Question 1

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

Question 2

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people

Accepted Answer

A)  consider sunk costs.
B)  equate prices to the average costs of production.
C)  prefer to purchase products from smaller rather than larger firms.
D)  think at the margin.E) A) and B)
F) B) and C)

Question 3

A dairy farmer must be able to calculate sunk costs in order to determine how much revenue the farm receives for the typical gallon of milk.

Accepted Answer

A) True 
 B)False

Question 4

For a competitive firm,

Accepted Answer

A)  total revenue equals average revenue.
B)  total revenue equals marginal revenue.
C)  total cost equals marginal revenue.
D)  average revenue equals marginal revenue.E) A) and D)
F) B) and C)

Question 5

Firms in a competitive market are said to be price takers because there are many sellers in the market, and the goods offered by the firms are very similar if not identical.

Accepted Answer

A) True 
 B)False

Question 6

In the short run, a market consists of 100 identical firms. The market price is $8, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market?

Accepted Answer

A)  200 units
B)  300 units
C)  400 units
D)  500 unitsE) B) and C)
F) A) and D)

Question 7

Why does a firm in a competitive industry charge the market price?

Accepted Answer

A)  If a firm charges less than the market price, it loses potential revenue.
B)  If a firm charges more than the market price, it loses all its customers to other firms.
C)  The firm can sell as many units of output as it wants to at the market price.
D)  All of the above are correct.E) C) and D)
F) All of the above

Question 8

When new firms enter a perfectly competitive market,

Accepted Answer

A)  demand increases.
B)  the short-run market supply curve shifts right.
C)  the short-run market supply curve shifts left.
D)  existing firms will increase prices to keep the new firms from entering.E) B) and D)
F) A) and B)

Question 9

Table 14-2
The table represents a demand curve faced by a firm in a competitive market. 
-Refer to Table 14-2. For this firm, the average revenue from selling 3 units is

Accepted Answer

A)  $12.
B)  $4.
C)  $3.
D)  $1.E) B) and C)
F) A) and B)

Question 10

In the short run, a firm operating in a competitive industry will shut down if price is

Accepted Answer

A)  less than average total cost.
B)  less than average variable cost.
C)  greater than average variable cost but less than average total cost.
D)  greater than marginal cost.E) B) and C)
F) C) and D)

Question 11

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

Question 12

​Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $25. At this output, average total cost is decreasing and equals $22. Given this information, what should the firm do?

Accepted Answer

A)  ​Continue to produce 200 units, because this maximizes profits.
B)  ​Increase output beyond 200 units, since a higher output will yield the profit maximizing output level.
C)  ​Decrease output below 200 units, since a lower output will result in the profit maximizing output level.
D)  ​More information is needed to determine the firm's next step.E) B) and C)
F) A) and D)

Question 13

Figure 14-14  
-Refer to Figure 14-14. Suppose a firm in a competitive market, like the one depicted in panel (a) , observes market price rising from P1 to P2. Which of the following could explain this observation?

Accepted Answer

A)  The entry of new firms into the market.
B)  The exit of existing consumers from the market.
C)  An increase in market supply from S0 to S1.
D)  An increase in market demand from D0 to D1.E) All of the above
F) A) and B)

Question 14

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

Accepted Answer

A)  $5 and 50 units
B)  $5 and 100 units
C)  $10 and 50 units
D)  $10 and 100 unitsE) None of the above
F) B) and C)

Question 15

Table 14-1 
-Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will

Accepted Answer

A)  increase by less than $15.
B)  increase by exactly $15.
C)  increase by more than $15.
D)  Total revenue cannot be determined from the information provided.E) A) and D)
F) B) and C)

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

A golf course in Fargo, North Dakota - where it is very cold in the winter - is closed between November 1 and April 1. If the owner of the golf course is rational, what criterion does he or she use in deciding to close the course for this extended period of time?

Accepted Answer

The owner has determined that ...

Question 18

The supply curve of a firm in a competitive market is the average variable cost curve above the minimum of marginal cost.

Accepted Answer

A) True 
 B)False

Question 19

Suppose a firm is considering producing zero units of output. We call this exiting an industry in the short run and shutting down in the long run.

Accepted Answer

A) True 
 B)False

Question 20

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 C)
F) None of the above

Exam 14: Firms in Competitive Markets

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

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A dairy farmer must be able to calculate sunk costs in order to determine how much revenue the farm receives for the typical gallon of milk.

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​Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $25. At this output, average total cost is decreasing and equals $22. Given this information, what should the firm do?

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In the short run, a firm operating in a competitive industry will shut down if price is

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Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

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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

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When new firms enter a perfectly competitive market,

Correct AnswerverifiedShow Answer

Firms in a competitive market are said to be price takers because there are many sellers in the market, and the goods offered by the firms are very similar if not identical.

Correct AnswerverifiedShow Answer

Suppose a firm is considering producing zero units of output. We call this exiting an industry in the short run and shutting down in the long run.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people

Correct AnswerverifiedShow Answer

In the short run, a market consists of 100 identical firms. The market price is $8, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market?

Correct AnswerverifiedShow Answer

For a competitive firm,

Correct AnswerverifiedShow Answer

Table 14-1 -Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will

Correct AnswerverifiedShow Answer

A golf course in Fargo, North Dakota - where it is very cold in the winter - is closed between November 1 and April 1. If the owner of the golf course is rational, what criterion does he or she use in deciding to close the course for this extended period of time?

Correct AnswerverifiedThe owner has determined that ...View AnswerShow Answer

Why does a firm in a competitive industry charge the market price?

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

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Figure 14-14 -Refer to Figure 14-14. Suppose a firm in a competitive market, like the one depicted in panel (a) , observes market price rising from P1 to P2. Which of the following could explain this observation?

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The supply curve of a firm in a competitive market is the average variable cost curve above the minimum of marginal cost.

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Table 14-2 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-2. For this firm, the average revenue from selling 3 units is

Correct AnswerverifiedShow Answer

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Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $25. At this output, average total cost is decreasing and equals $22. Given this information, what should the firm do?

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The owner has determined that ...
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