Question 1

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) A) and D)
F) None of the above

Question 2

Figure 14-7
 
-Refer to Figure 14-7.If the market starts in equilibrium at point C in panel (b) ,a decrease in demand will ultimately lead to

Accepted Answer

A)  more firms in the industry, but lower levels of production for each firm.
B)  fewer firms in the market.
C)  a new long-run equilibrium at point D in panel (b) .
D)  lower prices once the new long-run equilibrium is reached.E) None of the above
F) All of the above

Question 3

Table 14-4
The following table presents cost and revenue information for John's Vineyard.
 
-Refer to Table 14-4.What is the total revenue from selling 4 units?

Accepted Answer

A)  $80
B)  $320
C)  $360
D)  $480E) A) and D)
F) B) and C)

Question 4

Because nothing can be done about sunk costs,they are irrelevant to decisions about business strategy.

Accepted Answer

A) True 
 B)False

Question 5

When existing firms in a competitive market are profitable,an incentive exists for

Accepted Answer

A)  new firms to seek government subsidies that would allow them to enter the market.
B)  new firms to enter the market, even without government subsidies.
C)  existing firms to raise prices.
D)  existing firms to increase production.E) A) and C)
F) B) and C)

Question 6

The accountants hired by Davis Golf Course have determined total fixed cost to be $75,000,total variable cost to be $130,000,and total revenue to be $145,000.Because of this information,in the short run,Davis Golf Course should

Accepted Answer

A)  decide to shut-down.
B)  decide to exit the industry.
C)  decide to stay open because shutting down would be more expensive.
D)  decide to stay open because they are making an economic profit.E) All of the above
F) A) and B)

Question 7

A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run.

Accepted Answer

A) True 
 B)False

Question 8

Which of these curves is the competitive firm's short-run supply curve?

Accepted Answer

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

Question 9

Consider a firm operating in a competitive market.The firm is producing 40 units of output,has an average cost of production equal to $5,and is earning $240 economic profit in the short run.What is the current market price?

Accepted Answer

A)  $9
B)  $10
C)  $11
D)  $12E) None of the above
F) A) and B)

Question 10

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

Question 11

In a competitive market the price is $8.A typical firm in the market has ATC = $6,AVC = $5,and MC = $8.How much economic profit is the firm earning in the short run?

Accepted Answer

A)  $0 per unit
B)  $1 per unit
C)  $2 per unit
D)  $3 per unitE) None of the above
F) All of the above

Question 12

For a firm in a perfectly competitive market,the price of the good is always

Accepted Answer

A)  equal to marginal revenue.
B)  equal to total revenue.
C)  greater than average revenue.
D)  equal to the firm's efficient scale of output.E) A) and B)
F) A) and C)

Question 13

In a market with 1,000 identical firms,the short-run market supply is the

Accepted Answer

A)  marginal cost curve (above average variable cost)  for a typical firm in the market.
B)  quantity supplied by the typical firm in the market.
C)  sum of the prices charged by each of the 1,000 individual firms.
D)  sum of the quantities supplied by each of the 1,000 individual firms.E) A) and D)
F) A) and C)

Question 14

When firms are said to be price takers,it implies that if a firm raises its price,

Accepted Answer

A)  buyers will go elsewhere.
B)  buyers will pay the higher price in the short run.
C)  competitors will also raise their prices.
D)  firms in the industry will exercise market power.E) All of the above
F) B) and C)

Question 15

If identical firms that remain in a competitive market over the long run make zero economic profit,why do these firms choose to remain in the market?

Accepted Answer

Because a normal rate of retur...

Question 16

Table 14-4
The following table presents cost and revenue information for John's Vineyard.
 
-Refer to Table 14-4.What is the total revenue from selling 7 units?

Accepted Answer

A)  $80
B)  $210
C)  $540
D)  $560E) A) and D)
F) A) and C)

Question 17

Which of the following represents the firm's long-run condition for exiting a market?

Accepted Answer

A)  Exit if P 
B)  Exit if P 
C)  Exit if P 
D)  Exit if MR < MCE) None of the above
F) A) and D)

Question 18

When entry and exit behavior of firms in an industry does not affect a firm's cost structure,

Accepted Answer

A)  the long-run market supply curve must be horizontal.
B)  the long-run market supply curve must be upward-sloping.
C)  the long-run market supply curve must be downward-sloping.
D)  we can't tell anything about the shape of the long-run market supply curve.E) A) and B)
F) C) and D)

Question 19

Joe's Garage 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)  Joe's Garage is earning a positive economic profit.
B)  Joe's Garage should shut down immediately.
C)  Joe's 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) A) and B)
F) A) and C)

Question 20

Figure 14-5
The figure below depicts the cost structure of a firm in a competitive market.
 
-Refer to Figure 14-5.When market price is P₄,a profit-maximizing firm's total cost can be represented by the area

Accepted Answer

A)  P₄ × Q₁
B)  P₄ × Q₄
C)  P₂ × Q₄
D)  Total costs cannot be determined from the information in the figure.E) All of the above
F) B) and C)

Exam 14: Firms in Competitive Markets

Consider a firm operating in a competitive market.The firm is producing 40 units of output,has an average cost of production equal to $5,and is earning $240 economic profit in the short run.What is the current market price?

Correct AnswerverifiedShow Answer

Which of the following represents the firm's long-run condition for exiting a market?

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The accountants hired by Davis Golf Course have determined total fixed cost to be $75,000,total variable cost to be $130,000,and total revenue to be $145,000.Because of this information,in the short run,Davis Golf Course should

Correct AnswerverifiedShow Answer

For a firm in a perfectly competitive market,the price of the good is always

Correct AnswerverifiedShow Answer

Because nothing can be done about sunk costs,they are irrelevant to decisions about business strategy.

Correct AnswerverifiedShow Answer

When entry and exit behavior of firms in an industry does not affect a firm's cost structure,

Correct AnswerverifiedShow Answer

A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run.

Correct AnswerverifiedShow Answer

In a market with 1,000 identical firms,the short-run market supply is the

Correct AnswerverifiedShow Answer

In a competitive market the price is $8.A typical firm in the market has ATC = $6,AVC = $5,and MC = $8.How much economic profit is the firm earning in the short run?

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Figure 14-5 The figure below depicts the cost structure of a firm in a competitive market. -Refer to Figure 14-5.When market price is P₄,a profit-maximizing firm's total cost can be represented by the area

Correct AnswerverifiedShow Answer

Joe's Garage 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

When firms are said to be price takers,it implies that if a firm raises its price,

Correct AnswerverifiedShow Answer

Table 14-4 The following table presents cost and revenue information for John's Vineyard. -Refer to Table 14-4.What is the total revenue from selling 4 units?

Correct AnswerverifiedShow Answer

When existing firms in a competitive market are profitable,an incentive exists for

Correct AnswerverifiedShow Answer

Figure 14-7 -Refer to Figure 14-7.If the market starts in equilibrium at point C in panel (b) ,a decrease in demand will ultimately lead to

Correct AnswerverifiedShow Answer

If identical firms that remain in a competitive market over the long run make zero economic profit,why do these firms choose to remain in the market?

Correct AnswerverifiedBecause a normal rate of retur...View AnswerShow Answer

Which of these curves is the competitive firm's short-run supply curve?

Correct AnswerverifiedShow Answer

Table 14-4 The following table presents cost and revenue information for John's Vineyard. -Refer to Table 14-4.What is the total revenue from selling 7 units?

Correct AnswerverifiedShow Answer

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Because a normal rate of retur...
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