Question 1

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves: 
-Refer to Figure 14-13. If the price is $2 in the short run, what will happen in the long run?

Accepted Answer

A)   Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry.
B)   Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry.
C)   Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry.
D)   Because the price is below the firm's average variable costs, the firms will shut down.

Question 2

A profit-maximizing firm will shut down in the short run when

Accepted Answer

A)   price is less than average variable cost.
B)   price is less than average total cost.
C)   average revenue is greater than marginal cost.
D)   average revenue is greater than average fixed cost.

Question 3

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.

Question 4

For a particular competitive firm, the minimum value of average variable cost (AVC)  is $12 and is reached when 200 units of output are produced. For the same firm, the minimum value of average total cost (ATC)  is $15 and is reached when 230 units of output are produced. Which of the following statements is correct?

Accepted Answer

A)   In the short run, the firm will shut down if the price of its product is $11.
B)   In the long run, the firm will shut down if the price of its product is $14.
C)   If the price of its product is $12, then the firm's loss if it produces 200 units of output is the same as its loss if it shuts down.
D)   All of the above are correct.

Question 5

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 6

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 unit

Question 7

Table 14-4
The table represents a demand curve faced by a firm in a competitive market.
 
-Refer to Table 14-4. For this firm, the marginal revenue is

Accepted Answer

A)   $0.
B)   $5.
C)   $10.
D)   $15.

Question 8

The manager of a firm operating in a competitive market can ignore sunk costs when making business decisions.

Accepted Answer

A) True 
 B)False

Question 9

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. What is Victor's opportunity costs of operating his new business?

Accepted Answer

A)   $25,000
B)   $75,000
C)   $100,000
D)   $175,000

Question 10

Competitive markets are characterized by

Accepted Answer

A)   a small number of buyers and sellers.
B)   unique products.
C)   the interdependence of firms.
D)   free entry and exit by firms.

Question 11

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.

Question 12

The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.

Accepted Answer

A) True 
 B)False

Question 13

Jose's restaurant operates in a perfectly competitive market. At the point where marginal cost equals marginal revenue, ATC = $20, AVC = $15, and the price per unit is $10. In this situation,

Accepted Answer

A)   Jose's restaurant is earning a positive economic profit.
B)   Jose's restaurant should shut down immediately.
C)   Jose's restaurant is losing money in the short run but should continue to operate.
D)   the market price will rise in the short run to increase profits.

Question 14

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 = 999, the firm's total costs equal

Accepted Answer

A)   $24,970.
B)   $24,975.
C)   $24,980.
D)   $25,025.

Question 15

The supply curve of a firm in a competitive market is the average variable cost curve above the minimum of marginal cost.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is not a characteristic of a perfectly competitive market?

Accepted Answer

A)   Firms are price takers.
B)   Firms have difficulty entering the market.
C)   There are many sellers in the market.
D)   Goods offered for sale are largely the same.

Question 17

A firm will shut down in the short run if, for all positive levels of output,

Accepted Answer

A)   its losses exceed its fixed costs.
B)   its total revenue is less than its variable costs.
C)   the price of its product is less than its average variable cost.
D)   All of the above are correct.

Question 18

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-2. If the market price is Pd, in the short run the firm will earn

Accepted Answer

A)   positive economic profits.
B)   negative economic profits but will try to remain open.
C)   negative economic profits and will shut down.
D)   zero economic profits.

Question 19

Suppose that firms in a competitive industry are earning positive economic profits. 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.

Question 20

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. The firm's short­run supply curve is its marginal cost curve above

Accepted Answer

A)   $1.
B)   $3.
C)   $4.50.
D)   $6.30.

Exam 14: Firms in Competitive Markets

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 = 999, the firm's total costs equal

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

Correct Answer
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The manager of a firm operating in a competitive market can ignore sunk costs when making business decisions.

Correct Answer
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A firm will shut down in the short run if, for all positive levels of output,

Correct Answer
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The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.

Correct Answer
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Jose's restaurant operates in a perfectly competitive market. At the point where marginal cost equals marginal revenue, ATC = $20, AVC = $15, and the price per unit is $10. In this situation,

Correct Answer
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Which of the following is not a characteristic of a perfectly competitive market?

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Suppose that firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to

Correct Answer
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Competitive markets are characterized by

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Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $2 in the short run, what will happen in the long run?

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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

Correct Answer
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Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. The firm's shortrun supply curve is its marginal cost curve above

Correct Answer
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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
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The supply curve of a firm in a competitive market is the average variable cost curve above the minimum of marginal cost.

Correct Answer
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A profit-maximizing firm will shut down in the short run when

Correct Answer
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Table 14-4 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-4. For this firm, the marginal revenue is

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

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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. If the market price is Pd, in the short run the firm will earn

Correct Answer
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Exam 14: Firms in Competitive Markets

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 = 999, the firm's total costs equal

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The manager of a firm operating in a competitive market can ignore sunk costs when making business decisions.

Correct AnswerverifiedShow Answer

A firm will shut down in the short run if, for all positive levels of output,

Correct AnswerverifiedShow Answer

The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.

Correct AnswerverifiedShow Answer

Jose's restaurant operates in a perfectly competitive market. At the point where marginal cost equals marginal revenue, ATC = $20, AVC = $15, and the price per unit is $10. In this situation,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not a characteristic of a perfectly competitive market?

Correct AnswerverifiedShow Answer

Suppose that firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to

Correct AnswerverifiedShow Answer

Competitive markets are characterized by

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Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: -Refer to Figure 14-13. If the price is $2 in the short run, what will happen in the long run?

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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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Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. The firm's short­run supply curve is its marginal cost curve above

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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?

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The supply curve of a firm in a competitive market is the average variable cost curve above the minimum of marginal cost.

Correct AnswerverifiedShow Answer

A profit-maximizing firm will shut down in the short run when

Correct AnswerverifiedShow Answer

Table 14-4 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-4. For this firm, the marginal revenue is

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

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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. If the market price is Pd, in the short run the firm will earn

Correct AnswerverifiedShow Answer

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Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. The firm's shortrun supply curve is its marginal cost curve above

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