Question 1

Which of the following statements is not correct about competitive firms?

Accepted Answer

A)   In a long-run equilibrium,firms must be operating at their efficient scale.
B)   In the short run,the number of firms in an industry may be fixed.
C)   In the long run,the number of firms can adjust to changing market conditions.
D)   In the short run,firms must be operating at a level of output where price equals average variable cost.E) B) and D)
F) B) and C)

Question 2

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) A) and B)
F) None of the above

Question 3

In a perfectly competitive market,

Accepted Answer

A)   no one seller can influence the price of the product.
B)   price exceeds marginal revenue for each unit sold.
C)   average revenue exceeds marginal revenue for each unit sold.
D)   All of the above are correct.E) A) and B)
F) C) and D)

Question 4

In making a short-run profit-maximizing production decision,the firm must consider both fixed and variable cost.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following firms is the closest to being a perfectly competitive firm?

Accepted Answer

A)   a hot dog vendor in New York
B)   Microsoft Corporation
C)   Ford Motor Company
D)   the campus bookstoreE) A) and D)
F) None of the above

Question 6

A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.

Accepted Answer

A) True 
 B)False

Question 7

A firm in a competitive market has the following cost structure:  If the market price is $4,this firm will

Accepted Answer

A)   produce 2 units in the short run and exit in the long run.
B)   produce 3 units in the short run and exit in the long run.
C)   produce 4 units in the short run and exit in the long run.
D)   shut down in the short run and exit in the long run.E) A) and B)
F) B) and C)

Question 8

For an individual firm operating in a competitive market,marginal revenue equals

Accepted Answer

A)   average revenue and the price for all levels of output.
B)   average revenue,which is greater than the price for all levels of output.
C)   average revenue,the price,and marginal cost for all levels of output.
D)   marginal cost,which is greater than average revenue for all levels of output.E) All of the above
F) None of the above

Question 9

Shrimp Galore,a shrimp harvesting business in the Pacific Northwest,has a 30-year loan on its shrimp harvesting boat.The annual loan payment is $25,000 and the boat has a market (salvage) value that exceeds its outstanding loan balance.Prior to the 2010 shrimp harvesting season,Shrimp Galore's accountant predicted that at expected market prices for shrimp,Shrimp Galore would have a net loss of $75,000 dollars after paying all 2010 expenses (including the annual loan payment) .In this case,Shrimp Galore should

Accepted Answer

A)   produce nothing and experience a loss of $25,000.
B)   produce nothing and experience a loss of $75,000.
C)   continue to operate because expected profits will rise in the future.
D)   continue to operate even though it predicts a loss of $75,000.E) A) and D)
F) B) and C)

Question 10

Figure 13-14  
-Refer to Figure 13-14.Assume that the market starts in equilibrium at point A in panel (b) and that panel (a) illustrates the cost curves facing individual firms.Suppose that demand increases from D0 to D1.Which of the following statements is not correct?

Accepted Answer

A)   Point A is a long-run equilibrium point.
B)   Points A,B,and C are short-run equilibria points.
C)   Point B is a long-run equilibrium point.
D)   Point C is a long-run equilibrium point.E) A) and B)
F) None of the above

Question 11

A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as

Accepted Answer

A)   average revenue is greater than average total cost.
B)   average revenue is equal to marginal cost.
C)   marginal cost is greater than average total cost.
D)   price is above or below marginal cost.E) A) and B)
F) A) and C)

Question 12

Consider a firm operating in a competitive market.The firm is producing 40 units of output,has an average total cost of production equal to $5,and is earning $240 economic profit in the short run.What is the current market price?

Accepted Answer

A)   $9
B)   $10
C)   $11
D)   $12E) C) and D)
F) A) and D)

Question 13

The manager of a firm operating in a competitive market can ignore sunk costs when making business decisions.

Accepted Answer

A) True 
 B)False

Question 14

When firms are neither entering nor exiting a perfectly competitive market,

Accepted Answer

A)   total revenue must equal total cost for each firm.
B)   economic profits must be zero.
C)   price must equal the minimum of marginal cost for each firm.
D)   Both a and b are correct.E) B) and D)
F) A) and D)

Question 15

Which of the following industries is most likely to exhibit the characteristic of free entry?

