Question 1

In a perfectly competitive market,when will the process of entry and exit end for firms in the market

Accepted Answer

A)  when price is equal to average variable cost
B)  when marginal revenue is equal to average variable cost
C)  when economic profits are zero
D)  when marginal revenue equals zeroE) C) and D)
F) A) and B)

Question 2

For any given price,a firm in a competitive market will maximize profit by selecting the level of output where price intersects which curve

Accepted Answer

A)  average-total-cost curve
B)  average-variable-cost curve
C)  marginal-cost curve
D)  marginal-revenue curveE) A) and B)
F) A) and C)

Question 3

If a firm in a perfectly competitive market doubles the number of units of output sold,what will happen to total revenue

Accepted Answer

A)  It will less than double.
B)  It will exactly double.
C)  It will more than double.
D)  It will increase, but by an unpredictable amount.E) A) and B)
F) A) and C)

Question 4

For a farmer facing a long-run decision of whether to exit the market or not,the cost of her land is not considered to be sunk.

Accepted Answer

A) True 
 B)False

Question 5

Market demand is given as QD = 120 - 2P.Market supply is given as QS = 2P.Each identical firm has MC = 6Q and ATC = 3Q.What quantity of output will a typical firm produce

Accepted Answer

A)  5
B)  6
C)  16
D)  24E) A) and B)
F) B) and C)

Question 6

When price is greater than marginal cost for a firm in a competitive market,what should the firm do to maximize profit

Accepted Answer

A)  The firm should increase production since its marginal cost is falling.
B)  The firm must be minimizing its losses since its marginal cost is rising.
C)  There are opportunities to increase profit by increasing production.
D)  The firm should decrease output to maximize profit.E) A) and C)
F) None of the above

Question 7

Figure 14-9
 
-Refer to Figure 14-9.If the market starts in equilibrium at point C in panel (b) ,what will a decrease in demand ultimately lead to in the long run

Accepted Answer

A)  more firms in the industry, but lower levels of production for each firm
B)  fewer firms in the market, and lower levels of production for each firm
C)  more firms in the industry, and higher levels of production for each firm
D)  fewer firms in the market, but higher levels of production for each firmE) All of the above
F) A) and D)

Question 8

Market demand is given as QD = 40 - P.Market supply is given as QS = 3P.Each identical firm has MC = 5Q and ATC = 3Q.What quantity of output will a typical firm produce

Accepted Answer

A)  2
B)  4
C)  5
D)  10E) C) and D)
F) None of the above

Question 9

The assumption of free entry and exit is necessary for firms to be price takers in a competitive market.

Accepted Answer

A) True 
 B)False

Question 10

Why is a long-run supply curve flatter than a short-run supply curve

Accepted Answer

A)  Firms can enter and exit a market more easily in the long run than in the short run.
B)  Long-run supply curves are sometimes downward sloping.
C)  Competitive firms have more control over demand in the long run.
D)  Firms in a competitive market face economies of scales in the long run.E) A) and B)
F) A) and C)

Question 11

Suppose that in 2015,farmers in western Canada slaughtered 10,000 sheep and buried them in large open pits rather than truck them to the market to be sold.What would most likely explain this behaviour

Accepted Answer

A)  farmers making a shut-down decision to save the variable cost of transporting sheep to a slaughter house
B)  farmers making an exit decision to recover the fixed cost of raising the sheep
C)  the rising marginal cost of producing sheep
D)  irrational behaviour of farmersE) B) and C)
F) All of the above

Question 12

A certain competitive firm sells its output for $20 per unit.The 50th unit of output that the firm produces has a marginal cost of $22.What does the production of the 50th unit of output do

Accepted Answer

A)  It increases the firm's total cost by $2.
B)  Itincreases the firm's total revenue by $2.
C)  It decreases the firm's profit by $22.
D)  Itincreases the firm's total revenue by $20.E) All of the above
F) C) and D)

Question 13

What happens if a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue

Accepted Answer

A)  Average revenue exceeds marginal cost.
B)  The firm is earning a positive profit.
C)  A one-unit decrease in output would increase the firm's profit.
D)  The firm must lower marginal costs.E) A) and B)
F) All of the above

Question 14

A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run.

Accepted Answer

A) True 
 B)False

Question 15

When individual firms in competitive markets increase their production,it is likely that the market price will fall.

