Question 1

Firms in competitive markets are said to be price takers.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)   marginal revenue
B)   average revenue
C)   equilibrium market price.
D)   all of the aboveE) A) and B)
F) A) and C)

Question 3

In a competitive market, the actions of any single buyer or seller will have a negligible impact on the market price.

Accepted Answer

A) True 
 B)False

Question 4

Lee had invested $100 000 in a risk-free unit trust, on which she earned $10 000 each year. She used that money to buy a prawn farm. She also quit her job as a salesperson to devote all of her time to her prawn business. Her salary as a salesperson was $25 000 per year.
-According to the information provided, at the end of the first year of operating her new business, Lee's accountant reported an accounting profit of $50 000. What was Lee's economic profit?

Accepted Answer

A)   $15 000 profit
B)   $25 000 profit
C)   $40 000 profit
D)   $50 000 profitE) B) and C)
F) None of the above

Question 5

A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

Accepted Answer

A) True 
 B)False

Question 6

When buyers in a competitive market take the selling price as given, they are said to be:

Accepted Answer

A)   free-riders
B)   market entrants
C)   price takers
D)   monopolistsE) B) and D)
F) A) and B)

Question 7

Table 14-2
The price of each David Butterfly a butterfly farmer in Greytown sells is:
 
-Refer to Table 14-2. If the firm doubles its output from three to six units, total revenue will:

Accepted Answer

A)   increase by less than $45
B)   increase by more than $45
C)   increase by exactly $45
D)   this cannot be determined without data on the farmer's costsE) All of the above
F) B) and C)

Question 8

Suppose a firm in a perfectly competitive market doubles its sales. This means that the firm's total revenue will:

Accepted Answer

A)   decrease because prices will fall
B)   exactly double
C)   increase by more than double because prices will rise
D)   This cannot be determined without data on the firm's costsE) B) and C)
F) None of the above

Question 9

When a profit-maximising firm's fixed costs are considered sunk in the short run, it:

Accepted Answer

A)   can safely ignore fixed costs when deciding how much to produce
B)   will never show losses
C)   can set its price above marginal cost
D)   maximises profit by choosing an output level where price exceeds marginal costE) A) and C)
F) B) and C)

Question 10

A production cost that has already been committed and cannot be recovered is termed a:

Accepted Answer

A)   development cost
B)   variable cost
C)   sunk cost
D)   mothball costE) All of the above
F) C) and D)

Question 11

Of the following characteristics of competitive markets, which are necessary for firms to be price takers? (i)  many sellers
(ii)  goods offered for sale are largely the same
(iii)  firms can freely enter or exit the market

Accepted Answer

A)   (i)  and (ii)  only
B)   (iii)  only
C)   (ii)  and (iii)  only
D)   all are necessaryE) A) and B)
F) A) and C)

Question 12

Graph 14-9
 1 to P2, it is most likely the result of: A)  an increase in market supply from Supply0 to Supply1 B)  an increase in market demand from Demand0 to Demand1 C)  entrance of new firms into the market D)  the exit of existing firms in the market" class="answers-bank-image d-inline" rel="preload" >
-Refer to Graph 14-9. When a firm in a competitive market, like the one depicted in panel (a) , observes market price rising from P1 to P2, it is most likely the result of:

Accepted Answer

A)   an increase in market supply from Supply0 to Supply1
B)   an increase in market demand from Demand0 to Demand1
C)   entrance of new firms into the market
D)   the exit of existing firms in the marketE) A) and C)
F) B) and D)

Question 13

Suppose a profit-maximising firm in a competitive market is unable to generate enough revenue to pay all of its fixed costs. In the short run it should:

Accepted Answer

A)   shut down and incur the total loss of its fixed cost
B)   continue to produce as long as marginal cost is less than average revenue
C)   continue to produce as long as revenue is sufficient to pay variable costs
D)   continue to produce and lower its price to gain more market shareE) A) and B)
F) A) and C)

Question 14

Firms that shut down in the short run are unable to avoid their:

Accepted Answer

A)   fixed costs
B)   intermediate costs
C)   variable costs
D)   marginal costE) None of the above
F) A) and C)

Question 15

If rational, profit-maximising firms (like rational people)  think at the margin, then marginal adjustments to production:

Accepted Answer

A)   should always lower cost
B)   will increase market share of the firm
C)   should always increase profit (or decrease loss) 
D)   will increase homogeneity in the marketE) None of the above
F) A) and D)

Question 16

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 return on their...

