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One of the defining characteristics of a perfectly competitive market is


A) a small number of sellers.
B) a large number of buyers and a small number of sellers.
C) a similar product.
D) significant advertising by firms to promote their products.

E) A) and B)
F) All of the above

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All firms maximize profits by producing an output level where marginal revenue equals marginal cost; for firms operating in perfectly competitive industries,maximizing profits also means producing an output level where price equals marginal cost.

A) True
B) False

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A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob.Which of the following events would decrease the firm's average revenue?


A) The firm increases its output above 500 doorknobs.
B) The firm decreases its output below 500 doorknobs.
C) The market price of doorknobs rises above $10.
D) The market price of doorknobs falls below $10.

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

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You purchase a $30,nonrefundable ticket to a play at a local theater.Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show.Alternatively you could leave the theater and go home and watch TV or read a book.You place an $8 value on watching TV and a $6 value on reading a book.


A) You should leave the theater since the net benefit from seeing the remainder of the show is -$20, while going home will earn you at least $8 of satisfaction.
B) You should stay and watch the remainder of the show.
C) You should go home and watch TV.
D) You should go home and read a book.

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

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Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales.If the firm increases its output to 200 units,total revenue will be


A) $2,000.
B) $2,400.
C) $4,200.
D) We do not have enough information to answer the question.

E) A) and B)
F) A) and C)

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A firm that shuts down temporarily has to pay


A) its variable costs but not its fixed costs.
B) its fixed costs but not its variable costs.
C) both its variable costs and its fixed costs.
D) neither its variable costs nor its fixed costs.

E) None of the above
F) All of the above

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A competitive market is in long-run equilibrium.If demand decreases,we can be certain that price will


A) fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
B) fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
C) fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
D) not fall in the short run because firms will exit to maintain the price.

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

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A popular resort restaurant will maximize profits if it chooses to stay open during the less-crowded "off season" when its total revenues exceed its variable costs.

A) True
B) False

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Scenario 14-5 A study sponsored by the Food Consumer Safety Board found that consumption of irradiated tomatoes increased the health of laboratory rats. As a result of national press coverage of the report, the demand for irradiated tomatoes increased dramatically. Organic farmers were able to switch from organic production of tomatoes to irradiated production with no additional cost. Assume that the tomato market satisfies all of the assumptions of perfect competition. -Refer to Scenario 14-5.As a result of the increase in the demand for tomatoes,we would predict that in the short run that the


A) production of tomatoes would be at efficient scale.
B) price of tomatoes would rise.
C) total cost for existing irradiated tomato producers must rise.
D) number of firms in the market would fall as prices fall and firms exit the market.

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

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


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) A) and B)
F) All of the above

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Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6.Firms will shut down in the short run if the market price A) exceeds P3. B) is less than P1. C) is greater than P1 but less than P3. D) exceeds P2. -Refer to Figure 14-6.Firms will shut down in the short run if the market price


A) exceeds P3.
B) is less than P1.
C) is greater than P1 but less than P3.
D) exceeds P2.

E) A) and C)
F) B) and C)

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Which of the following expressions is correct for a competitive firm?


A) profit = (quantity of output) x (price - average total cost)
B) marginal revenue = (change in total revenue) /(quantity of output)
C) average total cost = total variable cost/quantity of output
D) average revenue = (marginal revenue) x (quantity of output)

E) A) and B)
F) B) and C)

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For a firm operating in a perfectly competitive industry,marginal revenue and average revenue are equal.

A) True
B) False

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

A) True
B) False

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The stable,long-run equilibrium in a competitive market occurs when the market price equals the lowest point on a firm's average total cost curve.

A) True
B) False

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Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10.At which level of output in the table is average variable cost equal to $6? A) 2 units B) 3 units C) 4 units D) 5 units -Refer to Table 14-10.At which level of output in the table is average variable cost equal to $6?


A) 2 units
B) 3 units
C) 4 units
D) 5 units

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

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Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. 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 total revenue from selling 5 units? A) $2.50 B) $3.25 C) $12.50 D) $16.25 -Refer to Table 14-14.What is the total revenue from selling 5 units?


A) $2.50
B) $3.25
C) $12.50
D) $16.25

E) A) and C)
F) B) and C)

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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?


A) oil and natural gas
B) cable television and gasoline
C) restaurants and MP3 players
D) movie theaters and ballpoint pens

E) B) and C)
F) B) and D)

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The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which


A) total revenue is equal to variable cost.
B) total revenue is equal to fixed cost.
C) total revenue is equal to total cost.
D) profit is maximized.

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

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When new firms have an incentive to enter a competitive market,their entry will


A) increase the price of the product.
B) drive down profits of existing firms in the market.
C) shift the market supply curve to the left.
D) increase demand for the product.

E) All of the above
F) None of the above

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