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Explain the difference between the short run and the long run in terms of the number of firms in a competitive market.

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In the short run, the number o...

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


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) B) and C)
F) A) and C)

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


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) B) and C)
F) B) and D)

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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. 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? A) 10,000 B) 20,000 C) 40,000 D) 80,000 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? A) 10,000 B) 20,000 C) 40,000 D) 80,000 -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?


A) 10,000
B) 20,000
C) 40,000
D) 80,000

E) C) and D)
F) All of the above

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When an individual firm in a competitive market decreases its production, it is likely that the market price will rise.

A) True
B) False

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In a perfectly competitive market,


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) C) and D)
F) B) and D)

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In the long-run equilibrium of a competitive market, the number of firms in the market adjusts until the market demand is satisfied at a price equal to the minimum of


A) average fixed cost for the marginal firm.
B) marginal cost of the marginal firm.
C) average total cost of the marginal firm.
D) average variable cost of the marginal firm.

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

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Cold Duck Airlines flies between Tacoma and Portland. The company leases planes on a year-long contract at a cost that averages $600 per flight. Other costs (fuel, flight attendants, etc.) amount to $550 per flight. Currently, Cold Duck's revenues are $1,000 per flight. All prices and costs are expected to continue at their present levels. If it wants to maximize profit, Cold Duck Airlines should


A) drop the flight immediately.
B) continue the flight.
C) continue flying until the lease expires and then drop the run.
D) drop the flight now but renew the lease if conditions improve.

E) A) and B)
F) B) and D)

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Figure 14-7 Figure 14-7 -Refer to Figure 14-7. When the price of the good is $175, the firm's maximum profit is A) $16,500. B) $20,375. C) $25,750. D) $90,125. -Refer to Figure 14-7. When the price of the good is $175, the firm's maximum profit is


A) $16,500.
B) $20,375.
C) $25,750.
D) $90,125.

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

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If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, we would expect that


A) the demand for products in this industry would increase.
B) the market price of products in this industry would decrease in the short run but not in the long run.
C) the firms in the industry would make a long-run economic profit.
D) competition would force producers to pass the lower production costs on to consumers in the long run.

E) A) and B)
F) B) and D)

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A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its


A) opportunity costs.
B) fixed costs.
C) variable costs.
D) total costs.

E) None of the above
F) A) and D)

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Scenario 14-4 Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year. -Refer to Scenario 14-4. At the end of the first year of operating his new business, Victor's accountant reported an accounting profit of $150,000. What was Victor's economic profit?


A) -$150,000
B) -$50,000
C) -$25,000
D) $25,000

E) A) and C)
F) A) and B)

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Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company's financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger's


A) total revenues equal his total economic costs.
B) marginal revenue exceeds his total cost.
C) marginal revenue exceeds his marginal cost.
D) marginal cost exceeds his marginal revenue.

E) All of the above
F) None of the above

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A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will


A) fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
B) fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
C) fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
D) not fall in the short run because firms will exit to maintain the price.

E) A) and C)
F) A) and D)

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When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch, which of the following principles is (are) best demonstrated? (i) Fixed costs are sunk in the short run. (ii) In the short run, only fixed costs are important to the decision to stay open for lunch. (iii) If revenue exceeds variable cost, the restaurant owner is making a smart decision to remain open for lunch.


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

E) B) and D)
F) A) and D)

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Which of the following is a characteristic of a competitive market?


A) There are many buyers but few sellers.
B) Firms sell differentiated products.
C) There are many barriers to entry.
D) Buyers and sellers are price takers.

E) All of the above
F) C) and D)

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Table 14-13 Table 14-13 -Refer to Table 14-13. What is the marginal cost of the 1st unit? A) $50 B) $75 C) $80 D) $150 -Refer to Table 14-13. What is the marginal cost of the 1st unit?


A) $50
B) $75
C) $80
D) $150

E) B) and C)
F) None of the above

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Table 14-12 Table 14-12 -Refer to Table 14-12. What is the marginal revenue from selling the 5th unit? A) $12 B) $68 C) $80 D) $480 -Refer to Table 14-12. What is the marginal revenue from selling the 5th unit?


A) $12
B) $68
C) $80
D) $480

E) A) and B)
F) A) and C)

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In the long-run equilibrium of a market with free entry and exit, if all firms have the same cost structure, then


A) marginal cost exceeds average total cost.
B) the price of the good exceeds average total cost.
C) average total cost exceeds the price of the good.
D) firms are operating at their efficient scale.

E) None of the above
F) B) and D)

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A competitive firm is producing 1,000 units of output with average total cost equal to $35 and marginal cost equal to $40. Can the market in which this firm operates be in a long-run equilibrium? Briefly explain.

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No, the market cannot be in a ...

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