Question 1

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 2

When firms in a perfectly competitive market face the same costs,in the long run they must be operating

Accepted Answer

A)   under diseconomies of scale.
B)   with small, but positive, levels of profit.
C)   at their efficient scale.
D)   where price is equal to average fixed cost.E) A) and D)
F) A) and C)

Question 3

When entry and exit behavior of firms in an industry does not affect a firm's cost structure,

Accepted Answer

A)   the long-run market supply curve must be horizontal.
B)   the long-run market supply curve must be upward-sloping.
C)   the long-run market supply curve must be downward-sloping.
D)   we do not have sufficient information to determine the shape of the long-run market supply curve.E) All of the above
F) B) and D)

Question 4

Scenario 14-3
Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20.
-Refer to Scenario 14-3.At Q=499,the firm's total costs equal

Accepted Answer

A)   $5,983.
B)   $5,988.
C)   $5,995.
D)   $5,999.E) A) and B)
F) All of the above

Question 5

Which of these types of costs can be ignored when an individual or a firm is making decisions?

Accepted Answer

A)   sunk costs
B)   marginal costs
C)   variable costs
D)   opportunity costsE) A) and D)
F) C) and D)

Question 6

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 enter the industry.E) C) and D)
F) A) and D)

Question 7

Table 14-8
Suppose that a firm in a competitive market faces the following revenues and costs:
 
-Refer to Table 14-8.The firm will not produce an output level beyond

Accepted Answer

A)   4 units.
B)   5 units.
C)   6 units.
D)   7 units.E) None of the above
F) A) and C)

Question 8

In a competitive market with identical firms,

Accepted Answer

A)   an increase in demand in the short run will result in a new price above the minimum of average total cost, allowing firms to earn a positive economic profit in both the short run and the long run.
B)   firms cannot earn positive economic profit in either the short run or long run.
C)   firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping.
D)   free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.E) B) and C)
F) A) and B)

Question 9

The Doris Dairy Farm sells milk to a dairy broker in Prairie du Chien,Wisconsin.Because the market for milk is generally considered to be competitive,the Doris Dairy Farm does not choose the

Accepted Answer

A)   quantity of milk to produce.
B)   price at which it sells its milk.
C)   profits it earns.
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 10

Free entry means that

Accepted Answer

A)   the government pays any entry costs for individual firms.
B)   no legal barriers prevent a firm from entering an industry.
C)   a firm's marginal cost is zero.
D)   a firm has no fixed costs in the short run.E) A) and B)
F) A) and C)

Question 11

Regardless of the cost structure of firms in a competitive market,in the long run

Accepted Answer

A)   firms will experience rising demand for their products.
B)   the marginal firm will earn zero economic profit.
C)   firms will experience a less competitive market environment.
D)   exit and entry is likely to lead to a horizontal long-run supply curve.E) A) and D)
F) B) and C)

Question 12

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves:
 
-Refer to Figure 14-5.In the short run,if the market price is higher than P4 but less than P6,individual firms in a competitive industry will earn

Accepted Answer

A)   positive profits.
B)   zero profits.
C)   losses but will remain in business.
D)   losses and will shut down.E) A) and D)
F) A) and C)

Question 13

If a firm operating in a competitive industry shuts down in the short run,it can avoid paying

Accepted Answer

A)   fixed costs.
B)   variable costs.
C)   total costs.
D)   The firm must pay all its costs, even if it shuts down.E) None of the above
F) B) and C)

Question 14

Which of the following statements regarding a competitive market is not correct?

Accepted Answer

A)   There are many buyers and many sellers in the market.
B)   Firms can freely enter or exit the market.
C)   Price equals average revenue.
D)   Price exceeds marginal revenue.E) C) and D)
F) A) and C)

Question 15

A firm in a competitive market has the following cost structure: 
If the firm's fixed cost of production is $3,and the market price is $10,how many units should the firm produce to maximize profit?

Accepted Answer

A)   1 unit
B)   2 units
C)   3 units
D)   4 unitsE) B) and C)
F) A) and D)

Question 16

A firm operating in a perfectly competitive industry will continue to operate if it earns zero economic profits because it is likely to be earning positive accounting profits.

Accepted Answer

A) True 
 B)False

Question 17

In a long-run equilibrium,the marginal firm has

Accepted Answer

A)   price equal to average total cost.
B)   total revenue equal to total cost.
C)   economic profit equal to zero.
D)   All of the above are correct.E) B) and C)
F) C) and D)

Question 18

Profit-maximizing firms enter a competitive market when existing firms in that market have

Accepted Answer

A)   total revenues that exceed fixed costs.
B)   total revenues that exceed total variable costs.
C)   average total costs that exceed average revenue.
D)   average total costs less than market price.E) A) and B)
F) A) and C)

Question 19

If a competitive firm is selling 1,000 units of its product at a price of $9 per unit and earning a positive profit,then

Accepted Answer

A)   its total cost is less than $9,000.
B)   its marginal revenue is less than $9.
C)   its average revenue is greater than $9.
D)   the firm cannot be a competitive firm because competitive firms cannot earn positive profits.E) B) and D)
F) All of the above

Question 20

For a firm operating in a perfectly competitive industry,total revenue,marginal revenue,and average revenue are all equal.

Accepted Answer

A) True 
 B)False

Exam 14: Firms in Competitive Markets.

If a firm operating in a competitive industry shuts down in the short run,it can avoid paying

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Profit-maximizing firms enter a competitive market when existing firms in that market have

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Free entry means that

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Which of the following statements regarding a competitive market is not correct?

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In a long-run equilibrium,the marginal firm has

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If a competitive firm is selling 1,000 units of its product at a price of $9 per unit and earning a positive profit,then

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The Doris Dairy Farm sells milk to a dairy broker in Prairie du Chien,Wisconsin.Because the market for milk is generally considered to be competitive,the Doris Dairy Farm does not choose the

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Which of these types of costs can be ignored when an individual or a firm is making decisions?

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When entry and exit behavior of firms in an industry does not affect a firm's cost structure,

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A firm in a competitive market has the following cost structure: If the firm's fixed cost of production is $3,and the market price is $10,how many units should the firm produce to maximize profit?

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For a firm operating in a perfectly competitive industry,total revenue,marginal revenue,and average revenue are all equal.

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Scenario 14-3 Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. -Refer to Scenario 14-3.At Q=499,the firm's total costs equal

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Regardless of the cost structure of firms in a competitive market,in the long run

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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,

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A firm operating in a perfectly competitive industry will continue to operate if it earns zero economic profits because it is likely to be earning positive accounting profits.

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

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In a competitive market with identical firms,

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Table 14-8 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-8.The firm will not produce an output level beyond

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When firms in a perfectly competitive market face the same costs,in the long run they must be operating

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Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5.In the short run,if the market price is higher than P4 but less than P6,individual firms in a competitive industry will earn

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