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Exam 14: Firms in Competitive Markets

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Question 41

Multiple Choice

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Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. If the market price is Pb, in the short run the firm will earn

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) All of the above
F) A) and D)

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Question 42

Multiple Choice

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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

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 D)
F) A) and B)

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Question 43

Multiple Choice

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Scenario 14-4 The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $24.50. • When the firm produces and sells 151 units of output, its average total cost is $24.55. -Refer to Scenario 14-4. Suppose the firm is producing 150 units of output and its fixed cost is $975. Then its average variable cost amounts to

Which of the following could be used to calculate the profit for a firm?

A seller in a competitive market can

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. The marginal cost of producing the 4th unit is

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.

You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $6 value on reading a book.

When firms in a competitive market have different costs, it is likely that

Table 14-13 Diana's Dress Emporium -Refer to Table 14-13. In order to maximize profits, how many units should Diana's Dress Emporium produce?

Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. -Refer to Table 14-14. What is the marginal revenue of the 4th unit?

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

When firms in a perfectly competitive market face the same costs, in the long run they must be operating

Suppose a firm is considering producing zero units of output. We call this shutting down in the short run and exiting an industry in the long run.

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the short run and shutting down?

If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market, then the individual farmer's elasticity of demand

"The water that comes out of your faucets at home is not supplied by a competitive firm." Explain why this statement is correct.

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, the Brookside Racquet Club should

A profit-maximizing competitive firm is earning a profit of $24,000. Its marginal cost is $17 and its average total cost is $13. How many units of output is the firm producing and selling?

In the long run, each firm in a competitive industry earns