Question 1

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 at each price.
C)  sum of the prices charged by each of the 1,000 individual firms at each quantity.
D)  sum of the quantities supplied by each of the 1,000 individual firms at each price.E) All of the above
F) None of the above

Question 2

Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-4. When price rises from P2 to P3, the firm finds that

Accepted Answer

A)  marginal cost exceeds marginal revenue at a production level of Q2.
B)  if it produces at output level Q3 it will earn a positive profit.
C)  expanding output to Q4 would leave the firm with losses.
D)  it could increase profits by lowering output from Q3 to Q2.E) C) and D)
F) None of the above

Question 3

In the transition from the short run to the long run, the number of firms in a competitive industry is

Accepted Answer

A)  fixed.
B)  increasing at a constant rate.
C)  decreasing.
D)  able to adjust to market conditions.E) None of the above
F) B) and D)

Question 4

Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $28. At this output, average total cost is minimized and equals $25. Given this information, what should the firm do?

Accepted Answer

A)  ​Continue to produce 200 units, since costs per unit are minimized
B)  ​Increase output beyond 200 units, since this higher output will yield the profit maximizing output level.
C)  ​Decrease output below 200 units, since this lower output will result in the profit maximizing output level.
D)  ​More information is needed to determine the firm's next step.E) None of the above
F) A) and B)

Question 5

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

Accepted Answer

A)  more firms in the industry but lower levels of output for each firm.
B)  fewer firms in the market.
C)  a new long-run equilibrium at point X in panel (b) .
D)  lower prices once the new long-run equilibrium is reached.E) B) and C)
F) A) and C)

Question 6

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

Accepted Answer

A)  rise in the short run. Some firms will enter the industry. Price will then rise to reach the new long-run equilibrium.
B)  rise in the short run. Some firms will enter the industry. Price will then fall 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 rise in the short run because firms will enter to maintain the price.E) A) and B)
F) B) and D)

Question 7

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)  Pa
B)  Pb
C)  Pc
D)  PdE) A) and B)
F) A) and C)

Question 8

Total profit for a firm is calculated as

Accepted Answer

A)  marginal revenue minus average total cost.
B)  average revenue minus average total cost.
C)  marginal revenue minus marginal cost.
D)  (price minus average cost)  times quantity of output.E) B) and C)
F) A) and B)

Question 9

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-5. In the short run, if the market price is P4, individual firms in a competitive industry will earn

Accepted Answer

A)  positive profits.
B)  zero profits.
C)  losses but will remain in business.
D)  losses and will shut down.E) B) and D)
F) B) and C)

Question 10

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-5. When market price is P2, a profit-maximizing firm's losses can be represented by the area

Accepted Answer

A)  (P4 - P2)  × Q2.
B)  (P2 - P1)  × (Q2-Q1) .
C)  At a market price of P2, the firm earns profits, not losses.
D)  At a market price of P2 the firm has losses, but the reference points in the figure don't identify the losses.E) B) and C)
F) All of the above

Question 11

When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because

Accepted Answer

A)  the position of the marginal cost curve determines the price for which the firm should sell its product.
B)  among the various cost curves, the marginal cost curve is the only one that slopes upward.
C)  the marginal cost curve determines the quantity of output the firm is willing to supply at any price.
D)  the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized.E) B) and D)
F) B) and C)

Question 12

Under what condition is the long-run market supply curve for a competitive market perfectly elastic?

Accepted Answer

There must exist a l...

Question 13

Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs: 
-Refer to Table 14-9. If the firm's marginal cost is $5, it should

Accepted Answer

A)  reduce fixed costs by lowering production.
B)  increase production to maximize profit.
C)  decrease production to maximize profit.
D)  maintain its current level of production to maximize profit.E) A) and B)
F) B) and D)

Question 14

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

Question 15

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs: 
-Refer to Table 14-10. Which level of production in the table has the lowest average variable cost?

Accepted Answer

A)  1 unit
B)  2 units
C)  3 units
D)  4 unitsE) C) and D)
F) None of the above

Question 16

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

Accepted Answer

The firm could not sell any more of its ...

Question 17

Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-3. If the market price is $10, what is the firm's short-run economic profit?

Accepted Answer

A)  $9
B)  $15
C)  $30
D)  $50E) A) and B)
F) None of the above

Question 18

A competitive firm sells 100 units of output for $5 per unit. The firm's marginal revenue amounts to __________.

Accepted Answer

The answer of A competitive firm sells 100 units of...

Question 19

For a firm operating in a competitive industry, which of the following statements is not correct?

Accepted Answer

A)  Price equals average revenue.
B)  Price equals marginal revenue.
C)  Total revenue is constant.
D)  Marginal revenue is constant.E) All of the above
F) C) and D)

Question 20

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs: 
-Refer to Table 14-10. The marginal cost of producing the 4th unit is

Accepted Answer

A)  $7.
B)  $8.
C)  $10.
D)  $23.E) A) and B)
F) A) and C)

Exam 14: Firms in Competitive Markets

Total profit for a firm is calculated as

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In the transition from the short run to the long run, the number of firms in a competitive industry is

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Under what condition is the long-run market supply curve for a competitive market perfectly elastic?

Correct AnswerverifiedThere must exist a l...View AnswerShow Answer

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

Correct AnswerverifiedThe firm could not sell any more of its ...View AnswerShow Answer

A competitive firm sells 100 units of output for $5 per unit. The firm's marginal revenue amounts to __________.

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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. If the market price is $10, what is the firm's short-run economic profit?

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

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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. Which level of production in the table has the lowest average variable cost?

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Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $28. At this output, average total cost is minimized and equals $25. Given this information, what should the firm do?

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

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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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When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because

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Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. When market price is P2, a profit-maximizing firm's losses can be represented by the area

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Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. In the short run, if the market price is P4, individual firms in a competitive industry will earn

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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. The marginal cost of producing the 4th unit is

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

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Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. If the firm's marginal cost is $5, it should

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Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. When price rises from P2 to P3, the firm finds that

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For a firm operating in a competitive industry, which of the following statements is not correct?

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There must exist a l...
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The firm could not sell any more of its ...
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