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Exam 13: Firms in Competitive Markets

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Question 141

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When price is greater than marginal cost for a firm in a competitive market,

A) marginal cost must be falling.
B) the firm must be minimizing its losses.
C) there are opportunities to increase profit by increasing production.
D) the firm should decrease output to maximize profit.

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

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Question 142

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Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market?

A) less than $2.50
B) more than $2.50
C) exactly $2.50
D) The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm.

E) A) and D)
F) A) and C)

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Question 143

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Why does a firm in a competitive industry charge the market price?

In the short-run, a firm's supply curve is equal to the

In the short run, a market consists of 100 identical firms. The market price is $8, 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?

All competitive firms earn zero economic profit in both the short run and the long run.

The short-run supply curve for a firm in a perfectly competitive market is

News reports from the western United States occasionally report incidents of cattle ranchers slaughtering a large number of newborn calves and burying them in mass graves rather than transporting them to markets. Assuming that this is rational behavior by profit-maximizing "firms," explain what economic factors may influence such behavior.

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

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

The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people

Suppose a competitive market is comprised of firms that face identical cost curves. The firms experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur? i) New firms will enter the market. Ii) In the short run, price will rise; in the long run, price will rise further. Iii) In the long run, all firms will be producing at their efficient scale.

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

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $4.75. The firm should continue to produce 100 units in order to maximize its profits or minimize its losses).

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 currently producing and selling 150 units of output. Should the firm increase its output to 151 units?

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. At which quantity of output is marginal revenue equal to marginal cost?

In the long run, a firm will enter a competitive industry if

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

Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's

A competitive firm's short-run supply curve is part of which of the following curves?