Question 1

For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price.

Accepted Answer

A) True 
 B)False

Question 2

​Firms operating in a perfectly competitive market have an incentive to advertise their products since this will increase the demand for their products.

Accepted Answer

A) True 
 B)False

Question 3

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-6. Firms will shut down in the short run if the market price

Accepted Answer

A)  exceeds P3.
B)  is less than P1.
C)  is greater than P1 but less than P3.
D)  exceeds P2.E) B) and D)
F) A) and C)

Question 4

Free entry means that

Accepted Answer

A)  the government pays any entry costs for individual firms.
B)  government-funded research lowers the costs of patents and other barriers to entry.
C)  a firm's marginal cost is zero.
D)  no legal barriers prevent a firm from entering an industry.E) A) and C)
F) B) and D)

Question 5

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.E) A) and B)
F) All of the above

Question 6

A firm's marginal cost has a minimum value of $80, its average variable cost has a minimum value of $90, and its average total cost has a minimum value of $100. Then the firm will shut down in the short run once the price of its product falls below

Accepted Answer

A)  $100.
B)  $90.
C)  $80.
D)  $40.E) A) and B)
F) A) and C)

Question 7

Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-4. The firm will earn positive economic profits if the price is (i) 
P4) 
(ii) 
P3) 
(iii) 
P2) 
(iv) 
P1)

Accepted Answer

A)  (i)  only
B)  (i)  or (ii)  only
C)  (i) , (ii) , or (iii)  only
D)  (i) , (ii) , (iii) , and (iv) E) A) and B)
F) A) and C)

Question 8

Figure 14-10
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 14-10. If there are 700 identical firms in this market, what is the value of Q1?

Accepted Answer

A)  140,000
B)  210,000
C)  280,000
D)  420,000E) A) and C)
F) A) and D)

Question 9

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, 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.E) B) and D)
F) A) and B)

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

A firm operating in a perfectly competitive industry will continue to operate if it earns zero economic profits because it is likely to be earning positive accounting profits.

Accepted Answer

A) True 
 B)False

Question 12

For a firm, marginal revenue minus marginal cost is equal to

Accepted Answer

A)  profit.
B)  average total cost.
C)  change in profit.
D)  change in average revenue.E) B) and C)
F) A) and D)

Question 13

Profit-maximizing firms enter a competitive market when existing firms in that market have

Accepted Answer

A)  total revenues that exceed fixed costs.
B)  total revenues that exceed total variable costs.
C)  average total costs that exceed average revenue.
D)  average total costs less than market price.E) A) and C)
F) None of the above

Question 14

Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect

Accepted Answer

A)  new firms to enter the market.
B)  the market price to rise.
C)  its profits to rise.
D)  Both b and c are correct.E) A) and B)
F) A) and C)

Question 15

A popular resort restaurant will maximize profits if it chooses to stay open during the less-crowded "off season" when its total revenues exceed its fixed costs.

Accepted Answer

A) True 
 B)False

Question 16

When managers of firms in a competitive market observe falling profits, they may infer that the market is experiencing

Accepted Answer

A)  a violation of conventional market forces.
B)  over-investment.
C)  the entry of new firms.
D)  too few firms in the market.E) A) and C)
F) B) and C)

Question 17

A firm's marginal cost has a minimum value of $4, its average variable cost has a minimum value of $6, and its average total cost has a minimum value of $7. Then the firm will shut down in the short run once the price of its product falls below

Accepted Answer

A)  $7.
B)  $6.
C)  $4.
D)  We do not have enough information to answer the question.E) A) and C)
F) A) and B)

Question 18

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

Accepted Answer

A)  $0
B)  $72.75
C)  $120
D)  $502E) B) and C)
F) None of the above

Question 19

Figure 14-7 
-Refer to Figure 14-7. When the price of the good is $175, the firm's maximum profit is

Accepted Answer

A)  $16,500.
B)  $20,375.
C)  $25,750.
D)  $90,125.E) All of the above
F) B) and C)

Question 20

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.E) A) and B)
F) B) and D)

Exam 14: Firms in Competitive Markets

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. Firms will shut down in the short run if the market price

Correct Answer
verified

For a firm, marginal revenue minus marginal cost is equal to

Correct Answer
verified

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

Correct Answer
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A firm's marginal cost has a minimum value of $4, its average variable cost has a minimum value of $6, and its average total cost has a minimum value of $7. Then the firm will shut down in the short run once the price of its product falls below

Correct Answer
verified

A popular resort restaurant will maximize profits if it chooses to stay open during the less-crowded "off season" when its total revenues exceed its fixed costs.

Correct Answer
verified

For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price.

Correct Answer
verified

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. The firm will earn positive economic profits if the price is (i) P4) (ii) P3) (iii) P2) (iv) P1)

Correct Answer
verified

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

Correct Answer
verified

Free entry means that

Correct Answer
verified

Profit-maximizing firms enter a competitive market when existing firms in that market have

Correct Answer
verified

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.

Correct Answer
verified

Firms operating in a perfectly competitive market have an incentive to advertise their products since this will increase the demand for their products.

Correct Answer
verified

Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect

Correct Answer
verified

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

Correct Answer
verified

When managers of firms in a competitive market observe falling profits, they may infer that the market is experiencing

Correct Answer
verified

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

Correct Answer
verified

A firm operating in a perfectly competitive industry will continue to operate if it earns zero economic profits because it is likely to be earning positive accounting profits.

Correct Answer
verified

Correct Answer
verified

Figure 14-7 -Refer to Figure 14-7. When the price of the good is $175, the firm's maximum profit is

Correct Answer
verified

A firm's marginal cost has a minimum value of $80, its average variable cost has a minimum value of $90, and its average total cost has a minimum value of $100. Then the firm will shut down in the short run once the price of its product falls below

Correct Answer
verified

Exam 14: Firms in Competitive Markets

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. Firms will shut down in the short run if the market price

Correct AnswerverifiedShow Answer

For a firm, marginal revenue minus marginal cost is equal to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A firm's marginal cost has a minimum value of $4, its average variable cost has a minimum value of $6, and its average total cost has a minimum value of $7. Then the firm will shut down in the short run once the price of its product falls below

Correct AnswerverifiedShow Answer

A popular resort restaurant will maximize profits if it chooses to stay open during the less-crowded "off season" when its total revenues exceed its fixed costs.

Correct AnswerverifiedShow Answer

For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price.

Correct AnswerverifiedShow Answer

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. The firm will earn positive economic profits if the price is (i) P4) (ii) P3) (iii) P2) (iv) P1)

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Free entry means that

Correct AnswerverifiedShow Answer

Profit-maximizing firms enter a competitive market when existing firms in that market have

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

​Firms operating in a perfectly competitive market have an incentive to advertise their products since this will increase the demand for their products.

Correct AnswerverifiedShow Answer

Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When managers of firms in a competitive market observe falling profits, they may infer that the market is experiencing

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A firm operating in a perfectly competitive industry will continue to operate if it earns zero economic profits because it is likely to be earning positive accounting profits.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 14-7 -Refer to Figure 14-7. When the price of the good is $175, the firm's maximum profit is

Correct AnswerverifiedShow Answer

A firm's marginal cost has a minimum value of $80, its average variable cost has a minimum value of $90, and its average total cost has a minimum value of $100. Then the firm will shut down in the short run once the price of its product falls below

Correct AnswerverifiedShow Answer

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Firms operating in a perfectly competitive market have an incentive to advertise their products since this will increase the demand for their products.

Correct Answer
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