Question 1

The competitive firm's short-run supply curve is that portion of the

Accepted Answer

A)   average variable cost curve that lies above marginal cost.
B)   average total cost curve that lies above marginal cost.
C)   marginal cost curve that lies above average variable cost.
D)   marginal cost curve that lies above average total cost.E) A) and B)
F) None of the above

Question 2

When a profit-maximizing competitive firm finds itself minimizing losses because it is unable to earn a positive profit,this task is accomplished by producing the quantity at which price is equal to

Accepted Answer

A)   sunk cost.
B)   average fixed cost.
C)   average variable cost.
D)   marginal cost.E) A) and B)
F) A) and C)

Question 3

The short-run market supply curve in a perfectly competitive industry

Accepted Answer

A)   shows the total quantity supplied by all firms at each possible price.
B)   is perfectly inelastic at the market price.
C)   is perfectly elastic at the market price.
D)   shows the variety of prices that different firms will charge for a given quantity.E) None of the above
F) A) and B)

Question 4

If marginal cost exceeds marginal revenue,the firm

Accepted Answer

A)   is most likely to be at a profit-maximizing level of output.
B)   should increase the level of production to maximize its profit.
C)   should reduce its average fixed cost in order to lower its marginal cost.
D)   may still be earning a positive accounting profit.E) C) and D)
F) A) and D)

Question 5

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) B) and D)
F) All of the above

Question 6

Because nothing can be done about sunk costs,they are irrelevant to decisions about business strategy.

Accepted Answer

A) True 
 B)False

Question 7

A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its

Accepted Answer

A)   opportunity costs.
B)   fixed costs.
C)   variable costs.
D)   total costs.E) C) and D)
F) B) and C)

Question 8

When price is below average variable cost,a firm in a competitive market will

Accepted Answer

A)   shut down and incur fixed costs.
B)   shut down and incur both variable and fixed costs.
C)   continue to operate as long as average revenue exceeds marginal cost.
D)   continue to operate as long as average revenue exceeds average fixed cost.E) B) and C)
F) C) and D)

Question 9

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) All of the above

Question 10

The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.

Accepted Answer

A) True 
 B)False

Question 11

Suppose a firm operates in the short run at a price above its average total cost of production.In the long run the firm should expect

Accepted Answer

A)   new firms to enter the market.
B)   the market price to fall.
C)   its profits to fall.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 12

In a competitive market,

Accepted Answer

A)   no single buyer or seller can influence the price of the product.
B)   there are only a small number of sellers.
C)   the goods offered by the different sellers are unique.
D)   accounting profit is driven to zero as firms freely enter and exit the market.E) None of the above
F) A) and B)

Question 13

Whenever a perfectly competitive firm chooses to change its level of output,its marginal revenue

Accepted Answer

A)   increases if MR  ATC.
B)   does not change.
C)   increases.
D)   decreases.E) A) and D)
F) B) and C)

Question 14

A competitive firm has been selling its output for $10 per unit and has been maximizing its profit.Then,the price rises to $14,and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price.Once the firm has adjusted,which of the following statements is correct?

Accepted Answer

A)   The firm's marginal revenue is lower than it was previously.
B)   The firm's marginal cost is lower than it was previously.
C)   The firm's quantity of output is higher than it was previously.
D)   All of the above are correct.E) None of the above
F) A) and D)

Question 15

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

Accepted Answer

A)   there will be no change in the demand curves faced by individual firms in the market.
B)   the demand curves for firms will shift downward.
C)   the demand curves for firms will become more elastic.
D)   profits will rise.E) None of the above
F) C) and D)

Question 16

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue,then

Accepted Answer

A)   a one-unit increase in output will increase the firm's profit.
B)   a one-unit decrease in output will increase the firm's profit.
C)   total revenue exceeds total cost.
D)   total cost exceeds total revenue.E) A) and B)
F) A) and C)

Question 17

For a competitive firm,

Accepted Answer

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

Question 18

Figure 14-10 
-Refer to Figure 14-10.If the price is P1 in the short run,what will happen in the long run?

