question
A seller in a competitive market
a. can sell all he wants at the going price, so he has little reason to charge less.
b. will lose all his customers to other sellers if he raises his price.
c. considers the market price to be a "take it or leave it" price.
d. All of the above are correct.
a. can sell all he wants at the going price, so he has little reason to charge less.
b. will lose all his customers to other sellers if he raises his price.
c. considers the market price to be a "take it or leave it" price.
d. All of the above are correct.
answer
D
question
Which of the following statements regarding a competitive firm is correct?
a. Because 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 selling 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.
a. Because 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 selling 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.
answer
D
question
. For a competitive firm,
a. total revenue equals average revenue.
b. total revenue equals marginal revenue.
c. total cost equals marginal revenue.
d. average revenue equals marginal revenue
a. total revenue equals average revenue.
b. total revenue equals marginal revenue.
c. total cost equals marginal revenue.
d. average revenue equals marginal revenue
answer
D
question
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue,
then
a. average revenue exceeds marginal cost.
b. the firm is earning a positive profit.
c. decreasing output would increase the firm's profit.
d. All of the above are correct.
then
a. average revenue exceeds marginal cost.
b. the firm is earning a positive profit.
c. decreasing output would increase the firm's profit.
d. All of the above are correct.
answer
C
question
Max sells maps. The map industry is competitive. Max hires a business consultant to analyze his company's
financial records. The consultant recommends that Max increase his production. The consultant must have
concluded that Max's
a. total revenues exceed his total accounting costs.
b. marginal revenue exceeds his total cost.
c. marginal revenue exceeds his marginal cost.
d. marginal cost exceeds his marginal revenue.
financial records. The consultant recommends that Max increase his production. The consultant must have
concluded that Max's
a. total revenues exceed his total accounting costs.
b. marginal revenue exceeds his total cost.
c. marginal revenue exceeds his marginal cost.
d. marginal cost exceeds his marginal revenue.
answer
C
question
Profit-maximizing firms in a competitive market produce an output level where
a. marginal cost equals marginal revenue.
b. marginal cost equals average total cost.
c. marginal revenue is increasing.
d. price is less than marginal revenue.
a. marginal cost equals marginal revenue.
b. marginal cost equals average total cost.
c. marginal revenue is increasing.
d. price is less than marginal revenue.
answer
A
question
Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At her profitmaximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs.
Smith should
a. shut down her business in the short run but continue to operate in the long run.
b. continue to operate in the short run but shut down in the long run.
c. continue to operate in both the short run and long run.
d. shut down in both the short run and long run.
Smith should
a. shut down her business in the short run but continue to operate in the long run.
b. continue to operate in the short run but shut down in the long run.
c. continue to operate in both the short run and long run.
d. shut down in both the short run and long run.
answer
C
question
Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed
costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level
of output
a. is less than 1,000 pounds.
b. is still 1,000 pounds.
c. is more than 1,000 pounds.
d. becomes zero
costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level
of output
a. is less than 1,000 pounds.
b. is still 1,000 pounds.
c. is more than 1,000 pounds.
d. becomes zero
answer
B
question
A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob.
Which of the following events would decrease the firm's average revenue?
a. The firm increases its output above 500 doorknobs.
b. The firm decreases its output below 500 doorknobs.
c. The market price of doorknobs rises above $10.
d. The market price of doorknobs falls below $10.
Which of the following events would decrease the firm's average revenue?
a. The firm increases its output above 500 doorknobs.
b. The firm decreases its output below 500 doorknobs.
c. The market price of doorknobs rises above $10.
d. The market price of doorknobs falls below $10.
answer
D
question
When price is below average variable cost, a firm in a competitive market will
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.
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.
answer
A
question
In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to
shut down if
a. price is less than average total cost.
b. price is greater than average total cost.
c. average revenue is greater than average fixed cost.
d. average revenue is greater than marginal cost.
shut down if
a. price is less than average total cost.
b. price is greater than average total cost.
c. average revenue is greater than average fixed cost.
d. average revenue is greater than marginal cost.
answer
A
question
When new firms have an incentive to enter a competitive market, their entry will
a. increase the price of the product.
b. drive down profits of existing firms in the market.
c. shift the market supply curve to the left.
d. increase demand for the product.
a. increase the price of the product.
b. drive down profits of existing firms in the market.
c. shift the market supply curve to the left.
d. increase demand for the product.
answer
B
question
When firms have an incentive to exit a competitive market, their exit will
a. lower the market price.
b. necessarily raise the costs for the firms that remain in the market.
c. raise the profits of the firms that remain in the market.
d. shift the demand for the product to the left.
a. lower the market price.
b. necessarily raise the costs for the firms that remain in the market.
c. raise the profits of the firms that remain in the market.
d. shift the demand for the product to the left.
answer
C
question
The entry of new firms into a competitive market will
a. increase market supply and increase market price.
b. increase market supply and decrease market price.
c. decrease market supply and increase market price.
d. decrease market supply and decrease market price.
a. increase market supply and increase market price.
b. increase market supply and decrease market price.
c. decrease market supply and increase market price.
d. decrease market supply and decrease market price.
answer
B
question
In a perfectly competitive market, the process of entry and exit will end when
a. price equals minimum marginal cost.
b. marginal revenue equals marginal cost.
c. economic profits are zero.
d. accounting profits are zero
a. price equals minimum marginal cost.
b. marginal revenue equals marginal cost.
c. economic profits are zero.
d. accounting profits are zero
answer
C
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