Question 1

Suppose a firm is considering producing zero units of output. We call this exiting an industry in the short run and shutting down in the long run.

Accepted Answer

A) True 
 B)False

Question 2

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

Accepted Answer

Average revenue is total revenue divided...

Question 3

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)   $11.
B)   $9.
C)   $13.
D)   $15.E) B) and D)
F) All of the above

Question 4

Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-3. The firm will earn positive economic profit if the market price is

Accepted Answer

A)   above $6.
B)   positive.
C)   $6.
B)   There is no price at which the firm earns positive economic profits.C) All of the above
D) C) and B)

Question 5

When a perfectly competitive firm decides to shut down, it is most likely that

Accepted Answer

A)   marginal cost is above average variable cost.
B)   marginal cost is above average total cost.
C)   price is below the firm's average variable cost.
D)   fixed costs exceed variable costs.E) All of the above
F) A) and D)

Question 6

Table 14-4
The table represents a demand curve faced by a firm in a competitive market.
 
-Refer to Table 14-4. For this firm, the average revenue is

Accepted Answer

A)   $0.
B)   $5.
C)   $10.
D)   $15.E) All of the above
F) B) and C)

Question 7

Who is a price taker in a competitive market?

Accepted Answer

A)   buyers only
B)   sellers only
C)   both buyers and sellers
D)   neither buyers nor sellersE) B) and C)
F) A) and D)

Question 8

Table 14-1
 
-Refer to Table 14-1. Over which range of output is average revenue equal to price?

Accepted Answer

A)   1 to 5 units
B)   3 to 7 units
C)   5 to 9 units
D)   Average revenue is equal to price over the entire range of output.E) B) and C)
F) A) and D)

Question 9

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

Accepted Answer

A)   decreases in production costs resulting from more firms coming into the market.
B)   a breakdown of the "free entry and exit" feature of competition.
C)   a breakdown of the "price taking" feature of competition.
D)   the fact that a resource used in the production of the good is available only in limited quantities.E) A) and B)
F) B) and D)

Question 10

Scenario 14-3
Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20.
-Refer to Scenario 14-3. At Q=499, the firm's total costs equal

Accepted Answer

A)   $5,983.
B)   $5,988.
C)   $5,995.
D)   $5,999.E) A) and C)
F) A) and B)

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

A firm operating in a perfectly competitive industry will shut down in the short run but earn losses if the market price
is less than that firm's average variable cost.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)   If a firm charges less than the market price, it loses potential revenue.
B)   If a firm charges more than the market price, it loses all its market power.
C)   The firm can only sell limited number of units of output, so it wants to sell at the market price in order to lower its costs.
D)   All of the above are correct.E) C) and D)
F) None of the above

Question 14

A firm's marginal cost has a minimum value of $80, its average variable cost has a minimum value of $90, and its average total cost has a minimum value of $100. Then the firm will shut down in the short run once the price of its product falls below

Accepted Answer

A)   $100.
B)   $90.
C)   $80.
D)   $40.E) A) and C)
F) A) and D)

Question 15

In a competitive market, no single producer can influence the market price because

Accepted Answer

A)   many other sellers are offering a product that is essentially identical.
B)   consumers have more influence over the market price than producers do.
C)   government intervention prevents firms from influencing price.
D)   producers agree not to change the price.E) A) and B)
F) B) and D)

Question 16

Shrimp Galore, a shrimp harvesting business in the Pacific Northwest, has a 30-year loan on its shrimp harvesting boat. The annual loan payment is $25,000 and the boat has a market (salvage)  value that exceeds its outstanding loan balance. Prior to the 2010 shrimp harvesting season, Shrimp Galore's accountant predicted that at expected market prices for shrimp, Shrimp Galore would have a net loss of $75,000 dollars after paying all 2010 expenses (including the annual loan payment) . In this case, Shrimp Galore should

