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Exam 9: Firms in a Competitive Market

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Question 41

Multiple Choice

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In competitive markets:

A) the products sold are different depending on the firm selling the product.
B) buyers can expect to find consistently low prices and wide availability of the good that they want.
C) producers can expect to be able to set the price at the level they choose.
D) it is hard for a seller to enter the market due to barriers to entry.
E) firms will leave the market if they are making economic profits.

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Question 42

Multiple Choice

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At current production levels, the marginal revenue of a competitive firm is $15 and the marginal cost of the firm is $15. The firm should:

A) cut back on production.
B) stop production all together.
C) produce more.
D) continue producing at current levels.
E) raise its prices.

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Question 43

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Many economists believe that the market for wheat in the United States is an almost perfectly competitive market. If one firm discovers a technology that makes its wheat taste better and have fewer calories than all other wheat offered in the market, the wheat market would become less competitive because:

The accompanying table outlines the explicit and implicit costs incurred by a small graphic design company in France that takes in annual revenues equal to $250,000. $\begin{array}{ll}\text { Explicit Costs }\\\text { Office Rent } & \$ 2,000 / \text { month } \\\text { Utilities } & \$ 200 / \text { month } \\\text { Computers } & \$ 1,000 / \text { month } \\\text { Labor } & \$ 5,000 / \text { month }\\\text { Implicit Costs }\\\text { Forgone Wages } & \$ 55,000 / \text { year } \\\text { Forgone Interest on Initial Investment } & \$ 5,000 / \text { year }\end{array}$ a. What would this company's accounting profits equal for a year? b. What would this company's economic profits equal for a year? c. What would we expect to happen in the long run for this market? Why?

Firms in every market structure:

Firms in a competitive market make zero economic profits in the long run. Why would firms choose to remain in the market if they make zero economic profits?

Chuck Diesel Burger is a food truck in Houston, Texas. Imagine that Chuck Diesel Burger's minimum average total cost (ATC) is $3.75 and that its minimum average variable cost (AVC) is $2.50. Assume there are no barriers to entry or exit into the food-truck market. Chuck Diesel Burger will be indifferent about staying open or shutting down if the price is equal to:

Real-life examples of competitive markets:

If Nicole's Knick-Knacks is a perfectly competitive firm and is making zero economic profits:

Dave's Batting Cages is located in Boston, Massachusetts. During the first year of operation, Dave's Batting Cages incurred many costs. In that year, Dave spent $5,000 on labor, $2,000 on maintenance, and $1,000 on electricity. Dave took out a loan to open his business, in which he would have earned $1,500, and his previous job, which he could get back at any time, paid him $50,000. Dave's Batting Cages incurred _________ in explicit costs.

Firms will always stay in the market if the price they charge is:

All firms, no matter what type of firm structure they are producing in, make their production decisions based on the point where their:

Firms will always make a positive economic profit if the price they charge is:

If a competitive firm can make enough revenue to cover its variable costs, the firm will:

If the firm is maximizing profits, total cost is represented by the area:

Charlie's Churros is a perfectly competitive firm that sells desserts in Houston, Texas. Charlie's Churros currently is taking in $40,000 in revenues, and has $15,000 in explicit costs and $25,000 in implicit costs. Charlie's Churros' accounting profits are:

Marginal revenue is the change in total:

In a competitive market, if one firm raises its price relative to the other firms in the market, consumers are willing to go to another firm because:

It's easy to determine if a firm is making long-run production decisions by looking at its cost structure because, in the long run, a firm does not have any:

Draw a perfectly competitive, profit-maximizing firm that is incurring a short-run loss and will shut down. Be sure to include the marginal revenue curve, the marginal cost curve, the average total cost curve, and the average variable cost curve.