Question 1

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-2. If the market price is Pc, in the short run the firm will earn

Accepted Answer

A)  positive economic profits.
B)  negative economic profits but will try to remain open.
C)  negative economic profits and will shut down.
D)  zero economic profits.E) None of the above
F) All of the above

Question 2

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive market when price falls below the minimum of average variable cost?

Accepted Answer

A)  The firm will continue to produce to attempt to pay fixed costs.
B)  The firm will immediately stop production to minimize its losses.
C)  The firm will stop production as soon as it is able to pay its sunk costs.
D)  The firm will continue to produce in the short run but will likely exit the market in the long run.E) A) and C)
F) B) and C)

Question 3

Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to

Accepted Answer

A)  increase.
B)  remain unchanged.
C)  decrease by less than 20 percent.
D)  decrease by more than 20 percent.E) B) and C)
F) All of the above

Question 4

When economic profits are zero in equilibrium, the firm's revenue must be sufficient to cover all opportunity costs.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is not correct?

Accepted Answer

A)  In a long-run equilibrium, marginal firms make zero economic profit.
B)  To maximize profit, firms should produce at a level of output where price equals average variable cost.
C)  The amount of gold in the world is limited. Therefore, the gold jewelry market probably has a long-run supply curve that is upward sloping.
D)  Long-run supply curves are typically more elastic than short-run supply curves.E) All of the above
F) C) and D)

Question 6

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 increases its output from 150 units to 151 units, its marginal cost is

Accepted Answer

A)  $29.95.
B)  $32.05.
C)  $33.00.
D)  $34.25.E) A) and C)
F) A) and D)

Question 7

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-5. Firms would be encouraged to enter this market for all prices that exceed

Accepted Answer

A)  P1.
B)  P2.
C)  P3.
D)  P4.E) A) and B)
F) A) and C)

Question 8

Figure 14-7 
-Refer to Figure 14-7. Let Q represent the quantity of output and suppose the price of the good is $125. Then marginal revenue is $125 at

Accepted Answer

A)  Q = 270.
B)  Q = 322.
C)  Q = 515.
D)  All of the above are correct.E) All of the above
F) A) and C)

Question 9

In the short-run, a firm's supply curve is equal to the

Accepted Answer

A)  marginal cost curve above its average variable cost curve.
B)  marginal cost curve above its average total cost curve.
C)  average variable cost curve above its marginal cost curve.
D)  average total cost curve above its marginal cost curve.E) B) and D)
F) A) and B)

Question 10

Because there are many buyers and sellers in a perfectly competitive market, no one seller can influence the market price.

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

In the long run, when price is greater than average total cost, some firms in a competitive market will choose to enter the market.

Accepted Answer

A) True 
 B)False

Question 13

In a competitive market the current price is $6. The typical firm in the market has ATC = $5.00 and AVC = $4.50.

Accepted Answer

A)  In the short run firms will shut down, and in the long run firms will leave the market.
B)  In the short run firms will continue to operate, but in the long run firms will leave the market.
C)  New firms will likely enter this market to capture some of the economic profits.
D)  The firm will earn zero profits in both the short run and long run.E) C) and D)
F) None of the above

Question 14

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the

Accepted Answer

A)  production of the 100th unit of output increases the firm's profit by $3.
B)  production of the 100th unit of output increases the firm's average total cost by $7.
C)  firm's profit-maximizing level of output is less than 100 units.
D)  production of the101st unit of output must increase the firm's profit by more than $3.E) None of the above
F) B) and C)

Question 15

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs: 
-Refer to Table 14-11. The marginal revenue from producing the 3rd unit equals (i)  $6.
(ii)  the price.(iii)  the marginal cost.

Accepted Answer

A)  (i)  only
B)  (i)  and (ii)  only
C)  (iii)  only
D)  (i) , (ii) , and (iii) E) A) and C)
F) All of the above

Question 16

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing

Accepted Answer

A)  to produce the quantity at which average variable cost is minimized.
B)  to produce the quantity at which average fixed cost is minimized.
C)  the quantity at which market price is equal to Mr. McDonald's marginal cost of production.
D)  the quantity at which market price exceeds Mr. McDonald's marginal cost of production by the greatest amount.E) B) and D)
F) A) and D)

