Question 1

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 2

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 P7,a profit-maximizing firm's short-run profits can be represented by the area

Accepted Answer

A)  P7 * Q5.
B)  P7 * Q3.
C)  (P7 - P5)  * Q3.
D)  We are unable to determine the firm's profits because the quantity that the firm would produce is not labeled on the graph.E) None of the above
F) A) and B)

Question 3

When a profit-maximizing firm is earning profits,those profits can be identified by

Accepted Answer

A)  P * Q.
B)  (MC - AV
C)   * Q.
C)  (P - AT
C)   * Q.
D)  (P - AV
C)   * Q.E) B) and D)
F) None of the above C

Question 4

A competitive market will typically experience entry and exit until accounting profits are zero.

Accepted Answer

A) True 
 B)False

Question 5

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves:

-Refer to Figure 14-2.Which of the four prices corresponds to a firm earning positive economic profits in the short run?

Accepted Answer

A)  P1
B)  P2
C)  P3
D)  P4E) C) and D)
F) B) and D)

Question 6

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?
(i) New firms will enter the market.
(ii) In the short run,price will rise; in the long run,price will rise further.
(iii) In the long run,all firms will be producing at their efficient scale.

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 7

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:   Price  Quantity  Total  Cost 503515528531254175523\begin{array} { | l | l | l | } \hline 	ext { Price } & 	ext { Quantity } & \begin{array} { l } 	ext { Total } \	ext { Cost }\end{array} \\hline 5 & 0 & 3 \\hline 5 & 1 & 5 \\hline 5 & 2 & 8 \\hline 5 & 3 & 12 \\hline 5 & 4 & 17 \\hline 5 & 5 & 23 \\hline\end{array} Price 555555​ Quantity 012345​ Total  Cost ​358121723​​ 
-Refer to Table 14-11.The marginal revenue from producing the 3rd unit equals
(i) 5.
(ii) the price.
(iii) the marginal cost.

Accepted Answer

A)  (i) only
B)  (i) and (ii) only
C)  (ii) only
D)  (i) ,(ii) ,and (iii)  E) None of the above
F) C) and D) B

Question 8

In a perfectly competitive market,the process of entry and exit will end when
(i) accounting profits are zero.
(ii) economic profits are zero.
(iii) price equals minimum marginal cost.
(iv) price equals minimum average total cost.

Accepted Answer

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

Question 9

A firm is currently producing 100 units of output per day.The manager reports to the owner that producing the 100th unit costs the firm 5 dollars.The firm can sell the 100th unit for 5 dollars.The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 10

If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements,we would expect that

Accepted Answer

A)  the demand for products in this industry would increase.
B)  the market price of products in this industry would decrease in the short run but not in the long run.
C)  the firms in the industry would make a long-run economic profit.
D)  competition would force producers to pass the lower production costs on to consumers in the long run.E) A) and B)
F) None of the above

Question 11

In the short run,a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the

Accepted Answer

A)  price is less than average total cost.
B)  marginal revenue exceeds the marginal cost.
C)  price is greater than average variable cost.
D)  price is greater than average fixed cost but less than average variable cost.E) None of the above
F) B) and C)

Question 12

In calculating accounting profit,accountants typically don't include

Accepted Answer

A)  long-run costs.
B)  sunk costs.
C)  explicit costs of production.
D)  opportunity costs that do not involve an outflow of money.E) B) and D)
F) A) and D)

Question 13

Suppose a profit-maximizing firm in a competitive market produces rubber bands.When the market price for rubber bands rises above the minimum of its average variable cost,but still lies below the minimum of average total cost,in the short run the firm will

Accepted Answer

A)  experience losses but will continue to produce rubber bands.
B)  shut down.
C)  earn both economic and accounting profits.
D)  raise the price of its product.E) A) and B)
F) None of the above

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Which of the following characteristics of competitive markets is necessary for firms to be price takers?
(i) There are many sellers.
(ii) Firms can freely enter or exit the market.
(iii) Goods offered for sale are largely the same.

Accepted Answer

A)  (i) and (ii) only
B)  (i) and (iii) only
C)  (ii) only
D)  (i) ,(ii) ,and (iii) E) A) and D)
F) None of the above B

Question 16

A market is competitive if
(i) firms have the flexibility to price their own product.
(ii) each buyer is small compared to the market.
(iii) each seller is small compared to the market.

Accepted Answer

A)  (i) and (ii) only
B)  (i) and (iii) only
C)  (ii) and (iii) only
D)  (i) ,(ii) ,and (iii) E) None of the above
F) A) and B)

Question 17

Max sells maps.The map industry is competitive.Max hires a business consultant to analyze his company's financial records.The consultant recommends that Max increase his production.The consultant must have concluded that Max's

Accepted Answer

A)  total revenues exceed his total accounting costs.
B)  marginal revenue exceeds his total cost.
C)  marginal revenue exceeds his marginal cost.
D)  marginal cost exceeds his marginal revenue.E) None of the above
F) B) and C)

Question 18

The long-run supply curve in a competitive market is more elastic than the short-run supply curve.

