Question 1

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

Accepted Answer

A)  Since 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 being able to sell 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) None of the above
F) All of the above

Question 2

The following table presents the total cost of production for various levels of output for a competitive firm: 
What is the lowest price at which this firm might choose to operate?

Accepted Answer

A)  $2.00
B)  $3.00
C)  $4.00
D)  $5.00E) All of the above
F) A) and D) B

Question 3

When a competitive market experiences an increase in demand that induces an increase in production costs,which of the following is most likely to arise?

Accepted Answer

A)  The long-run market supply curve will be upward sloping.
B)  The condition of free entry into the market will be violated.
C)  Producer profits will fall in the long run.
D)  The long-run market supply curve will be horizontal as new firms enter and drive the price downward.E) None of the above
F) B) and D)

Question 4

Table 14-2
The following table presents cost and revenue information for Soper's Port Vineyard.
 
-Refer to Table 14-2.Consumers are willing to pay $120 per unit of port wine.What is the total revenue from selling 7 units?

Accepted Answer

A)  $120
B)  $700
C)  $820
D)  $840E) A) and C)
F) A) and B)

Question 5

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

Question 6

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

Accepted Answer

A)  Less than $2.50.
B)  More than $2.50.
C)  $2.50.
D)  The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm.E) A) and C)
F) A) and B)

Question 7

A firm must be participating in a competitive market for average revenue to equal price.

Accepted Answer

A) True 
 B)False

Question 8

Figure 14-7
 
-Refer to Figure 14-7.When the market is in long-run equilibrium at point A in panel (b) ,the firm represented in panel (a) will

Accepted Answer

A)  have a zero economic profit.
B)  have a negative accounting profit.
C)  exit the market.
D)  choose to increase production to increase profit.E) A) and B)
F) All of the above

Question 9

Table 14-1
 
-Refer to Table 14-1.Over what range of output is marginal revenue declining?

Accepted Answer

A)  1 to 6
B)  3 to 7
C)  7 to 9
D)  None; marginal revenue is constant over the whole range of output.E) None of the above
F) A) and B)

Question 10

The following table gives the average total cost of production for various levels of output for a competitive firm: 
If the firm's fixed cost of production is $3 and the market price is $10,how many units should the firm produce to maximize its profit?

Accepted Answer

A)  1
B)  2
C)  3
D)  4E) B) and C)
F) None of the above

Question 11

A market might have an upward-sloping long-run supply curve if

Accepted Answer

A)  firms have different costs.
B)  consumers exercise market power over producers.
C)  all factors of production are essentially available in unlimited supply.
D)  the entry of new firms into the market has no effect on the cost structure of firms in the market.E) All of the above
F) A) and D)

Question 12

Regardless of the cost structure of firms in a competitive market,in the long run

Accepted Answer

A)  firms will experience rising demand for their products.
B)  the marginal firm will earn zero economic profit.
C)  firms will experience a less competitive market environment.
D)  exit and entry is likely to lead to a horizontal long-run supply curve.E) A) and D)
F) A) and B)

Question 13

Figure 14-4
The figure below depicts the cost structure of a firm in a competitive market.
 
-Refer to Figure 14-4.When market price is P₂,a profit-maximizing firm's losses can be represented by the area

Accepted Answer

A)  (P₃ - P₂)   Q₂.
B)  (P₂ - P₁)   Q₂.
C)  At a market price of P₂, the firm does not have losses.
D)  At a market price of P₂ the firm has losses, but the reference points in the figure don't identify the losses.E) B) and D)
F) B) and C)

Question 14

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

Accepted Answer

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) A) and D)
F) None of the above

Question 15

The entry of new firms into a competitive market will

Accepted Answer

A)  increase market supply and increase market prices.
B)  increase market supply and decrease market prices.
C)  decrease market supply and increase market prices.
D)  decrease market supply and decrease market prices.E) None of the above
F) C) and D)

Question 16

In calculating accounting profit,accountants typically don't include

Accepted Answer

A)  long-run costs.
B)  sunk costs.
C)  explicit costs of production.
D)  opportunity costs that do not involve an outflow of money.E) A) and D)
F) All of the above D

Question 17

Suppose a firm in a competitive market received $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
B)  $5 and 100
C)  $10 and 50
D)  $10 and 100E) A) and B)
F) All of the above D

Question 18

If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost,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 C)
F) None of the above

Question 19

If ABC Company sells its product in a competitive market,then

Accepted Answer

A)  the price of that product depends on the quantity of the product that ABC Company produces and sells since ABC Company's demand curve is downward sloping.
B)  ABC Company's total revenue must be proportional to its quantity of output.
C)  ABC Company's total cost must be proportional to its quantity of output.
D)  ABC Company's total revenue must be equal to its average revenue.E) A) and B)
F) B) and C)

Question 20

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

Accepted Answer

A)  horizontal.
B)  likely to slope downward.
C)  determined by forces external to the firm.
D)  the portion of its marginal cost curve that lies above its average variable cost.E) B) and D)
F) B) and C)

Exam 14: Firms in Competitive Markets

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

Correct AnswerverifiedShow Answer

The following table presents the total cost of production for various levels of output for a competitive firm: What is the lowest price at which this firm might choose to operate?

Correct AnswerverifiedB

When a competitive market experiences an increase in demand that induces an increase in production costs,which of the following is most likely to arise?

Correct AnswerverifiedShow Answer

Table 14-2 The following table presents cost and revenue information for Soper's Port Vineyard. -Refer to Table 14-2.Consumers are willing to pay $120 per unit of port wine.What is the total revenue from selling 7 units?

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

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

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A firm must be participating in a competitive market for average revenue to equal price.

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Figure 14-7 -Refer to Figure 14-7.When the market is in long-run equilibrium at point A in panel (b) ,the firm represented in panel (a) will

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Table 14-1 -Refer to Table 14-1.Over what range of output is marginal revenue declining?

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The following table gives the average total cost of production for various levels of output for a competitive firm: If the firm's fixed cost of production is $3 and the market price is $10,how many units should the firm produce to maximize its profit?

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A market might have an upward-sloping long-run supply curve if

Correct AnswerverifiedShow Answer

Regardless of the cost structure of firms in a competitive market,in the long run

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Figure 14-4 The figure below depicts the cost structure of a firm in a competitive market. -Refer to Figure 14-4.When market price is P₂,a profit-maximizing firm's losses can be represented by the area

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

Correct AnswerverifiedShow Answer

The entry of new firms into a competitive market will

Correct AnswerverifiedShow Answer

In calculating accounting profit,accountants typically don't include

Correct AnswerverifiedD

Suppose a firm in a competitive market received $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 AnswerverifiedD

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

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If ABC Company sells its product in a competitive market,then

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

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