Accepted Answer

A)   nuclear power
B)   municipal water and sewer
C)   dairy farming
D)   airport securityE) B) and D)
F) B) and C)

Question 16

Figure 13-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 13-2.If the market price is P4,in the short run the firm will earn

Accepted Answer

A)   positive economic profits.
B)   negative economic profits but will try to remain open.
C)   negative economic profits and will shut down.
D)   zero economic profits.E) B) and C)
F) A) and B)

Question 17

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 total cost = total variable cost/quantity of output
D)   average revenue = (marginal revenue) x (quantity of output) E) C) and D)
F) B) and D)

Question 18

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales.If the firm increases its output to 200 units,the average revenue of the 200th unit will be

Accepted Answer

A)   less than $12.
B)   more than $12.
C)   $12.
D)   Any of the above may be correct depending on the price elasticity of demand for the product.E) A) and B)
F) None of the above

Question 19

When new firms enter a perfectly competitive market,

Accepted Answer

A)   demand increases.
B)   the short-run market supply curve shifts right.
C)   the short-run market supply curve shifts left.
D)   existing firms will increase prices to keep the new firms from entering.E) A) and B)
F) A) and C)

Question 20

A firm has market power if it can

Accepted Answer

A)   maximize profits.
B)   minimize costs.
C)   influence the market price of the good it sells.
D)   hire as many workers as it needs at the prevailing wage rate.E) A) and C)
F) All of the above

Exam 13: Firms in Competitive Markets

A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.

Correct Answer
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Which of the following firms is the closest to being a perfectly competitive firm?

Correct Answer
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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 Answer
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For an individual firm operating in a competitive market,marginal revenue equals

Correct Answer
verified

Which of the following statements is not correct about competitive firms?

Correct Answer
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The manager of a firm operating in a competitive market can ignore sunk costs when making business decisions.

Correct Answer
verified

A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as

Correct Answer
verified

Figure 13-14 -Refer to Figure 13-14.Assume that the market starts in equilibrium at point A in panel (b) and that panel (a) illustrates the cost curves facing individual firms.Suppose that demand increases from D0 to D1.Which of the following statements is not correct?

Correct Answer
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Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales.If the firm increases its output to 200 units,the average revenue of the 200th unit will be

Correct Answer
verified

Which of the following industries is most likely to exhibit the characteristic of free entry?

Correct Answer
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When new firms enter a perfectly competitive market,

Correct Answer
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A firm has market power if it can

Correct Answer
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In making a short-run profit-maximizing production decision,the firm must consider both fixed and variable cost.

Correct Answer
verified

When firms are neither entering nor exiting a perfectly competitive market,

Correct Answer
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Consider a firm operating in a competitive market.The firm is producing 40 units of output,has an average total cost of production equal to $5,and is earning $240 economic profit in the short run.What is the current market price?

Correct Answer
verified

A firm in a competitive market has the following cost structure: If the market price is $4,this firm will

Correct Answer
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Figure 13-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 13-2.If the market price is P4,in the short run the firm will earn

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

Correct Answer
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Correct Answer
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In a perfectly competitive market,

Correct Answer
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Exam 13: Firms in Competitive Markets

A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.

Correct AnswerverifiedShow Answer

Which of the following firms is the closest to being a perfectly competitive firm?

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

For an individual firm operating in a competitive market,marginal revenue equals

Correct AnswerverifiedShow Answer

Which of the following statements is not correct about competitive firms?

Correct AnswerverifiedShow Answer

The manager of a firm operating in a competitive market can ignore sunk costs when making business decisions.

Correct AnswerverifiedShow Answer

A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as

Correct AnswerverifiedShow Answer

Figure 13-14 -Refer to Figure 13-14.Assume that the market starts in equilibrium at point A in panel (b) and that panel (a) illustrates the cost curves facing individual firms.Suppose that demand increases from D0 to D1.Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales.If the firm increases its output to 200 units,the average revenue of the 200th unit will be

Correct AnswerverifiedShow Answer

Which of the following industries is most likely to exhibit the characteristic of free entry?

Correct AnswerverifiedShow Answer

When new firms enter a perfectly competitive market,

Correct AnswerverifiedShow Answer

A firm has market power if it can

Correct AnswerverifiedShow Answer

In making a short-run profit-maximizing production decision,the firm must consider both fixed and variable cost.

Correct AnswerverifiedShow Answer

When firms are neither entering nor exiting a perfectly competitive market,

Correct AnswerverifiedShow Answer

Consider a firm operating in a competitive market.The firm is producing 40 units of output,has an average total cost of production equal to $5,and is earning $240 economic profit in the short run.What is the current market price?

Correct AnswerverifiedShow Answer

A firm in a competitive market has the following cost structure: If the market price is $4,this firm will

Correct AnswerverifiedShow Answer

Figure 13-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 13-2.If the market price is P4,in the short run the firm will earn

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a perfectly competitive market,

Correct AnswerverifiedShow Answer

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