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Exam 14: Firms in Competitive Markets

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Question 101

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A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $5. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

A) True
B) False

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Question 102

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Scenario 14-2 The information below applies to a competitive firm that sells its output for $45 per unit. • When the firm produces and sells 120 units of output, its average total cost is $23.5. • When the firm produces and sells 121 units of output, its average total cost is $23.65. -Refer to Scenario 14-2. Suppose the firm is currently producing and selling 120 units of output. Should the firm increase its output to 121 units?

A) Yes, because the marginal revenue exceeds the marginal cost.
B) Yes, because the marginal revenue exceeds the average total cost.
C) No, because the marginal cost exceeds the marginal revenue.
D) No, because the average total cost exceeds the marginal revenue.

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

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Question 103

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When new firms enter a perfectly competitive market,

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

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

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: ​ -Refer to Figure 14-1. The firm's short-run supply curve is its marginal cost curve above

A competitive firm's short-run supply curve intersects its average-total-cost curve at the point (Q = 450, P = $22). What is the value of marginal cost at Q = 450?

Who is a price taker in a competitive market?

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

A firm operating in a perfectly competitive industry will continue to operate if it earns zero economic profits because it is likely to be earning positive accounting profits.

A competitive firm is maximizing its profit by selling 150 units of output. The firm's marginal cost is $8 and its average total cost is $6. The firm's profit amounts to __________.

If a firm can influence the market price of the good it sells, then it is said to have __________.

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

For a firm, marginal revenue minus marginal cost is equal to

A popular resort restaurant will maximize profits if it chooses to stay open during the less-crowded "off season" when its total revenues exceed its fixed costs.

A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the short run.

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.

The supply curve of a firm in a competitive market is the average variable cost curve above the minimum of marginal cost.

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

A firm sells 100 units of output and its total revenue is $800. The firm's average revenue amounts to __________.