Question 1

Suppose that a firm operating in perfectly competitive market sells 200 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 $600.
(iii) 
Average revenue exceeds marginal revenue,but we don't know by how much.

Accepted Answer

A)   (i) only
B)   (iii) only
C)   (i) and (ii) only
D)   (i) , (ii) ,and (iii) E) None of the above
F) All of the above

Question 2

A market might have an upward-sloping long-run supply curve if

Accepted Answer

A)   firms have different costs.
B)   consumers exercise market power over producers.
C)   all factors of production are essentially available in unlimited supply.
D)   the entry of new firms into the market has no effect on the cost structure of firms in the market.E) A) and B)
F) B) and D)

Question 3

In the long-run equilibrium of a competitive market,the number of firms in the market adjusts until the market demand is satisfied at a price equal to the minimum of

Accepted Answer

A)   average fixed cost for the marginal firm.
B)   marginal cost of the marginal firm.
C)   average total cost of the marginal firm.
D)   average variable cost of the marginal firm.E) A) and D)
F) A) and B)

Question 4

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

Accepted Answer

A)   fixed cost.
B)   variable cost.
C)   total cost.
D)   revenue.E) C) and D)
F) B) and D)

Question 5

In a perfectly competitive market,

Accepted Answer

A)   no one seller can influence the price of the product.
B)   price exceeds marginal revenue for each unit sold.
C)   average revenue exceeds marginal revenue for each unit sold.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 6

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs:
 
-Refer to Table 14-10.Which level of production in the table has the lowest average variable cost?

Accepted Answer

A)   1 unit
B)   2 units
C)   3 units
D)   4 unitsE) A) and B)
F) B) and C)

Question 7

Jose's restaurant operates in a perfectly competitive market.At the point where marginal cost equals marginal revenue,ATC = $20,AVC = $15,and the price per unit is $10.In this situation,

Accepted Answer

A)   Jose's restaurant is earning a positive economic profit.
B)   Jose's restaurant should shut down immediately.
C)   Jose's restaurant is losing money in the short run but should continue to operate.
D)   the market price will rise in the short run to increase profits.E) None of the above
F) B) and C)

Question 8

Suppose a firm in each of the two markets listed below were to increase its price by 30 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)   oil and natural gas
B)   cable television and gasoline
C)   restaurants and MP3 players
D)   movie theaters and ballpoint pensE) C) and D)
F) A) and D)

Question 9

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-5.When market price is P7,a profit-maximizing firm's short-run profits can be represented by the area

Accepted Answer

A)   P7 * Q5.
B)   P7* Q3.
C)   (P7 - P5) * Q3.
D)   We are unable to determine the firm's profits because the quantity that the firm would produce is not labeled on the graph.E) A) and B)
F) None of the above

Question 10

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

Accepted Answer

A)   there will be few sellers in the market.
B)   there will be few buyers in the market.
C)   only a few buyers will have market power.
D)   sellers will have little reason to charge less than the going market price.E) None of the above
F) All of the above

Question 11

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs:
 
-Refer to Table 14-10.The marginal cost of producing the 4th unit is

Accepted Answer

A)   $7.
B)   $8.
C)   $10.
D)   $23.E) C) and D)
F) B) and C)

Question 12

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 $4.75.The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 13

Marcia is a fashion designer who runs a small clothing business in a competitive industry.Marcia specializes in making designer dresses.Marcia sells 10 dresses per month.Her monthly total revenue is $5,000.The marginal cost of making a dress is $400.In order to maximize profits,Marcia should

Accepted Answer

A)   make more than 10 dresses per month.
B)   make fewer than 10 dresses per month.
C)   continue to make 10 dresses per month.
D)   We do not have enough information with which to answer the question.E) B) and C)
F) B) and D)

Question 14

Table 14-8
Suppose that a firm in a competitive market faces the following revenues and costs:
 
-Refer to Table 14-8.In order to maximize profits,the firm will produce

Accepted Answer

A)   1 unit of output because marginal cost is minimized.
B)   4 units of output because marginal revenue exceeds marginal cost.
C)   6 units of output because marginal revenue equals marginal cost.
D)   8 units of output because total revenue is maximized.E) A) and B)
F) B) and D)