Accepted Answer

A)   Nothing.The price is consistent with zero economic profits,so there is no incentive for firms to enter or exit the industry.
B)   Individual firms will earn positive economic profits in the short run,which will entice other firms to enter the industry.
C)   Individual firms will earn negative economic profits in the short run,which will cause some firms to exit the industry.
D)   Because the price is below the firm's average variable costs,the firms will shut down.E) A) and B)
F) A) and C)

Question 19

When a profit-maximizing firm's fixed costs are considered sunk in the short run,then the firm

Accepted Answer

A)   can set price above marginal cost.
B)   must set price below average total cost.
C)   will never show losses.
D)   can safely ignore fixed costs when deciding how much output to produce.E) A) and B)
F) A) and C)

Question 20

In a competitive market the current price is $7,and the typical firm in the market has ATC = $7.50 and AVC = $7.15.

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 B)
F) A) and C)

Exam 14: Firms in Competitive Markets

The competitive firm's short-run supply curve is that portion of the

Correct Answer
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Figure 14-10 -Refer to Figure 14-10.If the price is P1 in the short run,what will happen in the long run?

Correct Answer
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For a competitive firm,

Correct Answer
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Correct Answer
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When a profit-maximizing firm's fixed costs are considered sunk in the short run,then the firm

Correct Answer
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Because nothing can be done about sunk costs,they are irrelevant to decisions about business strategy.

Correct Answer
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If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue,then

Correct Answer
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In a long-run equilibrium,the marginal firm has

Correct Answer
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When a profit-maximizing competitive firm finds itself minimizing losses because it is unable to earn a positive profit,this task is accomplished by producing the quantity at which price is equal to

Correct Answer
verified

The short-run market supply curve in a perfectly competitive industry

Correct Answer
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The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.

Correct Answer
verified

A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its

Correct Answer
verified

Suppose a firm operates in the short run at a price above its average total cost of production.In the long run the firm should expect

Correct Answer
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A competitive firm has been selling its output for $10 per unit and has been maximizing its profit.Then,the price rises to $14,and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price.Once the firm has adjusted,which of the following statements is correct?

Correct Answer
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In a competitive market,

Correct Answer
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Whenever a perfectly competitive firm chooses to change its level of output,its marginal revenue

Correct Answer
verified

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

Correct Answer
verified

In a competitive market the current price is $7,and the typical firm in the market has ATC = $7.50 and AVC = $7.15.

Correct Answer
verified

If marginal cost exceeds marginal revenue,the firm

Correct Answer
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When price is below average variable cost,a firm in a competitive market will

Correct Answer
verified

Exam 14: Firms in Competitive Markets

The competitive firm's short-run supply curve is that portion of the

Correct AnswerverifiedShow Answer

Figure 14-10 -Refer to Figure 14-10.If the price is P1 in the short run,what will happen in the long run?

Correct AnswerverifiedShow Answer

For a competitive firm,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a profit-maximizing firm's fixed costs are considered sunk in the short run,then the firm

Correct AnswerverifiedShow Answer

Because nothing can be done about sunk costs,they are irrelevant to decisions about business strategy.

Correct AnswerverifiedShow Answer

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue,then

Correct AnswerverifiedShow Answer

In a long-run equilibrium,the marginal firm has

Correct AnswerverifiedShow Answer

When a profit-maximizing competitive firm finds itself minimizing losses because it is unable to earn a positive profit,this task is accomplished by producing the quantity at which price is equal to

Correct AnswerverifiedShow Answer

The short-run market supply curve in a perfectly competitive industry

Correct AnswerverifiedShow Answer

The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.

Correct AnswerverifiedShow Answer

A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its

Correct AnswerverifiedShow Answer

Suppose a firm operates in the short run at a price above its average total cost of production.In the long run the firm should expect

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a competitive market,

Correct AnswerverifiedShow Answer

Whenever a perfectly competitive firm chooses to change its level of output,its marginal revenue

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In a competitive market the current price is $7,and the typical firm in the market has ATC = $7.50 and AVC = $7.15.

Correct AnswerverifiedShow Answer

If marginal cost exceeds marginal revenue,the firm

Correct AnswerverifiedShow Answer

When price is below average variable cost,a firm in a competitive market will

Correct AnswerverifiedShow Answer

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