Question 1

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

Accepted Answer

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) B) and C)

Question 2

Figure 14-7
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-7.Which segment of the supply curve represents the firm shutting down?

Accepted Answer

A)   ABCD
B)   BCD
C)   CD
D)   ABE) None of the above
F) B) and C)

Question 3

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

Accepted Answer

A)   average revenue exceeds marginal cost.
B)   the firm is earning a positive profit.
C)   decreasing output would increase the firm's profit.
D)   All of the above are correct.E) B) and D)
F) None of the above

Question 4

Table 14-12
Bill's Birdhouses
 
-Refer to Table 14-12.What is the marginal cost of the 8th unit?

Accepted Answer

A)   $0
B)   $72.75
C)   $120
D)   $502E) A) and B)
F) A) and C)

Question 5

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

Accepted Answer

A)   cable television
B)   satellite radio
C)   mineral mining
D)   t-shirt silkscreeningE) None of the above
F) A) and B)

Question 6

A profit-maximizing firm will shut down in the short run when

Accepted Answer

A)   price is less than average variable cost.
B)   price is less than average total cost.
C)   average revenue is greater than marginal cost.
D)   average revenue is greater than average fixed cost.E) All of the above
F) None of the above

Question 7

When determining whether to shut down in the short run,a competitive firm should ignore (i) 
Fixed costs.
(ii) 
Variable costs.
(iii) 
Sunk costs.

Accepted Answer

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

Question 8

In a competitive market,no single producer can influence the market price because

Accepted Answer

A)   many other sellers are offering a product that is essentially identical.
B)   consumers have more influence over the market price than producers do.
C)   government intervention prevents firms from influencing price.
D)   producers agree not to change the price.E) A) and C)
F) B) and C)

Question 9

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-6.Firms will be earn losses in the short run but will remain in business if the market price

Accepted Answer

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

Question 10

Figure 14-1 
-Refer to Figure 14-1.In the long run,the firm will exit the market 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 D)
F) All of the above

Question 11

A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

Accepted Answer

A) True 
 B)False

Question 12

Entry into a market by new firms will increase the

Accepted Answer

A)   supply of the good.
B)   profits of existing firms.
C)   price of the good.
D)   marginal cost of producing the good.E) B) and C)
F) B) and D)

Question 13

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

Accepted Answer

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) A) and C)

Question 14

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-2.Which of the four prices corresponds to a firm earning zero economic profits in the short run?

Accepted Answer

A)   P1
B)   P2
C)   P3
D)   P4E) A) and B)
F) B) and C)

Question 15

Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In this market,an increase in demand will

Accepted Answer

A)   increase price in the short run but not in the long run.
B)   increase price in the long run but not in the short run.
C)   increase price both in the short and the long run.
D)   not affect price in either the short or the long run.E) A) and B)
F) C) and D)

Question 16

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 production will the firm maximize profit?

Accepted Answer

A)   3 units
B)   4 units
C)   5 units
D)   6 unitsE) All of the above
F) B) and C)

Question 17

Table 14-3
 
-Refer to Table 14-3.For a firm operating in a competitive market,the average revenue is

Accepted Answer

A)   $21.
B)   $14.
C)   $7.
D)   $0.E) None of the above
F) B) and D)

Question 18

When total revenue is less than variable costs,a firm in a competitive market will

Accepted Answer

A)   continue to operate as long as average revenue exceeds marginal cost.
B)   continue to operate as long as average revenue exceeds average fixed cost.
C)   shut down.
D)   raise its price.E) B) and D)
F) B) and C)

Question 19

In a perfectly competitive market,the horizontal sum of all the individual firms' supply curves is

Accepted Answer

A)   zero.
B)   equal to the industry profits.
C)   the market supply curve.
D)   a horizontal line.E) None of the above
F) A) and B)

Question 20

Suppose that a firm operating in perfectly competitive market sells 100 units of output.Its total revenues from the sale are $500.Which of the following statements is correct? (i) 
Marginal revenue equals $5.
(ii) 
Average revenue equals $5.
(iii) 
Price equals $5.

Accepted Answer

A)   (i) only
B)   (iii) only
C)   (i) and (ii) only
D)   (i) , (ii) ,and (iii) E) B) and D)
F) B) and C)

Exam 14: Firms in Competitive Markets

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

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When determining whether to shut down in the short run,a competitive firm should ignore (i) Fixed costs. (ii) Variable costs. (iii) Sunk costs.

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Table 14-3 -Refer to Table 14-3.For a firm operating in a competitive market,the average revenue is

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Entry into a market by new firms will increase the

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Figure 14-7 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-7.Which segment of the supply curve represents the firm shutting down?

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Figure 14-1 -Refer to Figure 14-1.In the long run,the firm will exit the market if the price of the good 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.Which of the four prices corresponds to a firm earning zero economic profits in the short run?

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Suppose that a firm operating in perfectly competitive market sells 100 units of output.Its total revenues from the sale are $500.Which of the following statements is correct? (i) Marginal revenue equals $5. (ii) Average revenue equals $5. (iii) Price equals $5.

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When total revenue is less than variable costs,a firm in a competitive market will

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In a perfectly competitive market,the horizontal sum of all the individual firms' supply curves is

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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 production will the firm maximize profit?

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In a competitive market,no single producer can influence the market price because

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A profit-maximizing firm will shut down in the short run when

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Consider a competitive market with a large number of identical firms.The firms in this market do not use any resources that are available only in limited quantities.In this market,an increase in demand will

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

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A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

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Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6.Firms will be earn losses in the short run but will remain in business if the market price

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

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Table 14-12 Bill's Birdhouses -Refer to Table 14-12.What is the marginal cost of the 8th unit?

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

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