Question 1

Comparing marginal revenue to marginal cost (i)  reveals the contribution of the last unit of production to total profit.
(ii)  is helpful in making profit-maximizing production decisions.
(iii)  tells a firm whether its fixed costs are too high.

Accepted Answer

A)   (i)  only
B)   (i)  and (ii)  only
C)   (ii)  and (iii)  only
D)   (i)  and (iii)  onlyE) C) and D)
F) A) and B)

Question 2

In a perfectly competitive market, the process of entry and exit will end when firms face

Accepted Answer

A)   marginal revenue equal to long-run average total cost.
B)   total revenue equal to average total cost.
C)   average revenue greater than marginal cost.
D)   accounting profits equal to zero.E) A) and B)
F) A) and D)

Question 3

When fixed costs are ignored because they are irrelevant to a business's production decision, they are called

Accepted Answer

A)   explicit costs.
B)   implicit costs.
C)   sunk costs.
D)   opportunity costs.E) B) and D)
F) None of the above

Question 4

Competitive firms that earn a loss in the short run should

Accepted Answer

A)   shut down if P 
B)   raise their price.
C)   lower their output.
D)   All of the above are correct.E) A) and C)
F) C) and D)

Question 5

Firms in a competitive market are said to be price takers because there are many sellers in the market, and the goods offered by the firms are very similar if not identical.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

1) Some resource used in production may ...

Question 7

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

Accepted Answer

A)   a one-unit increase in output will increase the firm's profit.
B)   a one-unit decrease in output will increase the firm's profit.
C)   total revenue exceeds total cost.
D)   total cost exceeds total revenue.E) B) and D)
F) All of the above

Question 8

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $12.50 at the profit-maximizing output level, then in the long run

Accepted Answer

A)   more firms will enter the market.
B)   some firms will exit from the market.
C)   the equilibrium price per bottle will fall.
D)   average total costs will fall.E) B) and C)
F) A) and C)

Question 9

Figure 14-14
 
-Refer to Figure 14-14. When the market is in long-run equilibrium at point W in panel (b) , the firm represented in panel (a)  will

Accepted Answer

A)   have a zero economic profit.
B)   have a negative accounting profit.
C)   exit the market.
D)   choose to increase production to increase profit.E) None of the above
F) A) and B)

Question 10

A firm that has little ability to influence market prices operates in a

Accepted Answer

A)   competitive market.
B)   strategic market.
C)   thin market.
D)   power market.E) B) and D)
F) A) and C)

Question 11

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

Accepted Answer

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) A) and B)
F) None of the above

Question 12

Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:
 
-Refer to Table 14-9. If the firm produces 3 units of output,

Accepted Answer

A)   marginal cost is $4.
B)   total revenue is greater than variable cost.
C)   marginal revenue is less than marginal cost.
D)   the firm is maximizing profit.E) B) and D)
F) B) and C)

Question 13

When economists refer to a production cost that has already been committed and cannot be recovered, they use the term

Accepted Answer

A)   implicit cost.
B)   explicit cost.
C)   variable cost.
D)   sunk cost.E) A) and D)
F) A) and C)

Question 14

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

Accepted Answer

A)   electricity
B)   satellite radio
C)   mineral mining
D)   tennis shoesE) A) and B)
F) A) and C)

Question 15

Which of the following statements best expresses a firm's profit­maximizing decision rule?

Accepted Answer

A)   If marginal revenue is greater than marginal cost, the firm should increase its output.
B)   If marginal revenue is less than marginal cost, the firm should shut down in the short run.
C)   If marginal revenue equals marginal cost, the firm should produce exactly one more unit of output.
D)   All of the above are correct.E) All of the above
F) A) and D)

Question 16

Suppose a firm in each of the two markets listed below were to increase its price by 25 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

Accepted Answer

A)   restaurants and MP3 players
B)   electricity and natural gas
C)   corn and satellite radio
D)   rice and soybeansE) B) and D)
F) C) and D)

Question 17

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 $100 per child. In order to maximize profits, Robin should

Accepted Answer

A)   give riding lessons to more than 20 children per month.
B)   give riding lessons to fewer than 20 children per month.
C)   continue to give riding lessons to 20 children per month.
D)   We do not have enough information to answer the question.E) None of the above
F) A) and D)

