Question 1

If some resources used in the production of a good are only available in limited quantities, then the long run market supply curve will be perfectly elastic.

Accepted Answer

A) True 
 B)False

Question 2

The firm will make the most profits if it produces the quantity of output at which

Accepted Answer

A)   marginal cost equals average cost.
B)   profit per unit is greatest.
C)   marginal revenue equals total revenue.
D)   marginal revenue equals marginal cost.E) A) and B)
F) A) and C)

Question 3

A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

Accepted Answer

A) True 
 B)False

Question 4

Table 14-12
Bill's Birdhouses 
-Refer to Table 14-12. What is the marginal revenue from selling the 5th unit?

Accepted Answer

A)   $12
B)   $68
C)   $80
D)   $480E) C) and D)
F) A) and D)

Question 5

Jose's restaurant operates in a perfectly competitive market. At the point where marginal cost equals marginal revenue, ATC = $20, AVC = $15, and the price per unit is $10. In this situation,

Accepted Answer

A)   Jose's restaurant is earning a positive economic profit.
B)   Jose's restaurant should shut down immediately.
C)   Jose's restaurant is losing money in the short run but should continue to operate.
D)   the market price will rise in the short run to increase profits.E) B) and C)
F) C) and D)

Question 6

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

Accepted Answer

A)   more firms in the industry but lower levels of output for each firm.
B)   fewer firms in the market.
C)   a new long-run equilibrium at point X in panel (b) .
D)   lower prices once the new long-run equilibrium is reached.E) B) and C)
F) A) and D)

Question 7

A long-run supply curve is flatter than a short-run supply curve because

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 identical cost structures.E) C) and D)
F) A) and B)

Question 8

Table 14-6
The following table presents cost and revenue information for a firm operating in a competitive industry. 
-Refer to Table 14-6. What is the total revenue from selling 4 units?

Accepted Answer

A)   $120
B)   $257
C)   $317
D)   $480E) B) and D)
F) A) and D)

Question 9

Table 14-3
The table represents a demand curve faced by a firm in a competitive market. 
-Refer to Table 14-3. For this firm, the marginal revenue is

Accepted Answer

A)   $39.
B)   $26.
C)   $13.
D)   $0.E) A) and B)
F) A) and C)

Question 10

If a competitive firm is selling 500 units of its product at a price of $8 per unit and earning a positive profit, then

Accepted Answer

A)   its average revenue is greater than $8.
B)   its marginal revenue is less than $8.
C)   its total cost is less than $4,000.
D)   All of the above are correct.E) All of the above
F) B) and D)

Question 11

Figure 14-11 
-Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were eight 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 onlyE) B) and C)
F) C) and D)

Question 12

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-5. In the short run,if the market price is higher than P4 but less than P6, individual firms in a competitive industry will earn

Accepted Answer

A)   positive profits.
B)   zero profits.
C)   losses but will remain in business.
D)   losses and will shut down.E) A) and C)
F) B) and C)

Question 13

In a long-run equilibrium, the marginal firm has

Accepted Answer

A)   price equal to minimum marginal cost.
B)   total revenue equal to total cost.
C)   accounting profit equal to zero.
D)   All of the above are correct.E) A) and D)
F) All of the above

Question 14

In the long-run equilibrium of a market with free entry and exit, marginal firms are operating

Accepted Answer

A)   at the point where average variable cost equals marginal cost.
B)   at the minimum point on their marginal cost curves.
C)   at their efficient scale.
D)   where accounting profit is zero.E) A) and C)
F) A) and B)

Question 15

In the long run, a profit-maximizing firm will choose to exit a market when

Accepted Answer

A)   average fixed cost is falling.
B)   variable costs exceed sunk costs.
C)   marginal cost exceeds marginal revenue at the current level of production.
D)   total revenue is less than total cost.E) C) and D)
F) A) and B)

Question 16

Land of Many Lakes (LML)  sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not choose the

Accepted Answer

A)   quantity of butter to produce.
B)   price at which it sells its butter.
C)   profits it earns.
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 17

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves: 
-Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run?

Accepted Answer

A)   Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry.
B)   Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry.
C)   Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry.
D)   Because the price is below the firm's average variable costs, the firms will shut down.E) B) and D)
F) C) and D)

Question 18

Which of the following represents the firm's short-run condition for shutting down?

Accepted Answer

A)   shut down if TR 
B)   shut down if TR 
C)   shut down if P 
D)   shut down if TR < VCE) A) and B)
F) None of the above

Question 19

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs: 
-Refer to Table 14-11. The marginal revenue from producing the 3rd unit equals

Accepted Answer

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

Question 20

Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At her profit-maximizing level of output, her average total cost of production is $7.00, and her average variable cost of production is $6.00. Which of the following statements about Mrs. Smith's firm is correct?

Accepted Answer

A)   Mrs. Smith is earning a loss and should shut down in the short run.
B)   Mrs. Smith is earning a loss but should continue to operate in the short run.
C)   Mrs. Smith is earning a profit since the price is above the average variable cost.
D)   Without knowing Mrs. Smith's marginal cost, we cannot determine whether she should stay in business or shut down.E) B) and C)
F) A) and B)

Exam 14: Firms in Competitive Markets

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run?

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A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

Correct AnswerverifiedShow Answer

If a competitive firm is selling 500 units of its product at a price of $8 per unit and earning a positive profit, then

Correct AnswerverifiedShow Answer

Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At her profit-maximizing level of output, her average total cost of production is $7.00, and her average variable cost of production is $6.00. Which of the following statements about Mrs. Smith's firm is correct?

Correct AnswerverifiedShow Answer

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not choose the

Correct AnswerverifiedShow Answer

Table 14-6 The following table presents cost and revenue information for a firm operating in a competitive industry. -Refer to Table 14-6. What is the total revenue from selling 4 units?

Correct AnswerverifiedShow Answer

Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11. The marginal revenue from producing the 3rd unit equals

Correct AnswerverifiedShow Answer

In the long run, a profit-maximizing firm will choose to exit a market when

Correct AnswerverifiedShow Answer

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. In the short run,if the market price is higher than P4 but less than P6, individual firms in a competitive industry will earn

Correct AnswerverifiedShow Answer

The firm will make the most profits if it produces the quantity of output at which

Correct AnswerverifiedShow Answer

Jose's restaurant operates in a perfectly competitive market. At the point where marginal cost equals marginal revenue, ATC = $20, AVC = $15, and the price per unit is $10. In this situation,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A long-run supply curve is flatter than a short-run supply curve because

Correct AnswerverifiedShow Answer

Which of the following represents the firm's short-run condition for shutting down?

Correct AnswerverifiedShow Answer

In the long-run equilibrium of a market with free entry and exit, marginal firms are operating

Correct AnswerverifiedShow Answer

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the marginal revenue from selling the 5th unit?

Correct AnswerverifiedShow Answer

Table 14-3 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-3. For this firm, the marginal revenue is

Correct AnswerverifiedShow Answer

If some resources used in the production of a good are only available in limited quantities, then the long run market supply curve will be perfectly elastic.

Correct AnswerverifiedShow Answer

In a long-run equilibrium, the marginal firm has

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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