Question 1

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 2

If the profit­maximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm

Accepted Answer

A)   will be earning positive economic profit at the profit-maximizing quantity.
B)   will have economic profit less than zero at the profit-maximizing quantity.
C)   will have zero economic profit at the profit-maximizing quantity.
D)   should increase the quantity of production to increase profit.

Question 3

Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct? i)  Marginal revenue equals $5.
Ii)  Average revenue equals $5.
Iii)  Price equals $5.

Accepted Answer

A)   i)  only
B)   iii)  only
C)   i)  and ii)  only
D)   i) , ii) , and iii)

Question 4

When firms are said to be price takers, it implies that if a firm raises its price,

Accepted Answer

A)   buyers will go elsewhere.
B)   buyers will pay the higher price in the short run.
C)   competitors will also raise their prices.
D)   firms in the industry will exercise market power.

Question 5

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)   $25,000

Question 6

Table 14-5
The table represents a demand curve faced by a firm in a competitive market.
 
-Refer to Table 14-5. For this firm, the price of the product is

Accepted Answer

A)   $9.
B)   $11.
C)   $13.
D)   $15.

Question 7

Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company's financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger's

Accepted Answer

A)   total revenues equal his total economic costs.
B)   marginal revenue exceeds his total cost.
C)   marginal revenue exceeds his marginal cost.
D)   marginal cost exceeds his marginal revenue.

Question 8

In a long-run equilibrium, the marginal firm has

Accepted Answer

A)   price equal to minimum marginal cost.
B)   total revenue equal to total cost.
C)   accounting profit equal to zero.
D)   All of the above are correct.

Question 9

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.

Question 10

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 total revenue from selling 5 units?

Accepted Answer

A)   $2.50
B)   $3.25
C)   $12.50
D)   $16.25

Question 11

When fixed costs are ignored because they are irrelevant to a business's production decision, they are called

Accepted Answer

A)   explicit costs.
B)   implicit costs.
C)   sunk costs.
D)   opportunity costs.

Question 12

If there is an increase in market demand in a perfectly competitive market, then in the short run prices will

Accepted Answer

A)   rise.
B)   remain unchanged at the minimum of average total cost.
C)   fall.
D)   remain unchanged at the minimum of marginal cost.

Question 13

In the long run, a profit-maximizing firm will choose to exit a market when

Accepted Answer

A)   average fixed cost is falling.
B)   variable costs exceed sunk costs.
C)   marginal cost exceeds marginal revenue at the current level of production.
D)   total revenue is less than total cost.

Question 14

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 15

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:
 
-Refer to Table 14-11. The marginal revenue from producing the 5th unit equals i)  $6.
Ii)  the price.
Iii)  the marginal cost.

Accepted Answer

A)   i)  only
B)   i)  and ii)  only
C)   iii)  only
D)   i) , ii) , and iii)

Question 16

By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that achieves its objective, which we assume to be

Accepted Answer

A)   maximizing total revenue.
B)   maximizing profit.
C)   minimizing variable cost.
D)   minimizing average total cost.

Question 17

Table 14-2
The table represents a demand curve faced by a firm in a competitive market.
 
-Refer to Table 14-2. For this firm, the average revenue from selling 3 units is

Accepted Answer

A)   $12.
B)   $4.
C)   $3.
D)   $1.

Question 18

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, in the short run the firm will

Accepted Answer

A)   experience losses but will continue to produce rubber bands.
B)   shut down.
C)   earn both economic and accounting profits.
D)   raise the price of its product.

Question 19

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 300 identical firms in this market, what level of output will be supplied to the market when price is $2.00?

Accepted Answer

A)   300
B)   6,000
C)   30,000
D)   60,000

Question 20

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

Accepted Answer

A)   $5 and 50 units
B)   $5 and 100 units
C)   $10 and 50 units
D)   $10 and 100 units

Exam 13: Firms in Competitive Markets

Table 14-5 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-5. For this firm, the price of the product is

Correct Answer
verified

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

Correct Answer
verified

Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company's financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger's

Correct Answer
verified

In a long-run equilibrium, the marginal firm has

Correct Answer
verified

If the profitmaximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm

Correct Answer
verified

Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11. The marginal revenue from producing the 5th unit equals i) $6. Ii) the price. Iii) the marginal cost.

Correct Answer
verified

Correct Answer
verified

Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct? i) Marginal revenue equals $5. Ii) Average revenue equals $5. Iii) Price equals $5.

Correct Answer
verified

If there is an increase in market demand in a perfectly competitive market, then in the short run prices will

Correct Answer
verified

Correct Answer
verified

Table 14-2 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-2. For this firm, the average revenue from selling 3 units is

Correct Answer
verified

When fixed costs are ignored because they are irrelevant to a business's production decision, they are called

Correct Answer
verified

When firms are said to be price takers, it implies that if a firm raises its price,

Correct Answer
verified

In the long run, a profit-maximizing firm will choose to exit a market when

Correct Answer
verified

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?

Correct Answer
verified

By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that achieves its objective, which we assume to be

Correct Answer
verified

In a competitive market with identical firms,

Correct Answer
verified

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, in the short run the firm will

Correct Answer
verified

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 Answer
verified

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 total revenue from selling 5 units?

Correct Answer
verified

Exam 13: Firms in Competitive Markets

Table 14-5 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-5. For this firm, the price of the product is

Correct AnswerverifiedShow Answer

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

Correct AnswerverifiedShow Answer

Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company's financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger's

Correct AnswerverifiedShow Answer

In a long-run equilibrium, the marginal firm has

Correct AnswerverifiedShow Answer

If the profit­maximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm

Correct AnswerverifiedShow Answer

Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11. The marginal revenue from producing the 5th unit equals i) $6. Ii) the price. Iii) the marginal cost.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct? i) Marginal revenue equals $5. Ii) Average revenue equals $5. Iii) Price equals $5.

Correct AnswerverifiedShow Answer

If there is an increase in market demand in a perfectly competitive market, then in the short run prices will

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Table 14-2 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-2. For this firm, the average revenue from selling 3 units is

Correct AnswerverifiedShow Answer

When fixed costs are ignored because they are irrelevant to a business's production decision, they are called

Correct AnswerverifiedShow Answer

When firms are said to be price takers, it implies that if a firm raises its price,

Correct AnswerverifiedShow Answer

In the long run, a profit-maximizing firm will choose to exit a market when

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that achieves its objective, which we assume to be

Correct AnswerverifiedShow Answer

In a competitive market with identical firms,

Correct AnswerverifiedShow Answer

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, in the short run the firm will

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

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 total revenue from selling 5 units?

Correct AnswerverifiedShow Answer

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If the profitmaximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm

Correct Answer
verified

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