Question 18

In a competitive market with identical firms,

Accepted Answer

A)   an increase in demand in the short run will result in a new price above the minimum of average total cost, allowing firms to earn a positive economic profit in both the short run and the long run.
B)   firms cannot earn positive economic profit in either the short run or long run.
C)   firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping.
D)   free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.E) A) and B)
F) B) and C)

Question 19

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:
 
-Refer to Table 14-11. Marginal revenue equals marginal cost when the firm produces

Accepted Answer

A)   2 units.
B)   3 units.
C)   4 units.
D)   5 units.E) A) and D)
F) None of the above

Question 20

Table 14-15
 
-Refer to Table 14-15. What is the lowest price at which this firm would operate in the short run?

Accepted Answer

A)   $3.
B)   $4.
C)   $5.
D)   $6.E) A) and B)
F) A) and D)

Exam 14: Firms in Competitive Markets

A firm that has little ability to influence market prices operates in a

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

Correct Answer
verified
1) Some resource used in production may ...
View Answer

Figure 14-14 -Refer to Figure 14-14. When the market is in long-run equilibrium at point W in panel (b) , the firm represented in panel (a) will

Correct Answer
verified

When fixed costs are ignored because they are irrelevant to a business's production decision, they are called

Correct Answer
verified

In a perfectly competitive market, the process of entry and exit will end when firms face

Correct Answer
verified

Comparing marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high.

Correct Answer
verified

Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11. Marginal revenue equals marginal cost when the firm produces

Correct Answer
verified

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

Correct Answer
verified

In a competitive market with identical firms,

Correct Answer
verified

Competitive firms that earn a loss in the short run should

Correct Answer
verified

Suppose a firm in each of the two markets listed below were to increase its price by 25 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

Correct Answer
verified

When economists refer to a production cost that has already been committed and cannot be recovered, they use the term

Correct Answer
verified

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

Correct Answer
verified

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. If the firm produces 3 units of output,

Correct Answer
verified

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $12.50 at the profit-maximizing output level, then in the long run

Correct Answer
verified

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

Correct Answer
verified

Table 14-15 -Refer to Table 14-15. What is the lowest price at which this firm would operate in the short run?

Correct Answer
verified

Firms in a competitive market are said to be price takers because there are many sellers in the market, and the goods offered by the firms are very similar if not identical.

Correct Answer
verified

Correct Answer
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Which of the following statements best expresses a firm's profitmaximizing decision rule?

Correct Answer
verified

Exam 14: Firms in Competitive Markets

A firm that has little ability to influence market prices operates in a

Correct AnswerverifiedShow Answer

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

Correct Answerverified1) Some resource used in production may ...View AnswerShow Answer

Figure 14-14 -Refer to Figure 14-14. When the market is in long-run equilibrium at point W in panel (b) , the firm represented in panel (a) will

Correct AnswerverifiedShow Answer

When fixed costs are ignored because they are irrelevant to a business's production decision, they are called

Correct AnswerverifiedShow Answer

In a perfectly competitive market, the process of entry and exit will end when firms face

Correct AnswerverifiedShow Answer

Comparing marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high.

Correct AnswerverifiedShow Answer

Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11. Marginal revenue equals marginal cost when the firm produces

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In a competitive market with identical firms,

Correct AnswerverifiedShow Answer

Competitive firms that earn a loss in the short run should

Correct AnswerverifiedShow Answer

Suppose a firm in each of the two markets listed below were to increase its price by 25 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

Correct AnswerverifiedShow Answer

When economists refer to a production cost that has already been committed and cannot be recovered, they use the term

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. If the firm produces 3 units of output,

Correct AnswerverifiedShow Answer

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $12.50 at the profit-maximizing output level, then in the long run

Correct AnswerverifiedShow Answer

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

Correct AnswerverifiedShow Answer

Table 14-15 -Refer to Table 14-15. What is the lowest price at which this firm would operate in the short run?

Correct AnswerverifiedShow Answer

Firms in a competitive market are said to be price takers because there are many sellers in the market, and the goods offered by the firms are very similar if not identical.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements best expresses a firm's profit­maximizing decision rule?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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1) Some resource used in production may ...
View Answer

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Which of the following statements best expresses a firm's profitmaximizing decision rule?

Correct Answer
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