Question 1

Table 14-13
Diana's Dress Emporium 
-Refer to Table 14-13. In order to maximize profits, how many units should Diana's Dress Emporium produce?

Accepted Answer

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

Question 2

In the short run, if the market price is below the firm's average total cost of production, the firm will always shut down.

Accepted Answer

A) True 
 B)False

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. Let Q represent the quantity of output. Which of the following magnitudes has the same value at Q = 150 and at Q = 151?

Accepted Answer

A)  average fixed cost 
B)  average revenue 
C)  total cost 
D)  total revenue

Question 4

Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-3. The firm will earn positive economic profit if the market price is

Accepted Answer

A)  above $6. 
B)  positive. 
C)  $6. 
D)  There is no price at which the firm earns positive economic profits.

Question 5

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 6

Table 14-1 
-Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will

Accepted Answer

A)  increase by less than $15. 
B)  increase by exactly $15. 
C)  increase by more than $15. 
D)  Total revenue cannot be determined from the information provided.

Question 7

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing

Accepted Answer

A)  to produce the quantity at which average variable cost is minimized. 
B)  to produce the quantity at which average fixed cost is minimized. 
C)  the quantity at which market price is equal to Mr. McDonald's marginal cost of production. 
D)  the quantity at which market price exceeds Mr. McDonald's marginal cost of production by the greatest amount.

Question 8

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

Accepted Answer

A)  total revenue is equal to variable cost. 
B)  total revenue is equal to fixed cost. 
C)  total revenue is equal to total cost. 
D)  profit is maximized.

Question 9

Comparing marginal revenue to marginal cost

Accepted Answer

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

Question 10

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?

Accepted Answer

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

Question 11

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 12

Shrimp Galore, a shrimp harvesting business in the Pacific Northwest, has a 30-year loan on its shrimp harvesting boat. The annual loan payment is $25,000 and the boat has a market (salvage) value that exceeds its outstanding loan balance. Prior to the 2010 shrimp harvesting season, Shrimp Galore's accountant predicted that at expected market prices for shrimp, Shrimp Galore would have a net loss of $75,000 dollars after paying all 2010 expenses (including the annual loan payment). In this case, Shrimp Galore should

Accepted Answer

A)  produce nothing and experience a loss of $25,000. 
B)  produce nothing and experience a loss of $75,000. 
C)  continue to operate because expected profits will rise in the future. 
D)  continue to operate even though it predicts a loss of $75,000.

Question 13

List and describe the characteristics of a perfectly competitive market.

Accepted Answer

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

Question 14

When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit

Accepted Answer

A)  is negative. 
B)  is at least zero. 
C)  is also zero. 
D)  could be positive, negative or zero.

Question 15

The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.

Accepted Answer

A) True 
 B)False

Question 16

The competitive firm's short-run supply curve is its

Accepted Answer

A)  marginal revenue curve, but only the portion where marginal revenue exceeds marginal cost. 
B)  marginal cost curve. 
C)  marginal cost curve, but only the portion above the minimum of average total cost. 
D)  marginal cost curve, but only the portion above the minimum of average variable cost.

Question 17

The long-run supply curve in a competitive market is more elastic than the short-run supply curve.

Accepted Answer

A) True 
 B)False

Question 18

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 Pd, 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 19

The long-run market supply curve in a competitive market will

Accepted Answer

A)  always be horizontal. 
B)  be the portion of the MC that lies above the minimum of AVC for the marginal firm. 
C)  typically be more elastic than the short-run supply curve. 
D)  be above the competitive firm's efficient scale.

Question 20

Suppose that a firm operating in perfectly competitive market sells 200 units of output at a price of $3 each. Which of the following statements is correct?

Accepted Answer

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

Exam 14: Firms in Competitive Markets

Table 14-13 Diana's Dress Emporium -Refer to Table 14-13. In order to maximize profits, how many units should Diana's Dress Emporium produce?

In the short run, if the market price is below the firm's average total cost of production, the firm will always shut down.

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. The firm will earn positive economic profit if the market price is

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?

Table 14-1 -Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

Comparing marginal revenue to marginal cost

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?

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

List and describe the characteristics of a perfectly competitive market.

When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit

The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.

The competitive firm's short-run supply curve is its

The long-run supply curve in a competitive market is more elastic than the short-run supply curve.

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 Pd, in the short run the firm will earn

The long-run market supply curve in a competitive market will

Suppose that a firm operating in perfectly competitive market sells 200 units of output at a price of $3 each. Which of the following statements is correct?