Question 1

A corporation has been steadily losing money on one of its product lines, plastic flamingo lawn ornaments. The firm produces plastic flamingos in a factory that cost $20 million to build 10 years ago. The firm is now considering an offer to buy that factory for $15 million. Which of the following statements about the decision to sell or not to sell is correct?

Accepted Answer

A)  The firm should turn down the purchase offer because the factory cost more than $15 million to build.
B)  The $20 million spent on the factory is a sunk cost; that cost should not affect the decision.
C)  The $20 million spent on the factory is an implicit cost, which should be included in the decision.
D)  The firm should sell the factory only if it can reduce its costs elsewhere by $5 million.E) C) and D)
F) B) and C)

Question 2

Figure 14-9
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-9. The firm will exit the market for any price on the line segment

Accepted Answer

A)  ABCD.
B)  AB.
C)  CD.
D)  None of the above is correct.E) A) and D)
F) A) and C)

Question 3

Figure 14-7 
-Refer to Figure 14-7. The firm will shut down in the short run if the price of the good is

Accepted Answer

A)  $75.
B)  $85.
C)  $95.
D)  All of the above are correct.E) A) and B)
F) B) and D)

Question 4

When profit-maximizing firms in competitive markets are earning profits,

Accepted Answer

A)  market demand must exceed market supply at the market equilibrium price.
B)  market supply must exceed market demand at the market equilibrium price.
C)  new firms will enter the market.
D)  the most inefficient firms will be encouraged to leave the market.E) C) and D)
F) B) and C)

Question 5

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

Accepted Answer

A)  ethnic restaurants
B)  municipal water and sewer
C)  corn farming
D)  grocery storesE) B) and C)
F) All of the above

Question 6

When firms have an incentive to exit a competitive market, their exit will

Accepted Answer

A)  lower the market price.
B)  necessarily raise the costs for the firms that remain in the market.
C)  raise the profits of the firms that remain in the market.
D)  shift the demand for the product to the left.E) B) and C)
F) C) and D)

Question 7

Phil sells duck calls in a perfectly competitive market. If duck calls sell for $10 each and average total cost per unit is $11 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 duck call will fall.
D)  average total costs will fall.E) B) and C)
F) A) and D)

Question 8

When price is below average variable cost, a firm in a competitive market will

Accepted Answer

A)  shut down and incur fixed costs.
B)  shut down and incur both variable and fixed costs.
C)  continue to operate as long as average revenue exceeds marginal cost.
D)  continue to operate as long as average revenue exceeds average fixed cost.E) B) and C)
F) All of the above

Question 9

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 10

The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.

Accepted Answer

A) True 
 B)False

Question 11

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. If the market price is $4.00, the firm will earn

Accepted Answer

A)  positive economic profits in the short run.
B)  negative economic profits in the short run but remain in business.
C)  negative economic profits and shut down.
D)  zero economic profits in the short run.E) C) and D)
F) A) and C)

Question 12

Scenario 14-1
Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.
-Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

Accepted Answer

A)  -$200.
B)  $1,000.
C)  $3,000.
D)  $4,000.E) A) and B)
F) All of the above

Question 13

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

Accepted Answer

A)  bookstores
B)  hairstyling salons
C)  yoga studios
D)  satellite radioE) A) and B)
F) A) and C)

Question 14

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 positive economic profit if the market price is

Accepted Answer

A)  positive.
B)  $6.
C)  above $6.
D)  There is no price at which the firm earns positive economic profits.E) None of the above
F) C) and D)

Question 15

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs: 
-Refer to Table 14-11. In order to maximize profits, the firm should stop producing after it makes the

Accepted Answer

A)  first unit.
B)  second unit.
C)  fourth unit.
D)  fifth unit.E) None of the above
F) A) and B)

Question 16

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. The firm should shut down if the market price is

Accepted Answer

A)  above $8.
B)  above $6.30 but less than $8.
C)  above $4.50 but less than $6.30.
D)  less than $4.50.E) A) and B)
F) A) and C)

Question 17

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

Accepted Answer

A)  increases in production costs resulting from more firms coming into the market.
B)  a breakdown of the "free entry and exit" feature of competition.
C)  a breakdown of the "price taking" feature of competition.
D)  a stable demand curve for the good, that is, a demand curve that never shifts.E) None of the above
F) B) and C)

Question 18

In the long run, a firm should exit the industry if its total costs exceed its total revenues.

Accepted Answer

A) True 
 B)False

Question 19

A profit-maximizing firm in a competitive market will decrease production when marginal cost exceeds average revenue.

Accepted Answer

A) True 
 B)False

Question 20

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) B) and D)

Exam 14: Firms in Competitive Markets

Scenario 14-1 Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. -Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

Correct Answer
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Phil sells duck calls in a perfectly competitive market. If duck calls sell for $10 each and average total cost per unit is $11 at the profit-maximizing output level, then in the long run

Correct Answer
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Which of the following industries is least likely to exhibit the characteristic of free entry?

Correct Answer
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A profit-maximizing firm in a competitive market will decrease production when marginal cost exceeds average revenue.

Correct Answer
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Figure 14-7 -Refer to Figure 14-7. The firm will shut down in the short run if the price of the good is

Correct Answer
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The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.

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
verified

When firms have an incentive to exit a competitive market, their exit will

Correct Answer
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Figure 14-9 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-9. The firm will exit the market for any price on the line segment

Correct Answer
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Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. The firm should shut down if the market price is

Correct Answer
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In the long run, a firm should exit the industry if its total costs exceed its total revenues.

Correct Answer
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Which of the following industries is least likely to exhibit the characteristic of free entry?

Correct Answer
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When profit-maximizing firms in competitive markets are earning profits,

Correct Answer
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Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

Correct Answer
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Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11. In order to maximize profits, the firm should stop producing after it makes the

Correct Answer
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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 positive economic profit if the market price is

Correct Answer
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Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price is $4.00, the firm will earn

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

Correct Answer
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When price is below average variable cost, a firm in a competitive market will

Correct Answer
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Exam 14: Firms in Competitive Markets

Scenario 14-1 Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. -Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

Correct AnswerverifiedShow Answer

Phil sells duck calls in a perfectly competitive market. If duck calls sell for $10 each and average total cost per unit is $11 at the profit-maximizing output level, then in the long run

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A profit-maximizing firm in a competitive market will decrease production when marginal cost exceeds average revenue.

Correct AnswerverifiedShow Answer

Figure 14-7 -Refer to Figure 14-7. The firm will shut down in the short run if the price of the good is

Correct AnswerverifiedShow Answer

The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.

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 firms have an incentive to exit a competitive market, their exit will

Correct AnswerverifiedShow Answer

Figure 14-9 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-9. The firm will exit the market for any price on the line segment

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Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. The firm should shut down if the market price is

Correct AnswerverifiedShow Answer

In the long run, a firm should exit the industry if its total costs exceed its total revenues.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When profit-maximizing firms in competitive markets are earning profits,

Correct AnswerverifiedShow Answer

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

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. In order to maximize profits, the firm should stop producing after it makes 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 positive economic profit if the market price is

Correct AnswerverifiedShow Answer

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price is $4.00, the firm will earn

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When price is below average variable cost, a firm in a competitive market will

Correct AnswerverifiedShow Answer

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