Question 1

Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $200. In order to maximize profits, Laura should

Accepted Answer

A)   make more than 20 wedding cakes per month.
B)   make fewer than 20 wedding cakes per month.
C)   continue to make 20 wedding cakes per month.
D)   We do not have enough information to answer the question.E) A) and B)
F) A) and C)

Question 2

The long-run market supply curve in a competitive market will

Accepted Answer

A)   always be horizontal.
B)   be the portion of the MC that lies above the minimum of AVC for the marginal firm.
C)   typically be more elastic than the short-run supply curve.
D)   be above the competitive firm's efficient scale.E) A) and B)
F) B) and D)

Question 3

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

Question 4

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

Accepted Answer

A)   more than triple.
B)   less than triple.
C)   exactly triple.
D)   Any of the above may be true depending on the firm's labor productivity.E) B) and C)
F) A) and D)

Question 5

A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run.

Accepted Answer

A) True 
 B)False

Question 6

A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.

Accepted Answer

A) True 
 B)False

Question 7

Suppose that firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to

Accepted Answer

A)   increase.
B)   decrease.
C)   remain the same.
D)   We do not have enough information with which to answer this question.E) A) and D)
F) None of the above

Question 8

Free entry means that

Accepted Answer

A)   the government pays any entry costs for individual firms.
B)   government-funded research lowers the costs of patents and other barriers to entry.
C)   a firm's marginal cost is zero.
D)   no legal barriers prevent a firm from entering an industry.E) C) and D)
F) None of the above

Question 9

For any given price, a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the

Accepted Answer

A)   average total cost curve.
B)   average variable cost curve.
C)   marginal cost curve.
D)   marginal revenue curve.E) B) and C)
F) A) and D)

Question 10

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

Question 11

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $6, and is earning $240 economic profit in the short run. What is the current market price?

Accepted Answer

A)   $0
B)   $6
C)   $10
D)   $12E) B) and C)
F) All of the above

Question 12

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. If the market price rises above $6.30, the firm will earn

Accepted Answer

A)   positive economic profits in the short run.
B)   negative economic profits in the short run but remain in business.
C)   negative economic profits and shut down.
D)   zero economic profits in the short run.E) A) and B)
F) All of the above

Question 13

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run

Accepted Answer

A)   more firms will enter the market.
B)   some firms will exit from the market.
C)   the equilibrium price per bottle will rise
D)   average total costs will rise.E) B) and C)
F) All of the above

Question 14

If Bradley's Butcher Shop sells its product in a competitive market, then

Accepted Answer

A)   the price of that product depends on the quantity of the product that Bradley's Butcher Shop produces and sells because the firm's demand curve is downward sloping.
B)   Bradley's Butcher Shop's total cost must be a constant multiple of its quantity of output.
C)   Bradley's Butcher Shop's total revenue must be proportional to its quantity of output.
D)   Bradley's Butcher Shop's total revenue must be equal to its average revenue.E) B) and D)
F) B) and C)

Question 15

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $4.50.

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

Question 16

In the short run, a market consists of 100 identical firms. The market price is $6, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market?

Accepted Answer

A)   100 units
B)   200 units
C)   300 units
D)   400 unitsE) A) and D)
F) A) and C)

Question 17

Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has earned $4,500 in monthly revenue. In the short run, Susan should

Accepted Answer

A)   shut down her business, and in the long run she should exit the industry.
B)   continue to operate her business, but in the long run she should exit the industry.
C)   continue to operate her business, but in the long run she will probably face competition from newly entering firms.
D)   continue to operate her business, and she is also in long-run equilibrium.E) B) and C)
F) All of the above

Question 18

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.E) All of the above
F) A) and D)

Question 19

When buyers in a competitive market take the selling price as given, they are said to be

Accepted Answer

A)   market entrants.
B)   monopolists.
C)   free riders.
D)   price takers.E) All of the above
F) A) and B)

Question 20

Which of the following is not a characteristic of a perfectly competitive market?

Accepted Answer

A)   There are many buyers and sellers.
B)   Firms can freely enter and exit the market.
C)   Many firms have market power.
D)   Firms sell very similar products.E) None of the above
F) A) and D)

Exam 13: Firms in Competitive Markets

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run

Correct Answer
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Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price rises above $6.30, the firm will earn

Correct Answer
verified

A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.

Correct Answer
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Which of the following is not a characteristic of a perfectly competitive market?

Correct Answer
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In the short run, a market consists of 100 identical firms. The market price is $6, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market?

Correct Answer
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For any given price, a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the

Correct Answer
verified

A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run.

Correct Answer
verified

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

Correct Answer
verified

When buyers in a competitive market take the selling price as given, they are said to be

Correct Answer
verified

If Bradley's Butcher Shop sells its product in a competitive market, then

Correct Answer
verified

The long-run market supply curve in a competitive market will

Correct Answer
verified

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

Correct Answer
verified

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $4.50.

Correct Answer
verified

Suppose that firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to

Correct Answer
verified

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

Correct Answer
verified

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $6, and is earning $240 economic profit in the short run. What is the current market price?

Correct Answer
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Free entry means that

Correct Answer
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Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $200. In order to maximize profits, Laura should

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

Exam 13: Firms in Competitive Markets

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run

Correct AnswerverifiedShow Answer

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price rises above $6.30, the firm will earn

Correct AnswerverifiedShow Answer

A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.

Correct AnswerverifiedShow Answer

Which of the following is not a characteristic of a perfectly competitive market?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the short run, a market consists of 100 identical firms. The market price is $6, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market?

Correct AnswerverifiedShow Answer

For any given price, a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the

Correct AnswerverifiedShow Answer

A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When buyers in a competitive market take the selling price as given, they are said to be

Correct AnswerverifiedShow Answer

If Bradley's Butcher Shop sells its product in a competitive market, then

Correct AnswerverifiedShow Answer

The long-run market supply curve in a competitive market will

Correct AnswerverifiedShow Answer

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

Correct AnswerverifiedShow Answer

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $4.50.

Correct AnswerverifiedShow Answer

Suppose that firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $6, and is earning $240 economic profit in the short run. What is the current market price?

Correct AnswerverifiedShow Answer

Free entry means that

Correct AnswerverifiedShow Answer

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

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