Question 1

When firms are said to be price takers, it implies that if a firm raises its price,

Accepted Answer

A)   buyers will go elsewhere.
B)   buyers will pay the higher price in the short run.
C)   competitors will also raise their prices.
D)   firms in the industry will exercise market power.E) A) and D)
F) B) and C)

Question 2

The stable, long-run equilibrium in a competitive market occurs when the market price equals the lowest point on a firm's average total cost curve.

Accepted Answer

A) True 
 B)False

Question 3

A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its

Accepted Answer

A)   quantity of output is higher than it was previously.
B)   average total cost is higher than it was previously.
C)   marginal revenue is higher than it was previously.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 4

If a firm notices that its average revenue equals the current market price, that firm must be participating in a competitive market.

Accepted Answer

A) True 
 B)False

Question 5

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 B)
F) A) and C)

Question 6

All firms maximize profits by producing an output level where marginal revenue equals marginal cost; for firms operating in perfectly competitive industries, maximizing profits also means producing an output level where price equals marginal cost.

Accepted Answer

A) True 
 B)False

Question 7

In the short run for a particular market, there are 5,000 firms. Each firm has a marginal cost of $7 when it produces 200 units of output. One point on the market supply curve is

Accepted Answer

A)   quantity = 5,000; price = $7.
B)   quantity = 35,000 price = $35,000.
C)   quantity = 1,000,000, price = $7.
D)   quantity = 1,000,000, price = $35,000.E) All of the above
F) B) and C)

Question 8

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 market equilibrium quantity but will affect market equilibrium price.
C)   affect marginal revenue and average revenue but not price.
D)   adversely affect the profitability of more than one firm in the market.E) A) and B)
F) A) and C)

Question 9

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output

Accepted Answer

A)   is less than 1,000 pounds.
B)   is still 1,000 pounds.
C)   is more than 1,000 pounds.
D)   becomes zero.E) A) and B)
F) B) and D)

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales.
 
-Refer to Table 14-14. Suppose that due to a decrease in the market demand for bread the market price of bread drops to $2.75 per loaf. At this new price, what is Bob's profit­maximizing quantity?

Accepted Answer

A)   5 units
B)   6 units
C)   7 units
D)   8 unitsE) B) and C)
F) A) and D)

Question 12

If your local gasoline station raised its price by 20 percent, its sales of gasoline would decrease substantially because your local gas station

Accepted Answer

A)   has little or no market power.
B)   is small relative to the size of the gasoline market.
C)   is a competitive firm.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 13

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 14

A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price falls to $18, and the firm makes whatever adjustments are necessary to maximize its profit at the now-lower price. Once the firm has adjusted, its

Accepted Answer

A)   quantity of output is lower than it was previously.
B)   average total cost is lower than it was previously.
C)   marginal cost is higher than it was previously.
D)   All of the above are correct.E) A) and C)
F) A) and B)

Question 15

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-5. When market price is P7, a profit-maximizing firm's short-run profits can be represented by the area

Accepted Answer

A)   P7 × Q5.
B)   P7 × Q3.
C)   (P7 - P5)  × Q3.
D)   We are unable to determine the firm's profits because the quantity that the firm would produce is not labeled on the graph.E) A) and D)
F) B) and D)

Question 16

Figure 14-9
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 14-9. If there are 400 identical firms in this market, what level of output will be supplied to the market when price is $2.00?

Accepted Answer

A)   10,000
B)   20,000
C)   40,000
D)   80,000E) A) and C)
F) B) and C)

Question 17

A competitive firm has been selling its output for $10 per unit and has been maximizing its profit. Then, the price rises to $14, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price.Once the firm has adjusted, its

Accepted Answer

A)   marginal revenue is lower than it was previously.
B)   marginal cost is lower than it was previously.
C)   quantity of output is higher than it was previously.
D)   All of the above are correct.E) A) and D)
F) All of the above

Question 18

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 C)
F) All of the above

Question 19

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

Question 20

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

Exam 14: Firms in Competitive Markets

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

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
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A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price falls to $18, and the firm makes whatever adjustments are necessary to maximize its profit at the now-lower price. Once the firm has adjusted, its

Correct Answer
verified

All firms maximize profits by producing an output level where marginal revenue equals marginal cost; for firms operating in perfectly competitive industries, maximizing profits also means producing an output level where price equals marginal cost.

Correct Answer
verified

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output

Correct Answer
verified

If your local gasoline station raised its price by 20 percent, its sales of gasoline would decrease substantially because your local gas station

Correct Answer
verified

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

Correct Answer
verified

A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its

Correct Answer
verified

In the short run for a particular market, there are 5,000 firms. Each firm has a marginal cost of $7 when it produces 200 units of output. One point on the market supply curve is

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. When market price is P7, a profit-maximizing firm's short-run profits can be represented by the area

Correct Answer
verified

When firms are said to be price takers, it implies that if a firm raises its price,

Correct Answer
verified

If a firm notices that its average revenue equals the current market price, that firm must be participating in a competitive market.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

A competitive firm has been selling its output for $10 per unit and has been maximizing its profit. Then, the price rises to $14, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price.Once the firm has adjusted, its

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

The stable, long-run equilibrium in a competitive market occurs when the market price equals the lowest point on a firm's average total cost curve.

Correct Answer
verified

Exam 14: Firms in Competitive Markets

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price falls to $18, and the firm makes whatever adjustments are necessary to maximize its profit at the now-lower price. Once the firm has adjusted, its

Correct AnswerverifiedShow Answer

All firms maximize profits by producing an output level where marginal revenue equals marginal cost; for firms operating in perfectly competitive industries, maximizing profits also means producing an output level where price equals marginal cost.

Correct AnswerverifiedShow Answer

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output

Correct AnswerverifiedShow Answer

If your local gasoline station raised its price by 20 percent, its sales of gasoline would decrease substantially because your local gas station

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its

Correct AnswerverifiedShow Answer

In the short run for a particular market, there are 5,000 firms. Each firm has a marginal cost of $7 when it produces 200 units of output. One point on the market supply curve is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. When market price is P7, a profit-maximizing firm's short-run profits can be represented by the area

Correct AnswerverifiedShow Answer

When firms are said to be price takers, it implies that if a firm raises its price,

Correct AnswerverifiedShow Answer

If a firm notices that its average revenue equals the current market price, that firm must be participating in a competitive market.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A competitive firm has been selling its output for $10 per unit and has been maximizing its profit. Then, the price rises to $14, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price.Once the firm has adjusted, its

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

The stable, long-run equilibrium in a competitive market occurs when the market price equals the lowest point on a firm's average total cost curve.

Correct AnswerverifiedShow Answer

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