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Exam 14: Firms in Competitive Markets

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Question 91

Multiple Choice

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

A) free entry and exit in the market will be violated.
B) the market will no longer be considered competitive.
C) long-run market supply will be downward sloping.
D) some firms will earn positive economic profits in the long run.

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

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Question 92

Multiple Choice

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The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people

A) consider sunk costs.
B) equate prices to the average costs of production.
C) prefer to purchase products from smaller rather than larger firms.
D) think at the margin.

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

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Question 93

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Figure 14-7 -Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 515 units of output, its total revenue is

Which of these types of costs can be ignored when an individual or a firm is making decisions?

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

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

A competitive market begins in a situation of long-run equilibrium. Then, there is a decrease in demand. Describe the process that eventually leads to a new long-run equilibrium.

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. At this new price, if Bob produces and sells the profit-maximizing quantity, how much profit will he earn?

What does it mean for a buyer or seller to be a price taker?

A competitive firm currently produces and sells 7,500 units of output at a price of $2.50 per unit. The firm's average fixed cost is $0.75 and its average total cost is $2.80. In the short run, should the firm continue to operate?

In the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

For a firm in a perfectly competitive market, the price of the good is always

In the short run, there are 500 identical firms in a competitive market. The firms do not use any resources that are available in limited quantities, and each of them has the following cost structure: Which of the following is a point on the long-run supply curve?

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.00 and AVC = $4.50.

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

A competitive firm currently produces and sells 500 units of output. Its total revenue is $6,000; the marginal cost of producing the 500^th unit of output is $14.50; and the average total cost of producing the 500^th unit of output is $9.50. Is the firm maximizing its profit, or should it increase or decrease output in order to increase its profit?

Robin owns a horse stables and riding academy and gives riding lessons for children at "pony camp." Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $250 per child. In order to maximize profits, Robin should

Entry into a market by new firms will increase the

If a firm observes that the price of its product is above average variable cost, it would choose to continue to produce the good in the short run, even if that firm experiences economic losses. ​

In the short run for a particular market, there are 300 firms. Each firm has a marginal cost of $30 when it produces 200 units of output. $30 is above every firm's average variable cost. One point on the market supply curve is