Question 1

Scenario 14-4
The information below applies to a competitive firm that sells its output for $40 per unit.
-When the firm produces and sells 150 units of output, its average total cost is $24.50.
-When the firm produces and sells 151 units of output, its average total cost is $24.55.
-Refer to Scenario 14-4. Suppose the firm is producing 150 units of output and its fixed cost is $975. Then its variable cost amounts to

Accepted Answer

A)   $2,360.25.
B)   $2,500.00.
C)   $2,612.75.
D)   $2,700.00.E) A) and B)
F) None of the above

Question 2

Figure 14-9
In the figure below, panel (a)  depicts the linear marginal cost of a firm in a competitive market, and panel (b)  depicts the linear market supply curve for a market with a fixed number of identical firms.
 
-Refer to Figure 14-9. If there are 600 identical firms in this market, what is the value of Q1?

Accepted Answer

A)   6,000
B)   12,000
C)   60,000
D)   120,000E) A) and C)
F) B) and C)

Question 3

Which of the following statements regarding a competitive firm is correct?

Accepted Answer

A)   Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output.
B)   If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units.
C)   By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price.
D)   For all firms, average revenue equals the price of the good.E) All of the above
F) None of the above

Question 4

Suppose you value a special watch at $100. You purchase it for $75. On your way home from class one day, you lose the watch. The store is still selling the same watch, but the price has risen to $85. Assume that losing the watch has not altered how you value it. What should you do?

Accepted Answer

A)   Pay the $85 to buy the watch.
B)   Wait to see if the watch goes on sale. If the price drops to $75 or less, buy the watch.
C)   Wait to see if the watch goes on sale. If the price drops to $25 or less, buy the watch.
D)   Do not buy the watch.E) A) and C)
F) A) and B)

Question 5

For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price.

Accepted Answer

A) True 
 B)False

Question 6

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) B) and C)
F) None of the above

Question 7

When new firms enter a perfectly competitive market,

Accepted Answer

A)   economic profits of existing firms will continue to be zero.
B)   entering firms will earn zero economic profit upon entry into the market.
C)   existing firms may see their costs rise if more firms compete for limited resources.
D)   prices will rise as existing firms raise prices to keep new firms out of the market.E) B) and C)
F) None of the above

Question 8

The term shutdown

Accepted Answer

A)   and the term exit both refer to short-run decisions that a firm might make.
B)   and the term exit both refer to long-run decisions that a firm might make.
C)   refers to a short-run decision that a firm might make, whereas the term exit refers to a long-run decision that a firm might make.
D)   refers to a long-run decision that a firm might make, whereas the term exit refers to a short-run decision that a firm might make.E) B) and C)
F) None of the above

Question 9

Scenario 14-4
Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year.
-Refer to Scenario 14-4. At the end of the first year of operating his new business, Victor's accountant reported an accounting profit of $150,000. What was Victor's economic profit?

Accepted Answer

A)   -$150,000
B)   -$50,000
C)   -$25,000
D)   $25,000E) B) and D)
F) B) and C)

Question 10

A firm in a competitive market has the following cost structure:  If the market price is $8, how many units of output should the firm produce to maximize profit?

Accepted Answer

A)   5 units
B)   6 units
C)   7 units
D)   8 unitsE) None of the above
F) A) and B)

Question 11

Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

Accepted Answer

The firm selects the level of output at ...

Question 12

A key characteristic of a competitive market is that

Accepted Answer

A)   government antitrust laws regulate competition.
B)   producers sell nearly identical products.
C)   firms minimize total costs.
D)   firms have price setting power.E) A) and D)
F) A) and C)

Question 13

List and describe the characteristics of a perfectly competitive market.

Accepted Answer

There are many buyers and sell...

Question 14

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct? (i)  Marginal revenue equals $4.
(ii)  Average revenue equals $100.
(iii)  Total revenue equals $1,600.

Accepted Answer

A)   (i)  only
B)   (iii)  only
C)   (i)  and (iii)  only
D)   (i) , (ii) , and (iii) E) All of the above
F) A) and B)

Question 15

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs:
 
-Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will the firm earn?

