Question 1

A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin.

Accepted Answer

A) True 
 B)False

Question 2

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

Question 3

If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost,then

Accepted Answer

A)   a one-unit increase in output will increase the firm's profit.
B)   a one-unit decrease in output will increase the firm's profit.
C)   total revenue exceeds total cost.
D)   total cost exceeds total revenue.E) B) and C)
F) None of the above

Question 4

A firm operating in a perfectly competitive industry will shut down in the short run but earn losses if the market price is less than that firm's average variable cost.

Accepted Answer

A) True 
 B)False

Question 5

A seller in a competitive market can

Accepted Answer

A)   sell all he wants at the going price,so he has little reason to charge less.
B)   influence the market price by adjusting his output.
C)   influence the profits earned by competing firms by adjusting his output.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 6

A competitive firm currently produces and sells 7,500 units of output at a price of $2.50 per unit.The firm's average fixed cost is $0.75 and its average total cost is $2.80.In the short run,should the firm continue to operate?

Accepted Answer

Yes,the firm should continue t...

Question 7

Mrs.Smith operates a business in a competitive market.The current market price is $7.50.At her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Mrs.Smith should

Accepted Answer

A)   shut down her business in the short run but continue to operate in the long run.
B)   continue to operate in the short run but shut down in the long run.
C)   continue to operate in both the short run and long run.
D)   shut down in both the short run and long run.E) All of the above
F) B) and D)

Question 8

A firm operating in a perfectly competitive market earns zero economic profit in the long run but remains in business because the firm's revenues cover the business owners' opportunity costs.

Accepted Answer

A) True 
 B)False

Question 9

When a profit-maximizing firm's fixed costs are considered sunk in the short run,then the firm

Accepted Answer

A)   can set price above marginal cost.
B)   must set price below average total cost.
C)   will never show losses.
D)   can safely ignore fixed costs when deciding how much output to produce.E) All of the above
F) A) and B)

Question 10

In the short run,a firm should exit the industry if its marginal cost exceeds its marginal revenue.

Accepted Answer

A) True 
 B)False

Question 11

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) A) and C)

Question 12

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-6.Firms will be encouraged to enter this market for all prices that exceed

Accepted Answer

A)   P1.
B)   P2.
C)   P3.
D)   None of the above is correct.E) B) and C)
F) All of the above

Question 13

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

Question 14

Table 14-12
Bill's Birdhouses
 
-Refer to Table 14-12.What is the total revenue from selling 7 units?

Accepted Answer

A)   $80
B)   $382
C)   $540
D)   $560E) B) and C)
F) A) and B)

Question 15

When firms are neither entering nor exiting a perfectly competitive market,

Accepted Answer

A)   total revenue must equal total cost for each firm.
B)   economic profits must be zero.
C)   price must equal the minimum of marginal cost for each firm.
D)   Both a and b are correct.E) None of the above
F) A) and C)

Question 16

In a perfectly competitive market,the process of entry and exit will end when firms face

Accepted Answer

A)   marginal revenue equal to long-run average total cost.
B)   total revenue equal to average total cost.
C)   average revenue greater than marginal cost.
D)   accounting profits equal to zero.E) A) and B)
F) None of the above

Question 17

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1.The firm will earn a positive economic profit in the short run if the market price is

Accepted Answer

A)   above $6.30.
B)   less than $6.30 but more than $4.50.
C)   less than $4.50.
D)   exactly $6.30.E) B) and D)
F) A) and C)

Question 18

Table 14-13
Diana's Dress Emporium
 
-Refer to Table 14-13.What is the marginal cost of the 8th unit?

Accepted Answer

A)   $0
B)   $100
C)   $120
D)   $140E) A) and B)
F) A) and C)

Question 19

A key characteristic of a competitive market is that

Accepted Answer

A)   government antitrust laws regulate competition.
B)   producers sell nearly identical products.
C)   firms minimize total costs.
D)   firms have price setting power.E) A) and B)
F) A) and D)

Question 20

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 P3 to P4,the firm finds that

Accepted Answer

A)   fixed costs decrease as output increases from Q3 to Q4.
B)   it can earn a positive profit by increasing production to Q4.
C)   profit is still maximized at a production level of Q3.
D)   average revenue exceeds marginal revenue at a production level of Q4.E) All of the above
F) A) and D)

Exam 14: Firms in Competitive Markets

In the short run,a firm should exit the industry if its marginal cost exceeds its marginal revenue.

Correct AnswerverifiedShow Answer

In a perfectly competitive market,the process of entry and exit will end when firms face

Correct AnswerverifiedShow Answer

A seller in a competitive market can

Correct AnswerverifiedShow Answer

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1.The firm will earn a positive economic profit in the short run if the market price is

Correct AnswerverifiedShow Answer

Table 14-12 Bill's Birdhouses -Refer to Table 14-12.What is the total revenue from selling 7 units?

Correct AnswerverifiedShow Answer

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 P3 to P4,the firm finds that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A key characteristic of a competitive market is that

Correct AnswerverifiedShow Answer

A firm operating in a perfectly competitive industry will shut down in the short run but earn losses if the market price is less than that firm's average variable cost.

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

Table 14-13 Diana's Dress Emporium -Refer to Table 14-13.What is the marginal cost of the 8th unit?

Correct AnswerverifiedShow Answer

When firms are neither entering nor exiting a perfectly competitive market,

Correct AnswerverifiedShow Answer

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6.Firms will be encouraged to enter this market for all prices that exceed

Correct AnswerverifiedShow Answer

Mrs.Smith operates a business in a competitive market.The current market price is $7.50.At her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Mrs.Smith should

Correct AnswerverifiedShow Answer

A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin.

Correct AnswerverifiedShow Answer

If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost,then

Correct AnswerverifiedShow Answer

When a profit-maximizing firm's fixed costs are considered sunk in the short run,then the firm

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A competitive firm currently produces and sells 7,500 units of output at a price of $2.50 per unit.The firm's average fixed cost is $0.75 and its average total cost is $2.80.In the short run,should the firm continue to operate?

Correct AnswerverifiedYes,the firm should continue t...View AnswerShow Answer

A firm operating in a perfectly competitive market earns zero economic profit in the long run but remains in business because the firm's revenues cover the business owners' opportunity costs.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Yes,the firm should continue t...
View Answer

Correct Answer
verified