Question 17

A firm will shut down in the short run if, for all positive levels of output,

Accepted Answer

A)  its losses exceed its fixed costs.
B)  its total revenue is less than its variable costs.
C)  the price of its product is less than its average variable cost.
D)  All of the above are correct.E) A) and D)
F) C) and D)

Question 18

Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-4. When price rises from P2 to P3, the firm finds that

Accepted Answer

A)  marginal cost exceeds marginal revenue at a production level of Q2.
B)  if it produces at output level Q3 it will earn a positive profit.
C)  expanding output to Q4 would leave the firm with losses.
D)  it could increase profits by lowering output from Q3 to Q2.E) A) and C)
F) None of the above

Question 19

Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-3. The firm will earn zero economic profit if the market price is

Accepted Answer

A)  $0.
B)  $6.
C)  $7.
D)  $10.E) B) and C)
F) All of the above

Question 20

Table 14-4
The table represents a demand curve faced by a firm in a competitive market. 
-Refer to Table 14-4. For this firm, the average revenue is

Accepted Answer

A)  $0.
B)  $5.
C)  $10.
D)  $15.E) B) and C)
F) A) and C)

Exam 14: Firms in Competitive Markets

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing

Correct Answer
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When economic profits are zero in equilibrium, the firm's revenue must be sufficient to cover all opportunity costs.

Correct Answer
verified

In the long run, when price is greater than average total cost, some firms in a competitive market will choose to enter the market.

Correct Answer
verified

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. When price rises from P2 to P3, the firm finds that

Correct Answer
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Because there are many buyers and sellers in a perfectly competitive market, no one seller can influence the market price.

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

Correct Answer
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Which of the following statements is not correct?

Correct Answer
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In a competitive market the current price is $6. The typical firm in the market has ATC = $5.00 and AVC = $4.50.

Correct Answer
verified

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive market when price falls below the minimum of average variable cost?

Correct Answer
verified

A firm will shut down in the short run if, for all positive levels of output,

Correct Answer
verified

Table 14-4 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-4. For this firm, the average revenue is

Correct Answer
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Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. If the market price is Pc, in the short run the firm will earn

Correct Answer
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Correct Answer
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Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. Firms would be encouraged to enter this market for all prices that exceed

Correct Answer
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Figure 14-7 -Refer to Figure 14-7. Let Q represent the quantity of output and suppose the price of the good is $125. Then marginal revenue is $125 at

Correct Answer
verified

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the

Correct Answer
verified

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. The firm will earn zero economic profit if the market price is

Correct Answer
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Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to

Correct Answer
verified

In the short-run, a firm's supply curve is equal to the

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. The marginal revenue from producing the 3rd unit equals (i) $6. (ii) the price.(iii) the marginal cost.

Correct Answer
verified

Exam 14: Firms in Competitive Markets

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing

Correct AnswerverifiedShow Answer

When economic profits are zero in equilibrium, the firm's revenue must be sufficient to cover all opportunity costs.

Correct AnswerverifiedShow Answer

In the long run, when price is greater than average total cost, some firms in a competitive market will choose to enter the market.

Correct AnswerverifiedShow Answer

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. When price rises from P2 to P3, the firm finds that

Correct AnswerverifiedShow Answer

Because there are many buyers and sellers in a perfectly competitive market, no one seller can influence the market price.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

In a competitive market the current price is $6. The typical firm in the market has ATC = $5.00 and AVC = $4.50.

Correct AnswerverifiedShow Answer

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive market when price falls below the minimum of average variable cost?

Correct AnswerverifiedShow Answer

A firm will shut down in the short run if, for all positive levels of output,

Correct AnswerverifiedShow Answer

Table 14-4 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-4. For this firm, the average revenue is

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Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. If the market price is Pc, in the short run the firm will earn

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Correct AnswerverifiedShow Answer

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. Firms would be encouraged to enter this market for all prices that exceed

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Figure 14-7 -Refer to Figure 14-7. Let Q represent the quantity of output and suppose the price of the good is $125. Then marginal revenue is $125 at

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For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the

Correct AnswerverifiedShow Answer

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. The firm will earn zero economic profit if the market price is

Correct AnswerverifiedShow Answer

Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to

Correct AnswerverifiedShow Answer

In the short-run, a firm's supply curve is equal to the

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. The marginal revenue from producing the 3rd unit equals (i) $6. (ii) the price.(iii) the marginal cost.

Correct AnswerverifiedShow Answer

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