Accepted Answer

A)   $2
B)   $4
C)   $6
D)   $8E) A) and B)
F) B) and C)

Question 16

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.E) None of the above
F) All of the above

Question 17

In a competitive market with free entry and exit, if all firms have the same cost structure, then

Accepted Answer

A)   all firms will operate at their efficient scale in the short run.
B)   all firms will operate at their efficient scale in the long run.
C)   the price of the product will differ across firms.
D)   Both a and b are correct.E) C) and D)
F) B) and D)

Question 18

Scenario 14-4
The information below applies to a competitive firm that sells its output for $40 per unit.
-When the firm produces and sells 150 units of output, its average total cost is $24.50.
-When the firm produces and sells 151 units of output, its average total cost is $24.55.
-Refer to Scenario 14-4. How does the firm's marginal revenue (MR)  compare to its marginal cost (MC)  when it increases its output from 150 units to 151 units?

Accepted Answer

A)   MR exceeds MC by $7.95.
B)   MR exceeds MC by $11.05.
C)   MC exceeds MR by $11.05.
D)   MC exceeds MR by $13.50.E) A) and B)
F) A) and C)

Question 19

At its current level of production a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces and faces an average total cost of $10. At the market price of $12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1,000 units. What is the firm's current profit? What is likely to occur in this market and why?

Accepted Answer

Profit can be calculated as (P...

Question 20

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

Exam 14: Firms in Competitive Markets

When new firms enter a perfectly competitive market,

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

Correct Answer
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Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will the firm earn?

Correct Answer
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In a competitive market with free entry and exit, if all firms have the same cost structure, then

Correct Answer
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When new firms enter a perfectly competitive market,

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Suppose you value a special watch at $100. You purchase it for $75. On your way home from class one day, you lose the watch. The store is still selling the same watch, but the price has risen to $85. Assume that losing the watch has not altered how you value it. What should you do?

Correct Answer
verified

Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

Correct Answer
verified
The firm selects the level of output at ...
View 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 Answer
verified

List and describe the characteristics of a perfectly competitive market.

Correct Answer
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There are many buyers and sell...
View Answer

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct? (i) Marginal revenue equals $4. (ii) Average revenue equals $100. (iii) Total revenue equals $1,600.

Correct Answer
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Which of the following statements regarding a competitive firm is correct?

Correct Answer
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The term shutdown

Correct Answer
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A firm in a competitive market has the following cost structure: If the market price is $8, how many units of output should the firm produce to maximize profit?

Correct Answer
verified

A key characteristic of a competitive market is that

Correct Answer
verified

Correct Answer
verified
Profit can be calculated as (P...
View Answer

For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price.

Correct Answer
verified

Exam 14: Firms in Competitive Markets

When new firms enter a perfectly competitive market,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will the firm earn?

Correct AnswerverifiedShow Answer

In a competitive market with free entry and exit, if all firms have the same cost structure, then

Correct AnswerverifiedShow Answer

When new firms enter a perfectly competitive market,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose you value a special watch at $100. You purchase it for $75. On your way home from class one day, you lose the watch. The store is still selling the same watch, but the price has risen to $85. Assume that losing the watch has not altered how you value it. What should you do?

Correct AnswerverifiedShow Answer

Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

Correct AnswerverifiedThe firm selects the level of output at ...View AnswerShow 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

List and describe the characteristics of a perfectly competitive market.

Correct AnswerverifiedThere are many buyers and sell...View AnswerShow Answer

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct? (i) Marginal revenue equals $4. (ii) Average revenue equals $100. (iii) Total revenue equals $1,600.

Correct AnswerverifiedShow Answer

Which of the following statements regarding a competitive firm is correct?

Correct AnswerverifiedShow Answer

The term shutdown

Correct AnswerverifiedShow Answer

A firm in a competitive market has the following cost structure: If the market price is $8, how many units of output should the firm produce to maximize profit?

Correct AnswerverifiedShow Answer

A key characteristic of a competitive market is that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedProfit can be calculated as (P...View AnswerShow Answer

For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price.

Correct AnswerverifiedShow Answer

Correct Answer
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The firm selects the level of output at ...
View Answer

Correct Answer
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Correct Answer
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There are many buyers and sell...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Profit can be calculated as (P...
View Answer

Correct Answer
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