Question 17

When a new firm decides to enter a perfectly competitive market:

Accepted Answer

A)   the short-run market supply curve shifts right
B)   demand will rise
C)   the short-run market supply curve shifts left
D)   existing firms will force prices to increaseE) All of the above
F) B) and D)

Question 18

Which of the following are true of comparing marginal revenue to marginal cost? (i)  it reveals the contribution of the last unit of production to total profit
(ii)  it is helpful in making profit-maximising production decisions
(iii)  it always reveals whether a firm is making an economic profit
(iv)  it tells a firm whether its fixed costs are too high

Accepted Answer

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

Question 19

Suppose a firm in a competitive market increase its output by 25 per cent, the price of its output is likely to:

Accepted Answer

A)   decrease by more than 25 per cent
B)   increase by more than 25 per cent
C)   remain unchanged
D)   this cannot be determined without information on the firm's costsE) A) and C)
F) All of the above

Question 20

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is:

Accepted Answer

A)   upward-sloping
B)   vertical
C)   downward-sloping
D)   horizontalE) A) and B)
F) A) and C)

Exam 14: Firms in Competitive Markets

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is:

Correct Answer
verified

When a new firm decides to enter a perfectly competitive market:

Correct Answer
verified

Suppose a profit-maximising firm in a competitive market is unable to generate enough revenue to pay all of its fixed costs. In the short run it should:

Correct Answer
verified

Suppose a firm in a perfectly competitive market doubles its sales. This means that the firm's total revenue will:

Correct Answer
verified

Correct Answer
verified

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 Answer
verified
Because a normal rate of return on their...
View Answer

A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

Correct Answer
verified

When buyers in a competitive market take the selling price as given, they are said to be:

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

In a competitive market, the actions of any single buyer or seller will have a negligible impact on the market price.

Correct Answer
verified

Suppose a firm in a competitive market increase its output by 25 per cent, the price of its output is likely to:

Correct Answer
verified

Firms that shut down in the short run are unable to avoid their:

Correct Answer
verified

When a profit-maximising firm's fixed costs are considered sunk in the short run, it:

Correct Answer
verified

Graph 14-9 -Refer to Graph 14-9. When a firm in a competitive market, like the one depicted in panel (a) , observes market price rising from P₁ to P₂, it is most likely the result of:

Correct Answer
verified

Firms in competitive markets are said to be price takers.

Correct Answer
verified

Table 14-2 The price of each David Butterfly a butterfly farmer in Greytown sells is: -Refer to Table 14-2. If the firm doubles its output from three to six units, total revenue will:

Correct Answer
verified

Of the following characteristics of competitive markets, which are necessary for firms to be price takers? (i) many sellers (ii) goods offered for sale are largely the same (iii) firms can freely enter or exit the market

Correct Answer
verified

If rational, profit-maximising firms (like rational people) think at the margin, then marginal adjustments to production:

Correct Answer
verified

A production cost that has already been committed and cannot be recovered is termed a:

Correct Answer
verified

Exam 14: Firms in Competitive Markets

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is:

Correct AnswerverifiedShow Answer

When a new firm decides to enter a perfectly competitive market:

Correct AnswerverifiedShow Answer

Suppose a profit-maximising firm in a competitive market is unable to generate enough revenue to pay all of its fixed costs. In the short run it should:

Correct AnswerverifiedShow Answer

Suppose a firm in a perfectly competitive market doubles its sales. This means that the firm's total revenue will:

Correct AnswerverifiedShow Answer

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 return on their...View AnswerShow Answer

A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

Correct AnswerverifiedShow Answer

When buyers in a competitive market take the selling price as given, they are said to be:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In a competitive market, the actions of any single buyer or seller will have a negligible impact on the market price.

Correct AnswerverifiedShow Answer

Suppose a firm in a competitive market increase its output by 25 per cent, the price of its output is likely to:

Correct AnswerverifiedShow Answer

Firms that shut down in the short run are unable to avoid their:

Correct AnswerverifiedShow Answer

When a profit-maximising firm's fixed costs are considered sunk in the short run, it:

Correct AnswerverifiedShow Answer

Graph 14-9 -Refer to Graph 14-9. When a firm in a competitive market, like the one depicted in panel (a) , observes market price rising from P1 to P2, it is most likely the result of:

Correct AnswerverifiedShow Answer

Firms in competitive markets are said to be price takers.

Correct AnswerverifiedShow Answer

Table 14-2 The price of each David Butterfly a butterfly farmer in Greytown sells is: -Refer to Table 14-2. If the firm doubles its output from three to six units, total revenue will:

Correct AnswerverifiedShow Answer

Of the following characteristics of competitive markets, which are necessary for firms to be price takers? (i) many sellers (ii) goods offered for sale are largely the same (iii) firms can freely enter or exit the market

Correct AnswerverifiedShow Answer

If rational, profit-maximising firms (like rational people) think at the margin, then marginal adjustments to production:

Correct AnswerverifiedShow Answer

A production cost that has already been committed and cannot be recovered is termed a:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Because a normal rate of return on their...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Graph 14-9 -Refer to Graph 14-9. When a firm in a competitive market, like the one depicted in panel (a) , observes market price rising from P₁ to P₂, it is most likely the result of:

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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