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 D)

Question 2

Figure 14-14  
-Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b)  and that panel (a)  illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is not correct?

Accepted Answer

A)  Point W is a long-run equilibrium point.
B)  Points W, Y, and Z are short-run equilibria points.
C)  Point Y is a long-run equilibrium point.
D)  Point Z is a long-run equilibrium point.E) None of the above
F) All of the above

Question 3

Which of the following statements best expresses a firm's profit-maximizing decision rule?

Accepted Answer

A)  If marginal revenue is greater than marginal cost, the firm should increase its output.
B)  If marginal revenue is less than marginal cost, the firm should shut down in the short run.
C)  If marginal revenue equals marginal cost, the firm should produce exactly one more unit of output.
D)  All of the above are correct.E) None of the above
F) A) and D)

Question 4

Figure 14-8
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-8. Which line segment best reflects the short-run supply curve for this firm?

Accepted Answer

A)  ABCF
B)  CD
C)  DF
D)  BCDE) B) and D)
F) A) and C)

Question 5

If the profit-maximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm

Accepted Answer

A)  will be earning positive economic profit at the profit-maximizing quantity.
B)  will have economic profit less than zero at the profit-maximizing quantity.
C)  will have zero economic profit at the profit-maximizing quantity.
D)  should increase the quantity of production to increase profit.E) C) and D)
F) A) and B)

Question 6

Scenario 14-2
Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit.
-Refer to Scenario 14-2. At Q = 1,000, the firm's profits equal

Accepted Answer

A)  -$5,000.
B)  $2,500.
C)  $5,000.
D)  $10,000.E) All of the above
F) C) and D)

Question 7

A competitive market has two basic characteristics. What are those two characteristics?

Accepted Answer

In a competitive market, there...

Question 8

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 9

A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the long run.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible

Accepted Answer

A)  marginal cost of production.
B)  fixed cost of production.
C)  total cost of production.
D)  average total cost of production.E) A) and B)
F) A) and C)

Question 12

For any competitive market, the supply curve is closely related to the

Accepted Answer

A)  preferences of consumers who purchase products in that market.
B)  income tax rates of consumers in that market.
C)  firms' costs of production in that market.
D)  interest rates on government bonds.E) B) and C)
F) A) and C)

Question 13

Table 14-6
The following table presents cost and revenue information for a firm operating in a competitive industry. 
-Refer to Table 14-6. What is the total revenue from selling 4 units?

Accepted Answer

A)  $120
B)  $257
C)  $317
D)  $480E) B) and C)
F) None of the above

Question 14

Land of Many Lakes (LML)  sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not choose the

Accepted Answer

A)  quantity of butter to produce.
B)  price at which it sells its butter.
C)  profits it earns.
D)  All of the above are correct.E) C) and D)
F) B) and D)

Question 15

Which of the following statements best expresses a firm's profit-maximizing decision rule?

Accepted Answer

A)  If marginal revenue is greater than marginal cost, the firm should increase its output.
B)  If marginal revenue is less than marginal cost, the firm should decrease its output.
C)  If marginal revenue equals marginal cost, the firm should continue producing its current level of output.
D)  All of the above are correct.E) A) and C)
F) None of the above

Question 16

Figure 14-7 
-Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 515 units of output, its total revenue is

Accepted Answer

A)  $100,525.
B)  $90,125.
C)  $84,500.
D)  $75,250.E) B) and D)
F) A) and B)

Question 17

If all firms have the same costs of production, then in long-run equilibrium,

Accepted Answer

A)  price exceeds average total cost for all firms.
B)  price exceeds marginal cost for all firms.
C)  some firms may earn positive economic profits.
D)  all firms have zero economic profits and just cover their opportunity costs.E) A) and D)
F) None of the above

Question 18

When a competitive market experiences an increase in demand that increases production costs for existing firms and potential new entrants, which of the following is most likely to arise?

