Question 1

Figure 14-5
The figure below depicts the cost structure of a firm in a competitive market.
 
-Refer to Figure 14-5.When market price is P₁,a profit-maximizing firm's total revenue can be represented by the area

Accepted Answer

A)  P₁ × Q₂.
B)  P₂ × Q₂.
C)  P₃ × Q₂.
D)  P₁ × Q₃.

Question 2

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 3

When price is below average variable cost,a firm in a competitive market will

Accepted Answer

A)  shut down and incur fixed costs.
B)  shut down and incur both variable and fixed costs.
C)  continue to operate as long as average revenue exceeds marginal cost.
D)  continue to operate as long as average revenue exceeds average fixed cost.

Question 4

Mrs.Smith operates a business in a competitive market.The current market price is $8.50,and at her profit-maximizing level of production,the average variable cost is $8.00 and the average total cost is $8.25.

Accepted Answer

A)  Mrs.Smith should shut down her business in the short run but continue to operate in the long run..
B)  Mrs.Smith should continue to operate in the short run but shut down in the long run.
C)  Mrs.Smith should continue to operate in both the short run and long run.
D)  Mrs.Smith should shut down in both the short run and long run.

Question 5

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive market when price falls below the minimum of average variable cost?

Accepted Answer

A)  The firm will continue to produce to attempt to pay fixed costs.
B)  The firm will immediately stop production to minimize its losses.
C)  The firm will stop production as soon as it is able to pay its sunk costs.
D)  The firm will continue to produce in the short run but will likely exit the market in the long run.

Question 6

When economists refer to a production cost that has already been committed and cannot be recovered,they use the term

Accepted Answer

A)  implicit cost.
B)  explicit cost.
C)  variable cost.
D)  sunk cost.

Question 7

Table 14-2
The following table presents cost and revenue information for Soper's Port Vineyard.
 
-Refer to Table 14-2.Consumers are willing to pay $120 per unit of port wine.What is the average revenue when 4 units are sold?

Accepted Answer

A)  $50
B)  $120
C)  $125
D)  $130

Question 8

A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

Accepted Answer

A) True 
 B)False

Question 9

Raiman's Shoe Repair also produces custom-made shoes.When Mr.Raiman produces 12 pairs a week,the marginal cost of the twelfth pair is $84,and the MR of that unit is $70.What would you advise Mr.Raiman to do?

Accepted Answer

A)  Shut down the business.
B)  Produce more custom-made shoes.
C)  Decrease the price.
D)  Produce fewer custom-made shoes.

Question 10

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price,what effect would this have on the market?

Accepted Answer

The firm could not sell any more of its ...

Question 11

A certain competitive firm sells its output for $20 per unit.The 50th unit of output that the firm produces has a marginal cost of $22.Which of following is not necessarily true?

Accepted Answer

A)  Production of the 50th unit of output increases the firm's total revenue by $20.
B)  Production of the 50th unit of output increases the firm's total cost by $22.
C)  Production of the 50th unit of output decreases the firm's profit by $2.
D)  Production of the 50th unit of output increases the firm's average variable cost.

Question 12

-If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market,the figure in panel (b) most likely reflects

Accepted Answer

A)  perfectly inelastic long-run market supply.
B)  the idea that free entry and exit of firms in the market lead to only one market price in the long run.
C)  the product of the individual supply curves of all firms in the market.
D)  the fact that zero profits cannot be sustained in the long run.

Question 13

When new firms enter a perfectly competitive market,

Accepted Answer

A)  demand increases.
B)  the short-run market supply curve shifts right.
C)  the short-run market supply curve shifts left.
D)  existing firms will increase prices to keep the new firms from entering.

Question 14

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 15

When new entrants into a competitive market have higher costs than existing firms,

Accepted Answer

A)  accounting profits will be the primary determinant of entry into the market.
B)  sunk costs become an important determinant of the short-run entry strategy.
C)  market price must be rising.
D)  all firms will earn zero economic profit once the new equilibrium is reached.

Question 16

Suppose a competitive market has a horizontal long-run supply curve and is in long-run equilibrium.If demand decreases,we can be certain that in the short-run,

Accepted Answer

A)  at least some firms will shut down.
B)  price will fall below marginal cost for some firms.
C)  price will fall below average total cost for some firms.
D)  at least some firms will exit the industry.

Question 17

In the long run the market supply

Accepted Answer

A)  must always be horizontal.
B)  could be upward sloping if the cost of production falls as new firms enter the market.
C)  could be upward sloping if the cost of production rises as new firms enter the market.
D)  could be upward sloping if technological improvements lower the cost of producing in the market.

Question 18

A distinctive feature of the average total cost curve is that it is upward sloping at every point.

Accepted Answer

A) True 
 B)False

Question 19

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.

Question 20

When profit-maximizing firms in competitive markets are earning profits,

Accepted Answer

A)  market demand must exceed market supply at the market equilibrium price.
B)  market supply must exceed market demand at the market equilibrium price.
C)  new firms will enter the market.
D)  the most inefficient firms will be encouraged to leave the market.

Exam 14: Firms in Competitive Markets

When economists refer to a production cost that has already been committed and cannot be recovered,they use the term

Correct AnswerverifiedShow Answer

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price,what effect would this have on the market?

Correct AnswerverifiedThe firm could not sell any more of its ...View AnswerShow Answer

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

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When profit-maximizing firms in competitive markets are earning profits,

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-If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market,the figure in panel (b) most likely reflects

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Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive market when price falls below the minimum of average variable cost?

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A certain competitive firm sells its output for $20 per unit.The 50th unit of output that the firm produces has a marginal cost of $22.Which of following is not necessarily true?

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Figure 14-5 The figure below depicts the cost structure of a firm in a competitive market. -Refer to Figure 14-5.When market price is P₁,a profit-maximizing firm's total revenue can be represented by the area

Correct AnswerverifiedShow Answer

When price is below average variable cost,a firm in a competitive market will

Correct AnswerverifiedShow Answer

Raiman's Shoe Repair also produces custom-made shoes.When Mr.Raiman produces 12 pairs a week,the marginal cost of the twelfth pair is $84,and the MR of that unit is $70.What would you advise Mr.Raiman to do?

Correct AnswerverifiedShow Answer

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

Mrs.Smith operates a business in a competitive market.The current market price is $8.50,and at her profit-maximizing level of production,the average variable cost is $8.00 and the average total cost is $8.25.

Correct AnswerverifiedShow Answer

A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

Correct AnswerverifiedShow Answer

When new entrants into a competitive market have higher costs than existing firms,

Correct AnswerverifiedShow Answer

Suppose a competitive market has a horizontal long-run supply curve and is in long-run equilibrium.If demand decreases,we can be certain that in the short-run,

Correct AnswerverifiedShow Answer

In the long run the market supply

Correct AnswerverifiedShow Answer

A distinctive feature of the average total cost curve is that it is upward sloping at every point.

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

When new firms enter a perfectly competitive market,

Correct AnswerverifiedShow Answer

Table 14-2 The following table presents cost and revenue information for Soper's Port Vineyard. -Refer to Table 14-2.Consumers are willing to pay $120 per unit of port wine.What is the average revenue when 4 units are sold?

Correct AnswerverifiedShow Answer

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