Question 1

Scenario 14-2
Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, 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 14-2.To maximize its profit,the firm should

Accepted Answer

A)  increase its output.
B)  continue to produce 1,000 units.
C)  decrease its output, but continue to produce.
D)  shut down.E) B) and C)
F) C) and D)

Question 2

When calculating marginal cost,what must the firm know?

Accepted Answer

A)  Sunk cost
B)  Variable cost
C)  Fixed cost
D)  PriceE) B) and C)
F) A) and D)

Question 3

Which of the following expressions is correct for a competitive firm?

Accepted Answer

A)  Profit = (Quantity of output)  x (Price - Average total cost) 
B)  Marginal revenue = (Change in total revenue) /(Quantity of output) 
C)  Average cost = Total variable cost/Quantity of output
D)  Average revenue = (Marginal revenue)  x (Quantity of output) E) B) and C)
F) B) and D)

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Table 14-2
The following table presents cost and revenue information for Soper's Port Vineyard.
 
-Refer to Table 14-2.Consumers are willing to pay $120 per unit of port wine.What is Soper's Port Vineyard's economic profit at their profit maximizing point?

Accepted Answer

A)  $78
B)  $243
C)  $278
D)  $375E) B) and D)
F) None of the above

Question 6

Suppose a firm in a competitive market reduces its output by 20 percent.As a result,the price of its output is likely to

Accepted Answer

A)  increase.
B)  remain unchanged.
C)  decrease by less than 20 percent.
D)  decrease by more than 20 percent.E) All of the above
F) A) and B)

Question 7

In a competitive market the current price is $7,and the typical firm in the market has ATC = $7.50 and AVC = $7.15.

Accepted Answer

A)  In the short run firms will shut down, and in the long run firms will leave the market.
B)  In the short run firms will continue to operate, but in the long run firms will leave the market.
C)  New firms will likely enter this market to capture any remaining economic profits.
D)  In the long run the market will cease to exist.E) None of the above
F) A) and D)

Question 8

A profit-maximizing firm in a competitive market is able to sell its product for $7.At its current level of output,the firm's average total cost is $10.The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units.The firm experiences a

Accepted Answer

A)  profit of more than $27.
B)  profit of exactly $27.
C)  loss of more than $27.
D)  loss of exactly $27.E) A) and D)
F) None of the above

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Figure 14-1
The graph below depicts the cost structure for a firm in a competitive market.
 
-Refer to Figure 14-1.When price falls from P₃ to P₁,the firm finds that

Accepted Answer

A)  fixed cost is higher at a production level of Q₁ than it is at Q₃.
B)  it should produce Q₁ units of output.
C)  it should produce Q₃ units of output.
D)  it should shut down immediately.E) All of the above
F) A) and B)

Question 11

When a resource used in the production of a good sold in a competitive market is available in only limited quantities,the long-run supply curve is likely to be upward sloping.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  price is equal to average variable cost.
B)  marginal revenue is equal to average variable cost.
C)  economic profits are zero.
D)  accounting profits are zero.E) All of the above
F) B) and C)

Question 13

Entry into a market by new firms will

Accepted Answer

A)  increase the supply of the good.
B)  increase profits of existing firms.
C)  increase the price of the good.
D)  raise the marginal cost of producing the good.E) C) and D)
F) B) and C)

Question 14

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 this market,an increase in demand will

Accepted Answer

A)  increase price in the short run, but not in the long run.
B)  increase price in the long run, but not in the short run.
C)  increase price both in the short and the long run.
D)  not affect price in either the short or the long run.E) B) and C)
F) None of the above

Question 15

The competitive firm's short-run supply curve

Accepted Answer

A)  is its marginal revenue curve, but only the portion where marginal revenue exceeds marginal cost.
B)  is its marginal cost curve.
C)  is its marginal cost curve, but only the portion above the minimum of average total cost.
D)  is its marginal cost curve, but only the portion above the minimum of average variable cost.E) B) and C)
F) All of the above

Question 16

The complete description of a competitive firm's supply curve is as follows: 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.E) A) and B)
F) B) and C)

Question 17

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.
C)  typically be more elastic than the short-run supply curve.
D)  be above the competitive firm's efficient scale.E) A) and B)
F) A) and C)

Question 18

In a competitive market,the actions of any single buyer or seller will

Accepted Answer

A)  have a negligible impact on the market price.
B)  have little effect on overall production but will ultimately change final product price.
C)  cause a noticeable change in overall production and a change in final product price.
D)  adversely affect the profitability of more than one firm in the market.E) None of the above
F) B) and C)

Question 19

Suppose that a firm is currently maximizing its short-run profit at an output of 50 units.If the current price is $9,the marginal cost of the 50th unit is $9,and the average cost of producing 50 units is $4,what is the firm's profit?

Accepted Answer

A)  $0
B)  $200
C)  $250
D)  $450E) B) and C)
F) B) and D)

Question 20

One of the defining characteristics of a perfectly competitive market is

Accepted Answer

A)  a small number of sellers.
B)  a large number of buyers and a small number of sellers.
C)  a standardized product.
D)  significant advertising by firms to promote their products.E) B) and C)
F) C) and D)

Exam 14: Firms in Competitive Markets

One of the defining characteristics of a perfectly competitive market is

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Suppose that a firm is currently maximizing its short-run profit at an output of 50 units.If the current price is $9,the marginal cost of the 50th unit is $9,and the average cost of producing 50 units is $4,what is the firm's profit?

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Entry into a market by new firms will

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

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In a competitive market,the actions of any single buyer or seller will

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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 this market,an increase in demand will

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

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In a competitive market the current price is $7,and the typical firm in the market has ATC = $7.50 and AVC = $7.15.

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When calculating marginal cost,what must the firm know?

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

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Table 14-2 The following table presents cost and revenue information for Soper's Port Vineyard. -Refer to Table 14-2.Consumers are willing to pay $120 per unit of port wine.What is Soper's Port Vineyard's economic profit at their profit maximizing point?

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

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Which of the following expressions is correct for a competitive firm?

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Figure 14-1 The graph below depicts the cost structure for a firm in a competitive market. -Refer to Figure 14-1.When price falls from P₃ to P₁,the firm finds that

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A profit-maximizing firm in a competitive market is able to sell its product for $7.At its current level of output,the firm's average total cost is $10.The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units.The firm experiences a

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Scenario 14-2 Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, 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 14-2.To maximize its profit,the firm should

Correct AnswerverifiedShow Answer

Suppose a firm in a competitive market reduces its output by 20 percent.As a result,the price of its output is likely to

Correct AnswerverifiedShow Answer

When a resource used in the production of a good sold in a competitive market is available in only limited quantities,the long-run supply curve is likely to be upward sloping.

Correct AnswerverifiedShow Answer

The competitive firm's short-run supply curve

Correct AnswerverifiedShow Answer

The complete description of a competitive firm's supply curve is as follows: The competitive firm's short-run supply curve is that portion of the

Correct AnswerverifiedShow Answer

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