Accepted Answer

A) True 
 B)False

Question 16

Scenario 14-1
Assume a certain firm is producing 1000 units of output (so Q = 1000) .At Q = 1000, the firm's marginal cost equals $15 and its average total cost equals $11.The firm sells its output for $12 per unit.
-Refer to Scenario 14-1.At Q = 999,what is the firm's profit

Accepted Answer

A)  $993
B)  $997
C)  $1003
D)  $1007E) A) and D)
F) B) and D)

Question 17

Which production decision is a profit-maximizing firm in a competitive market most likely to take when price falls below the minimum of average variable cost

Accepted Answer

A)  The firm will continue to produce to attempt to pay fixed costs.
B)  The firm will immediately stop production to minimize its losses.
C)  The firm will stop production as soon as it is able to pay its sunk costs.
D)  The firm will continue to produce in the short run but will likely exit the market in the long run.E) C) and D)
F) B) and D)

Question 18

Because nothing can be done about sunk costs,they are irrelevant to decisions about business strategy.

Accepted Answer

A) True 
 B)False

Question 19

A firm must be participating in a competitive market for average revenue to equal price.

Accepted Answer

A) True 
 B)False

Question 20

What is one consideration that applies to the analysis of a market over the long run but not to the analysis over the short run

Accepted Answer

A)  changes in the price of the product
B)  changes in firms' profits
C)  changes in the numbers of firms in the market
D)  changes in firms' cost structuresE) A) and D)
F) C) and D)

Exam 14: Firms in Competitive Markets

Which production decision is a profit-maximizing firm in a competitive market most likely to take when price falls below the minimum of average variable cost

Correct AnswerverifiedShow Answer

For a farmer facing a long-run decision of whether to exit the market or not,the cost of her land is not considered to be sunk.

Correct AnswerverifiedShow Answer

What happens if a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue

Correct AnswerverifiedShow Answer

A certain competitive firm sells its output for $20 per unit.The 50th unit of output that the firm produces has a marginal cost of $22.What does the production of the 50th unit of output do

Correct AnswerverifiedShow Answer

When individual firms in competitive markets increase their production,it is likely that the market price will fall.

Correct AnswerverifiedShow Answer

Because nothing can be done about sunk costs,they are irrelevant to decisions about business strategy.

Correct AnswerverifiedShow Answer

In a perfectly competitive market,when will the process of entry and exit end for firms in the market

Correct AnswerverifiedShow Answer

A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run.

Correct AnswerverifiedShow Answer

Why is a long-run supply curve flatter than a short-run supply curve

Correct AnswerverifiedShow Answer

When price is greater than marginal cost for a firm in a competitive market,what should the firm do to maximize profit

Correct AnswerverifiedShow Answer

For any given price,a firm in a competitive market will maximize profit by selecting the level of output where price intersects which curve

Correct AnswerverifiedShow Answer

Figure 14-9 -Refer to Figure 14-9.If the market starts in equilibrium at point C in panel (b) ,what will a decrease in demand ultimately lead to in the long run

Correct AnswerverifiedShow Answer

Market demand is given as QD = 40 - P.Market supply is given as QS = 3P.Each identical firm has MC = 5Q and ATC = 3Q.What quantity of output will a typical firm produce

Correct AnswerverifiedShow Answer

What is one consideration that applies to the analysis of a market over the long run but not to the analysis over the short run

Correct AnswerverifiedShow Answer

Market demand is given as QD = 120 - 2P.Market supply is given as QS = 2P.Each identical firm has MC = 6Q and ATC = 3Q.What quantity of output will a typical firm produce

Correct AnswerverifiedShow Answer

A firm must be participating in a competitive market for average revenue to equal price.

Correct AnswerverifiedShow Answer

The assumption of free entry and exit is necessary for firms to be price takers in a competitive market.

Correct AnswerverifiedShow Answer

If a firm in a perfectly competitive market doubles the number of units of output sold,what will happen to total revenue

Correct AnswerverifiedShow Answer

Scenario 14-1 Assume a certain firm is producing 1000 units of output (so Q = 1000) .At Q = 1000, the firm's marginal cost equals $15 and its average total cost equals $11.The firm sells its output for $12 per unit. -Refer to Scenario 14-1.At Q = 999,what is the firm's profit

Correct AnswerverifiedShow Answer

Suppose that in 2015,farmers in western Canada slaughtered 10,000 sheep and buried them in large open pits rather than truck them to the market to be sold.What would most likely explain this behaviour

Correct AnswerverifiedShow Answer

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Market demand is given as Q_D= 40 - P.Market supply is given as Q_S= 3P.Each identical firm has MC = 5Q and ATC = 3Q.What quantity of output will a typical firm produce

Correct Answer
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Market demand is given as Q_D= 120 - 2P.Market supply is given as Q_S= 2P.Each identical firm has MC = 6Q and ATC = 3Q.What quantity of output will a typical firm produce

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