Accepted Answer

A)   produce nothing and experience a loss of $25,000.
B)   produce nothing and experience a loss of $75,000.
C)   continue to operate because expected profits will rise in the future.
D)   continue to operate even though it predicts a loss of $75,000.E) None of the above
F) B) and D)

Question 17

When profit-maximizing firms in competitive markets are earning profits,

Accepted Answer

A)   market demand must exceed market supply at the market equilibrium price.
B)   market supply must exceed market demand at the market equilibrium price.
C)   new firms will enter the market.
D)   the most inefficient firms will be encouraged to leave the market.E) None of the above
F) A) and C)

Question 18

Figure 14-7 
-Refer to Figure 14-7. In the long run, the firm will exit the market if the price of the good is

Accepted Answer

A)   $75.
B)   $85.
C)   $95.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 19

A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the short run.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 14: Firms in Competitive Markets

Table 14-1 -Refer to Table 14-1. Over which range of output is average revenue equal to price?

Correct Answer
verified

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

Correct Answer
verified
Average revenue is total revenue divided...
View Answer

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

Correct Answer
verified

Figure 14-7 -Refer to Figure 14-7. In the long run, the firm will exit the market if the price of the good is

Correct Answer
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Who is a price taker in a competitive market?

Correct Answer
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Suppose a firm is considering producing zero units of output. We call this exiting an industry in the short run and shutting down in the long run.

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
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Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. The firm will earn positive economic profit if the market price is

Correct Answer
verified

In a competitive market, no single producer can influence the market price because

Correct Answer
verified

A firm's marginal cost has a minimum value of $80, its average variable cost has a minimum value of $90, and its average total cost has a minimum value of $100. Then the firm will shut down in the short run once the price of its product falls below

Correct Answer
verified

A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the short run.

Correct Answer
verified

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

When a perfectly competitive firm decides to shut down, it is most likely that

Correct Answer
verified

When profit-maximizing firms in competitive markets are earning profits,

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
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Table 14-4 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-4. For this firm, the average revenue is

Correct Answer
verified

A firm operating in a perfectly competitive industry will shut down in the short run but earn losses if the market price is less than that firm's average variable cost.

Correct Answer
verified

Scenario 14-3 Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. -Refer to Scenario 14-3. At Q=499, the firm's total costs equal

Correct Answer
verified

Exam 14: Firms in Competitive Markets

Table 14-1 -Refer to Table 14-1. Over which range of output is average revenue equal to price?

Correct AnswerverifiedShow Answer

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

Correct AnswerverifiedAverage revenue is total revenue divided...View AnswerShow Answer

Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by

Correct AnswerverifiedShow Answer

Figure 14-7 -Refer to Figure 14-7. In the long run, the firm will exit the market if the price of the good is

Correct AnswerverifiedShow Answer

Who is a price taker in a competitive market?

Correct AnswerverifiedShow Answer

Suppose a firm is considering producing zero units of output. We call this exiting an industry in the short run and shutting down in the long run.

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

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. The firm will earn positive economic profit if the market price is

Correct AnswerverifiedShow Answer

In a competitive market, no single producer can influence the market price because

Correct AnswerverifiedShow Answer

A firm's marginal cost has a minimum value of $80, its average variable cost has a minimum value of $90, and its average total cost has a minimum value of $100. Then the firm will shut down in the short run once the price of its product falls below

Correct AnswerverifiedShow Answer

A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the short run.

Correct AnswerverifiedShow Answer

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

When a perfectly competitive firm decides to shut down, it is most likely that

Correct AnswerverifiedShow Answer

When profit-maximizing firms in competitive markets are earning profits,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 14-4 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-4. For this firm, the average revenue is

Correct AnswerverifiedShow Answer

A firm operating in a perfectly competitive industry will shut down in the short run but earn losses if the market price is less than that firm's average variable cost.

Correct AnswerverifiedShow Answer

Scenario 14-3 Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. -Refer to Scenario 14-3. At Q=499, the firm's total costs equal

Correct AnswerverifiedShow Answer

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Average revenue is total revenue divided...
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