Question 15

Assume a firm in a competitive industry is producing 800 units of output,and it sells each unit for $6.Its average total cost is $4.Its profit is

Accepted Answer

A)   $-1,600.
B)   $1,600.
C)   $3,200.
D)   $8,000.E) All of the above
F) A) and D)

Question 16

When new firms enter a perfectly competitive market,

Accepted Answer

A)   demand increases.
B)   the short-run market supply curve shifts right.
C)   the short-run market supply curve shifts left.
D)   existing firms will increase prices to keep the new firms from entering.E) A) and D)
F) C) and D)

Question 17

Mrs.Smith operates a business in a competitive market.The current market price is $8.50.At her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Mrs.Smith should

Accepted Answer

A)   shut down her business in the short run but continue to operate in the long run.
B)   continue to operate in the short run but shut down in the long run.
C)   continue to operate in both the short run and long run.
D)   shut down in both the short run and long run.E) C) and D)
F) A) and B)

Question 18

Profit-maximizing firms in a competitive market produce an output level where

Accepted Answer

A)   marginal cost equals marginal revenue.
B)   marginal cost equals average total cost.
C)   marginal revenue is increasing.
D)   price is less than marginal revenue.E) B) and D)
F) None of the above

Question 19

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price,what effect would this have on the market?

Accepted Answer

The firm could not sell any more of its ...

Question 20

Max sells maps.The map industry is competitive.Max hires a business consultant to analyze his company's financial records.The consultant recommends that Max increase his production.The consultant must have concluded that Max's

Accepted Answer

A)   total revenues exceed his total accounting costs.
B)   marginal revenue exceeds his total cost.
C)   marginal revenue exceeds his marginal cost.
D)   marginal cost exceeds his marginal revenue.E) B) and C)
F) C) and D)

Exam 14: Firms in Competitive Markets

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10.Which level of production in the table has the lowest average variable cost?

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Jose's restaurant operates in a perfectly competitive market.At the point where marginal cost equals marginal revenue,ATC = $20,AVC = $15,and the price per unit is $10.In this situation,

Correct AnswerverifiedShow Answer

Max sells maps.The map industry is competitive.Max hires a business consultant to analyze his company's financial records.The consultant recommends that Max increase his production.The consultant must have concluded that Max's

Correct AnswerverifiedShow Answer

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price,what effect would this have on the market?

Correct AnswerverifiedThe firm could not sell any more of its ...View AnswerShow Answer

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 $4.75.The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Correct AnswerverifiedShow Answer

Suppose that a firm operating in perfectly competitive market sells 200 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 $600. (iii) Average revenue exceeds marginal revenue,but we don't know by how much.

Correct AnswerverifiedShow Answer

In a perfectly competitive market,

Correct AnswerverifiedShow Answer

Table 14-8 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-8.In order to maximize profits,the firm will produce

Correct AnswerverifiedShow Answer

In the long-run equilibrium of a competitive market,the number of firms in the market adjusts until the market demand is satisfied at a price equal to the minimum of

Correct AnswerverifiedShow Answer

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

Correct AnswerverifiedShow Answer

A market might have an upward-sloping long-run supply curve if

Correct AnswerverifiedShow Answer

Assume a firm in a competitive industry is producing 800 units of output,and it sells each unit for $6.Its average total cost is $4.Its profit is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5.When market price is P7,a profit-maximizing firm's short-run profits can be represented by the area

Correct AnswerverifiedShow Answer

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10.The marginal cost of producing the 4th unit is

Correct AnswerverifiedShow Answer

Mrs.Smith operates a business in a competitive market.The current market price is $8.50.At her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Mrs.Smith should

Correct AnswerverifiedShow Answer

Profit-maximizing firms in a competitive market produce an output level where

Correct AnswerverifiedShow Answer

Marcia is a fashion designer who runs a small clothing business in a competitive industry.Marcia specializes in making designer dresses.Marcia sells 10 dresses per month.Her monthly total revenue is $5,000.The marginal cost of making a dress is $400.In order to maximize profits,Marcia should

Correct AnswerverifiedShow Answer

Suppose a firm in each of the two markets listed below were to increase its price by 30 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 new firms enter a perfectly competitive market,

Correct AnswerverifiedShow Answer

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The firm could not sell any more of its ...
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