P7, a profit-maximizing firm's short-run profits can be represented by the area

Accepted Answer

A)  P7 × Q5. 
B)  P7 × Q3. 
C)  (P7 - P5) × Q3. 
D)  We are unable to determine the firm's profits because the quantity that the firm would produce is not labeled on the graph.

Question 15

When price is greater than marginal cost for a firm in a competitive market,

Accepted Answer

A)  marginal cost must be falling. 
B)  the firm must be minimizing its losses. 
C)  there are opportunities to increase profit by increasing production. 
D)  the firm should decrease output to maximize profit.

Question 16

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 17

A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  total revenue exceeds total cost. 
B)  the price exceeds average total cost. 
C)  the firm can earn economic profits. 
D)  All of the above are correct.

Question 19

Which of the following firms is the closest to being a perfectly competitive firm?

Accepted Answer

A)  the New York Yankees 
B)  Apple, Inc. 
C)  DeBeers diamond wholesalers 
D)  a wheat farmer in Kansas

Question 20

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

Accepted Answer

A)  decreases 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)  the fact that a resource used in the production of the good is available only in limited quantities.

Exam 14: Firms in Competitive Markets

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

If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then

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

Willie's Wading Adventures sells hip waders for fishing and duck hunting in a perfectly competitive market. If hip waders sell for $100 each and average total cost per unit is $95 at the profit-maximizing output level, then in the long run

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?

For a firm in a competitive market, an increase in the quantity produced by the firm will result in

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 Pa, in the short run the firm will earn

If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then

When economists refer to a production cost that has already been committed and cannot be recovered, they use the term

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

A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost but greater than the firm's average fixed cost.

A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. When market price is P7, a profit-maximizing firm's short-run profits can be represented by the area

When price is greater than marginal cost for a firm in a competitive market,

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

A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.

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

Which of the following firms is the closest to being a perfectly competitive firm?

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