Question 1

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 2

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) A) and B)
F) A) and C)

Question 3

Table 14-12
Bill's Birdhouses 
-Refer to Table 14-12. What is the total revenue from selling 4 units?

Accepted Answer

A)   $80
B)   $137
C)   $320
D)   $480E) C) and D)
F) B) and C)

Question 4

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales. 
-Refer to Table 14-14. What is the marginal revenue of the 4th unit?

Accepted Answer

A)   $2.00
B)   $3.25
C)   $10.00
D)   $13.00E) All of the above
F) C) and D)

Question 5

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=500, the firm's profits equal

Accepted Answer

A)   $1,000.
B)   $4,000.
C)   $7,000.
D)   $10,000.E) C) and D)
F) A) and D)

Question 6

When a certain competitive firm produces and sells 100 units of output, marginal revenue is $80. When the same firm produces and sells 200 units of output, what is average revenue?

Accepted Answer

A)   $40
B)   $80
C)   $160
D)   This cannot be determined from the given information.E) A) and D)
F) None of the above

Question 7

If identical firms that remain in a competitive market over the long run make zero economic profit, why do these firms choose to remain in the market?

Accepted Answer

Because a normal rate of retur...

Question 8

Table 14-12
Bill's Birdhouses 
-Refer to Table 14-12. What is the marginal revenue from selling the 1st unit?

Accepted Answer

A)   $30
B)   $50
C)   $80
D)   $160E) None of the above
F) A) and B)

Question 9

Figure 14-9
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-9. The firm will exit the market for any price on the line segment

Accepted Answer

A)   ABCD.
B)   AB.
C)   CD.
D)   None of the above is correct.E) A) and B)
F) None of the above

Question 10

Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-4. When price falls from P3 to P1, the firm finds that it

Accepted Answer

A)   decreases its fixed costs.
B)   should produce Q1 units of output.
C)   should produce Q3 units of output.
D)   should shut down immediately.E) B) and C)
F) All of the above

Question 11

A firm operating in a perfectly competitive industry will shut down in the short run if its economic profits fall to zero because it is likely to be earning negative accounting profits.

Accepted Answer

A) True 
 B)False

Question 12

In order to maximize profits in the short run, a firm should produce where

Accepted Answer

A)   marginal revenue exceeds marginal cost by the greatest amount.
B)   marginal cost is minimized.
C)   average total cost is minimized.
D)   marginal cost equals marginal revenue.E) None of the above
F) B) and D)

Question 13

You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $6 value on reading a book.

Accepted Answer

A)   You should leave the theater since the net benefit from seeing the remainder of the show is -$20, while going home will earn you at least $8 of satisfaction.
B)   You should stay and watch the remainder of the show.
C)   You should go home and watch TV.
D)   You should go home and read a book.E) C) and D)
F) B) and D)

Question 14

A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its

Accepted Answer

A)   quantity of output is higher than it was previously.
B)   average total cost is higher than it was previously.
C)   marginal revenue is higher than it was previously.
D)   All of the above are correct.E) B) and D)
F) A) and B)

Question 15

In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

Accepted Answer

A) True 
 B)False

Question 16

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 profits equal

Accepted Answer

A)   $4,990.
B)   $5,000.
C)   $5,020.
D)   $5,030.E) All of the above
F) None of the above

Question 17

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15.

Accepted Answer

A)   In the short run firms will shut down, and in the long run firms will leave the market.
B)   In the short run firms will continue to operate, but in the long run firms will leave the market.
C)   New firms will likely enter this market to capture any remaining economic profits.
D)   The firm will earn zero profits in both the short run and long run.E) A) and D)
F) B) and D)

Question 18

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

Accepted Answer

1) Some resource used in production may ...

Question 19

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) C) and D)
F) A) and B)

Question 20

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 Pc, 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.E) A) and B)
F) A) and C)

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 profits equal

Correct Answer
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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=500, the firm's profits equal

Correct Answer
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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 Pc, in the short run the firm will earn

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

Correct Answer
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Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. -Refer to Table 14-14. What is the marginal revenue of the 4th unit?

Correct Answer
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Correct Answer
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In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

Correct Answer
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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 falls from P3 to P1, the firm finds that it

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

Correct Answer
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Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

Correct Answer
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1) Some resource used in production may ...
View Answer

When a certain competitive firm produces and sells 100 units of output, marginal revenue is $80. When the same firm produces and sells 200 units of output, what is average revenue?

Correct Answer
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A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its

Correct Answer
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Figure 14-9 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-9. The firm will exit the market for any price on the line segment

Correct Answer
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In a competitive market with identical firms,

Correct Answer
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Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the marginal revenue from selling the 1st unit?

Correct Answer
verified

If identical firms that remain in a competitive market over the long run make zero economic profit, why do these firms choose to remain in the market?

Correct Answer
verified
Because a normal rate of retur...
View Answer

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15.

Correct Answer
verified

In order to maximize profits in the short run, a firm should produce where

Correct Answer
verified

A firm operating in a perfectly competitive industry will shut down in the short run if its economic profits fall to zero because it is likely to be earning negative accounting profits.

Correct Answer
verified

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the total revenue from selling 4 units?

Correct Answer
verified

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 profits equal

Correct AnswerverifiedShow Answer

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=500, the firm's profits equal

Correct AnswerverifiedShow Answer

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 Pc, in the short run the firm will earn

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. -Refer to Table 14-14. What is the marginal revenue of the 4th unit?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

Correct AnswerverifiedShow Answer

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. When price falls from P3 to P1, the firm finds that it

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

Correct Answerverified1) Some resource used in production may ...View AnswerShow Answer

When a certain competitive firm produces and sells 100 units of output, marginal revenue is $80. When the same firm produces and sells 200 units of output, what is average revenue?

Correct AnswerverifiedShow Answer

A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its

Correct AnswerverifiedShow Answer

Figure 14-9 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-9. The firm will exit the market for any price on the line segment

Correct AnswerverifiedShow Answer

In a competitive market with identical firms,

Correct AnswerverifiedShow Answer

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the marginal revenue from selling the 1st unit?

Correct AnswerverifiedShow Answer

If identical firms that remain in a competitive market over the long run make zero economic profit, why do these firms choose to remain in the market?

Correct AnswerverifiedBecause a normal rate of retur...View AnswerShow Answer

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15.

Correct AnswerverifiedShow Answer

In order to maximize profits in the short run, a firm should produce where

Correct AnswerverifiedShow Answer

A firm operating in a perfectly competitive industry will shut down in the short run if its economic profits fall to zero because it is likely to be earning negative accounting profits.

Correct AnswerverifiedShow Answer

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the total revenue from selling 4 units?

Correct AnswerverifiedShow Answer

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1) Some resource used in production may ...
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Because a normal rate of retur...
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