Question 1

At the profit-maximizing level of output,

Accepted Answer

A)   marginal revenue equals average total cost.
B)   marginal revenue equals average variable cost.
C)   marginal revenue equals marginal cost.
D)   average revenue equals average total cost.E) C) and D)
F) All of the above

Question 2

Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8. What would be the firm's marginal revenue if it instead produced and sold 4 units of output?

Accepted Answer

A)   $2
B)   $8
C)   $32
D)   $64E) B) and C)
F) B) and D)

Question 3

List and describe the characteristics of a perfectly competitive market.

Accepted Answer

There are many buyers and sell...

Question 4

At its current level of production a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces and faces an average total cost of $10. At the market price of $12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1,000 units. What is the firm's current profit? What is likely to occur in this market and why?

Accepted Answer

Profit can be calculated as (P...

Question 5

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. 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) B) and C)
F) B) and D)

Question 6

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $12.50 at the profit-maximizing output level, then in the long run

Accepted Answer

A)   more firms will enter the market.
B)   some firms will exit from the market.
C)   the equilibrium price per bottle will fall.
D)   average total costs will fall.E) A) and D)
F) B) and D)

Question 7

In the long run, a firm will exit a competitive industry if

Accepted Answer

A)   total revenue exceeds total cost.
B)   the price exceeds average total cost.
C)   average total cost exceeds the price.
D)   Both a and b are correct.E) B) and C)
F) A) and B)

Question 8

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

Accepted Answer

A)   more than triple.
B)   less than triple.
C)   exactly triple.
D)   Any of the above may be true depending on the firm's labor productivity.E) B) and C)
F) All of the above

Question 9

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 $11, it should

Accepted Answer

A)   increase production to maximize profit.
B)   increase the price of the product to maximize profit.
C)   advertise to attract additional buyers to maximize profit.
D)   reduce production to increase profit.E) B) and C)
F) B) and D)

Question 10

Suppose a competitive market is comprised of firms that face identical cost curves. The firms experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur?

Accepted Answer

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

Question 11

In the short-run, a firm's supply curve is equal to the

Accepted Answer

A)   marginal cost curve above its average variable cost curve.
B)   marginal cost curve above its average total cost curve.
C)   average variable cost curve above its marginal cost curve.
D)   average total cost curve above its marginal cost curve.E) A) and B)
F) A) and C)

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Suppose that some firms in a competitive industry are earning zero economic profits, while others are experiencing losses. All else equal, in the long run, we would expect the number of firms in the industry to

Accepted Answer

A)   increase.
B)   decrease.
C)   remain the same.
D)   We do not have enough information with which to answer this question.E) None of the above
F) C) and D)

Question 14

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 15

Competitive firms that earn a loss in the short run should

Accepted Answer

A)   shut down if P 
B)   raise their price.
C)   lower their output.
D)   All of the above are correct.E) All of the above
F) C) and D)

Question 16

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-5. Firms would be encouraged to enter this market for all prices that exceed

Accepted Answer

A)   P1.
B)   P2.
C)   P3.
D)   P4.E) B) and D)
F) A) and B)

Question 17

In making a short-run profit-maximizing production decision, the firm must consider both fixed and variable cost.

Accepted Answer

A) True 
 B)False

Question 18

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's total costs

Accepted Answer

A)   can be represented by the area P2 × Q2.
B)   can be represented by the area P3 × Q2.
C)   can be represented by the area (P3-P2)  × Q3.
D)   are zero.E) A) and D)
F) C) and D)

Question 19

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

Question 20

Scenario 14-4
Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year.
-Refer to Scenario 14-4. At the end of the first year of operating his new business, Victor's accountant reported an accounting profit of $150,000. What was Victor's economic profit?

Accepted Answer

A)   -$150,000
B)   -$50,000
C)   -$25,000
D)   $25,000E) A) and D)
F) C) and D)

Exam 14: Firms in Competitive Markets

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 $11, it should

Correct Answer
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Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's total costs

Correct Answer
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Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8. What would be the firm's marginal revenue if it instead produced and sold 4 units of output?

Correct Answer
verified

Total profit for a firm is calculated as

Correct Answer
verified

Suppose that some firms in a competitive industry are earning zero economic profits, while others are experiencing losses. All else equal, in the long run, we would expect the number of firms in the industry to

Correct Answer
verified

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. Firms would be encouraged to enter this market for all prices that exceed

Correct Answer
verified

Correct Answer
verified

In making a short-run profit-maximizing production decision, the firm must consider both fixed and variable cost.

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

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

Correct Answer
verified

Suppose a competitive market is comprised of firms that face identical cost curves. The firms experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur?

Correct Answer
verified

In the short-run, a firm's supply curve is equal to the

Correct Answer
verified

Competitive firms that earn a loss in the short run should

Correct Answer
verified

List and describe the characteristics of a perfectly competitive market.

Correct Answer
verified
There are many buyers and sell...
View Answer

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

Correct Answer
verified

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $12.50 at the profit-maximizing output level, then in the long run

Correct Answer
verified

At the profit-maximizing level of output,

Correct Answer
verified

In the long run, a firm will exit a competitive industry if

Correct Answer
verified

Correct Answer
verified
Profit can be calculated as (P...
View Answer

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. 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 Answer
verified

Exam 14: Firms in Competitive Markets

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 $11, it should

Correct AnswerverifiedShow Answer

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's total costs

Correct AnswerverifiedShow Answer

Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8. What would be the firm's marginal revenue if it instead produced and sold 4 units of output?

Correct AnswerverifiedShow Answer

Total profit for a firm is calculated as

Correct AnswerverifiedShow Answer

Suppose that some firms in a competitive industry are earning zero economic profits, while others are experiencing losses. All else equal, in the long run, we would expect the number of firms in the industry to

Correct AnswerverifiedShow Answer

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. Firms would be encouraged to enter this market for all prices that exceed

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In making a short-run profit-maximizing production decision, the firm must consider both fixed and variable cost.

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

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

Correct AnswerverifiedShow Answer

Suppose a competitive market is comprised of firms that face identical cost curves. The firms experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur?

Correct AnswerverifiedShow Answer

In the short-run, a firm's supply curve is equal to the

Correct AnswerverifiedShow Answer

Competitive firms that earn a loss in the short run should

Correct AnswerverifiedShow Answer

List and describe the characteristics of a perfectly competitive market.

Correct AnswerverifiedThere are many buyers and sell...View AnswerShow Answer

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

Correct AnswerverifiedShow Answer

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $12.50 at the profit-maximizing output level, then in the long run

Correct AnswerverifiedShow Answer

At the profit-maximizing level of output,

Correct AnswerverifiedShow Answer

In the long run, a firm will exit a competitive industry if

Correct AnswerverifiedShow Answer

Correct AnswerverifiedProfit can be calculated as (P...View AnswerShow Answer

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. 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

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There are many buyers and sell...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Profit can be calculated as (P...
View Answer

Correct Answer
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