Accepted Answer

A) True 
 B)False

Question 19

The short-run market supply curve in a perfectly competitive industry

Accepted Answer

A)  shows the total quantity supplied by all firms at each possible price.
B)  is perfectly inelastic at the market price.
C)  is perfectly elastic at the market price.
D)  shows the variety of prices that different firms will charge for a given quantity.E) C) and D)
F) B) and D)

Question 20

A firm has market power if it can

Accepted Answer

A)  maximize profits.
B)  minimize costs.
C)  influence the market price of the good it sells.
D)  hire as many workers as it needs at the prevailing wage rate.E) A) and B)
F) None of the above

Exam 14: Firms in Competitive Markets

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 Answer
verified

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 P7,a profit-maximizing firm's short-run profits can be represented by the area

Correct Answer
verified

When a profit-maximizing firm is earning profits,those profits can be identified by

Correct Answer
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C

A competitive market will typically experience entry and exit until accounting profits are zero.

Correct Answer
verified

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2.Which of the four prices corresponds to a firm earning positive economic profits in the short run?

Correct Answer
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Correct Answer
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Correct Answer
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B

In a perfectly competitive market,the process of entry and exit will end when (i) accounting profits are zero. (ii) economic profits are zero. (iii) price equals minimum marginal cost. (iv) price equals minimum average total cost.

Correct Answer
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A firm is currently producing 100 units of output per day.The manager reports to the owner that producing the 100th unit costs the firm 5 dollars.The firm can sell the 100th unit for 5 dollars.The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Correct Answer
verified

If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements,we would expect that

Correct Answer
verified

In the short run,a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the

Correct Answer
verified

In calculating accounting profit,accountants typically don't include

Correct Answer
verified

Suppose a profit-maximizing firm in a competitive market produces rubber bands.When the market price for rubber bands rises above the minimum of its average variable cost,but still lies below the minimum of average total cost,in the short run the firm will

Correct Answer
verified

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

Correct Answer
verified

Which of the following characteristics of competitive markets is necessary for firms to be price takers? (i) There are many sellers. (ii) Firms can freely enter or exit the market. (iii) Goods offered for sale are largely the same.

Correct Answer
verified
B

A market is competitive if (i) firms have the flexibility to price their own product. (ii) each buyer is small compared to the market. (iii) each seller is small compared to the market.

Correct Answer
verified

Max sells maps.The map industry is competitive.Max hires a business consultant to analyze his company's financial records.The consultant recommends that Max increase his production.The consultant must have concluded that Max's

Correct Answer
verified

The long-run supply curve in a competitive market is more elastic than the short-run supply curve.

Correct Answer
verified

The short-run market supply curve in a perfectly competitive industry

Correct Answer
verified

A firm has market power if it can

Correct Answer
verified

Exam 14: Firms in Competitive Markets

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

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 P7,a profit-maximizing firm's short-run profits can be represented by the area

Correct AnswerverifiedShow Answer

When a profit-maximizing firm is earning profits,those profits can be identified by

Correct AnswerverifiedC

A competitive market will typically experience entry and exit until accounting profits are zero.

Correct AnswerverifiedShow Answer

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2.Which of the four prices corresponds to a firm earning positive economic profits in the short run?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

In a perfectly competitive market,the process of entry and exit will end when (i) accounting profits are zero. (ii) economic profits are zero. (iii) price equals minimum marginal cost. (iv) price equals minimum average total cost.

Correct AnswerverifiedShow Answer

A firm is currently producing 100 units of output per day.The manager reports to the owner that producing the 100th unit costs the firm 5 dollars.The firm can sell the 100th unit for 5 dollars.The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Correct AnswerverifiedShow Answer

If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements,we would expect that

Correct AnswerverifiedShow Answer

In the short run,a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the

Correct AnswerverifiedShow Answer

In calculating accounting profit,accountants typically don't include

Correct AnswerverifiedShow Answer

Suppose a profit-maximizing firm in a competitive market produces rubber bands.When the market price for rubber bands rises above the minimum of its average variable cost,but still lies below the minimum of average total cost,in the short run the firm will

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following characteristics of competitive markets is necessary for firms to be price takers? (i) There are many sellers. (ii) Firms can freely enter or exit the market. (iii) Goods offered for sale are largely the same.

Correct AnswerverifiedB

A market is competitive if (i) firms have the flexibility to price their own product. (ii) each buyer is small compared to the market. (iii) each seller is small compared to the market.

Correct AnswerverifiedShow Answer

Max sells maps.The map industry is competitive.Max hires a business consultant to analyze his company's financial records.The consultant recommends that Max increase his production.The consultant must have concluded that Max's

Correct AnswerverifiedShow Answer

The long-run supply curve in a competitive market is more elastic than the short-run supply curve.

Correct AnswerverifiedShow Answer

The short-run market supply curve in a perfectly competitive industry

Correct AnswerverifiedShow Answer

A firm has market power if it can

Correct AnswerverifiedShow Answer

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C

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B

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B

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