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Exam 14: Firms in Competitive Markets

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Question 51

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When all firms and potential firms in a market have the same cost curves, the long-run equilibrium of a competitive market with free entry and exit will be characterised by firms:

A) operating at efficient scale
B) earning small levels of profit
C) facing the prospect of future losses
D) that band together to raise market prices

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

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Question 52

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The production decisions of perfectly competitive firms follow the principle of economics that states that rational people:

A) consider sunk costs
B) think at the margin
C) equate prices to the average costs of production
D) will eventually leave markets that experience zero profit

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

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Question 53

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Which of the following statements are most likely to be true for the air transportation industry? (i) in the short run, the cost of the airplane is sunk (ii) the opportunity cost of a flight is the variable cost (iii) as long as total revenue exceeds fixed cost, the airlines should continue operating

Because the goods offered for sale in a competitive market are largely the same:

The reason why hotels in Cairns operated at a loss rather than shut down when tourism declined sharply is:

At the current level of output, a profit-maximising firm in a competitive market earns average revenue of $20 and has an average total cost of $17. Suppose that the firm's marginal cost curve is equal to its average total cost curve at an output level of 50 units. How much profit is earned by the firm at its current level of output?

A firm in a competitive market produces and sells 500 door knobs at a price of $10 each. It then chooses to increase its output to 1000 door knobs. After the increase in output, its average revenue will:

If a firm was producing an output that was above the marginal revenue = marginal cost point (MR = MC), explain why a reduction in output (Q) would increase its profit.

In calculating accounting profit, accountants normally do not include:

One of the most important determinants of the success of free-market capitalism is:

Explain the role of opportunity costs in differentiating between economic profits and accounting profits.

A firm must be participating in a competitive market in order for average revenue to equal price.

Total profit for a firm is calculated as:

A profit-maximising firm in a competitive market is able to sell its product for $9. At its current level of output, the firm's average total cost is $10. Its marginal cost curve crosses the marginal revenue curve at an output level of 10 units. What is the total loss of this firm?

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

If a business ignores some of its fixed costs as irrelevant to its production decision, this type of cost is termed:

When a firm experiences zero-profit equilibrium, the firm's revenue must be sufficient to cover all opportunity costs.

When marginal revenue equals marginal cost:

When a resource used in the production of a good sold in a competitive market is available in only limited quantities, the long-run supply curve is likely to be upward-sloping.

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market. Use the graph to answer the following question(s) . -Refer to Graph 14-1. When marginal revenue is equal to MC₃, the profit-maximising firm will produce what level of output?