Accepted Answer

A)  The long-run market supply curve will be upward sloping.
B)  The condition of free entry into the market will be violated.
C)  Producer profits will fall in the long run.
D)  The long-run market supply curve will be horizontal as new firms enter and drive the price downward.E) B) and C)
F) C) and D)

Question 19

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 20

When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch, which of the following principles is (are)  best demonstrated? (i) 
Fixed costs are sunk in the short run.
(ii) 
In the short run, only fixed costs are important to the decision to stay open for lunch.
(iii) 
If revenue exceeds variable cost, the restaurant owner is making a smart decision to remain open for lunch.

Accepted Answer

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

Exam 14: Firms in Competitive Markets

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

Correct Answer
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Which of the following statements best expresses a firm's profit-maximizing decision rule?

Correct Answer
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Figure 14-14 -Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b) and that panel (a) illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is not correct?

Correct Answer
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A competitive market has two basic characteristics. What are those two characteristics?

Correct Answer
verified
In a competitive market, there...
View Answer

Table 14-6 The following table presents cost and revenue information for a firm operating in a competitive industry. -Refer to Table 14-6. What is the total revenue from selling 4 units?

Correct Answer
verified

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not choose the

Correct Answer
verified

Correct Answer
verified

When a competitive market experiences an increase in demand that increases production costs for existing firms and potential new entrants, which of the following is most likely to arise?

Correct Answer
verified

A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the long run.

Correct Answer
verified

If all firms have the same costs of production, then in long-run equilibrium,

Correct Answer
verified

Which of the following statements best expresses a firm's profit-maximizing decision rule?

Correct Answer
verified

Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible

Correct Answer
verified

For any competitive market, the supply curve is closely related to the

Correct Answer
verified

Figure 14-8 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-8. Which line segment best reflects the short-run supply curve for this firm?

Correct Answer
verified

Figure 14-7 -Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 515 units of output, its total revenue is

Correct Answer
verified

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

Correct Answer
verified

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?

Correct Answer
verified

If the profit-maximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm

Correct Answer
verified

Scenario 14-2 Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. -Refer to Scenario 14-2. At Q = 1,000, the firm's profits equal

Correct Answer
verified

Correct Answer
verified

Exam 14: Firms in Competitive Markets

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

Correct AnswerverifiedShow Answer

Which of the following statements best expresses a firm's profit-maximizing decision rule?

Correct AnswerverifiedShow Answer

Figure 14-14 -Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b) and that panel (a) illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

A competitive market has two basic characteristics. What are those two characteristics?

Correct AnswerverifiedIn a competitive market, there...View AnswerShow Answer

Table 14-6 The following table presents cost and revenue information for a firm operating in a competitive industry. -Refer to Table 14-6. What is the total revenue from selling 4 units?

Correct AnswerverifiedShow Answer

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not choose the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a competitive market experiences an increase in demand that increases production costs for existing firms and potential new entrants, which of the following is most likely to arise?

Correct AnswerverifiedShow Answer

A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the long run.

Correct AnswerverifiedShow Answer

If all firms have the same costs of production, then in long-run equilibrium,

Correct AnswerverifiedShow Answer

Which of the following statements best expresses a firm's profit-maximizing decision rule?

Correct AnswerverifiedShow Answer

Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible

Correct AnswerverifiedShow Answer

For any competitive market, the supply curve is closely related to the

Correct AnswerverifiedShow Answer

Figure 14-8 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-8. Which line segment best reflects the short-run supply curve for this firm?

Correct AnswerverifiedShow Answer

Figure 14-7 -Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 515 units of output, its total revenue is

Correct AnswerverifiedShow Answer

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

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?

Correct AnswerverifiedShow Answer

If the profit-maximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm

Correct AnswerverifiedShow Answer

Scenario 14-2 Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. -Refer to Scenario 14-2. At Q = 1,000, the firm's profits equal

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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In a competitive market, there...
View Answer

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