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Exam 14: Firms in Competitive Markets

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Question 161

Multiple Choice

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In a competitive market,

A) no single buyer or seller can influence the price of the product.
B) there are only a small number of sellers.
C) the goods offered by the different sellers are unique.
D) accounting profit is driven to zero as firms freely enter and exit the market.

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

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Question 162

Multiple Choice

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Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has earned $4,500 in monthly revenue. In the short run, Susan should

A) shut down her business, and in the long run she should exit the industry.
B) continue to operate her business, but in the long run she should exit the industry.
C) continue to operate her business, but in the long run she will probably face competition from newly entering firms.
D) continue to operate her business, and she is also in long-run equilibrium.

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

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Question 163

Multiple Choice

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Which of the following characteristics of competitive markets is necessary for firms to be price takers? (i) There are many sellers. (ii) Firms can freely enter or exit the market. (iii) Goods offered for sale are largely the same.

Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8. What would be the firm's marginal revenue if it instead produced and sold 4 units of output?

Figure 14-14 -Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b) and that panel (a) illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is correct?

Scenario 14-4 The information below applies to a competitive firm that sells its output for $40 per unit. -When the firm produces and sells 150 units of output, its average total cost is $24.50. -When the firm produces and sells 151 units of output, its average total cost is $24.55. -Refer to Scenario 14-4. When the firm produces 150 units of output, its profit is

For a particular competitive firm, the minimum value of average variable cost (AVC) is $12 and is reached when 200 units of output are produced. For the same firm, the minimum value of average total cost (ATC) is $15 and is reached when 230 units of output are produced. Which of the following statements is correct?

If identical firms that remain in a competitive market over the long run make zero economic profit, why do these firms choose to remain in the market?

List and describe the characteristics of a perfectly competitive market.

Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3. (ii) Average revenue equals $100. (iii) Total revenue equals $300.

News reports from the western United States occasionally report incidents of cattle ranchers slaughtering a large number of newborn calves and burying them in mass graves rather than transporting them to markets. Assuming that this is rational behavior by profit-maximizing "firms," explain what economic factors may influence such behavior.

Table 14-6 The following table presents cost and revenue information for a firm operating in a competitive industry. -Refer to Table 14-6. What is the total revenue from selling 7 units?

Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At her profit-maximizing level of output, her average total cost of production is $7.00, and her average variable cost of production is $6.00. Which of the following statements about Mrs. Smith's firm is correct?

In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the marginal cost of the 5th unit?

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

In order to maximize profits in the short run, a firm should produce where

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. -Refer to Table 14-14. What is the marginal revenue of the 4th unit?

Why does a firm in a competitive industry charge the market price?