question
If all firms have the same costs of production, then in long-run equilibrium,
A. price exceeds average total cost for all firms.
B. price exceeds marginal cost for all firms.
C. some firms may earn positive economic profits.
D. all firms have zero economic profits and just cover their opportunity costs.
A. price exceeds average total cost for all firms.
B. price exceeds marginal cost for all firms.
C. some firms may earn positive economic profits.
D. all firms have zero economic profits and just cover their opportunity costs.
answer
D
question
Table 14-8Suppose that a firm in a competitive market faces the following revenues and costs:
Refer to Table 14-8. The firm will produce a quantity greater than 4 because at 4 units of output, marginal cost
A. is less than marginal revenue.
B. equals marginal revenue.
C. is greater than marginal revenue.
D. is minimized.
Refer to Table 14-8. The firm will produce a quantity greater than 4 because at 4 units of output, marginal cost
A. is less than marginal revenue.
B. equals marginal revenue.
C. is greater than marginal revenue.
D. is minimized.
answer
A
question
The short-run market supply curve in a perfectly competitive industry
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.
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.
answer
A
question
For an individual firm operating in a competitive market, marginal revenue equals
A. average revenue and the price for all levels of output.
B. average revenue, which is greater than the price for all levels of output.
C. average revenue, the price, and marginal cost for all levels of output.
D. marginal cost, which is greater than average revenue for all levels of output.
A. average revenue and the price for all levels of output.
B. average revenue, which is greater than the price for all levels of output.
C. average revenue, the price, and marginal cost for all levels of output.
D. marginal cost, which is greater than average revenue for all levels of output.
answer
A
question
In the short-run, a firm's supply curve is equal to the
A. marginal cost curve above its average variable cost curve.
B. marginal cost curve above its average total cost curve.
C. average variable cost curve above its marginal cost curve.
D. average total cost curve above its marginal cost curve.
A. marginal cost curve above its average variable cost curve.
B. marginal cost curve above its average total cost curve.
C. average variable cost curve above its marginal cost curve.
D. average total cost curve above its marginal cost curve.
answer
A
question
Refer to Table 14-12. At what quantity does Bill maximize profits?
3
6
7
8
3
6
7
8
answer
6
question
Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct?
(i)Marginal revenue equals $5.
(ii)Average revenue equals $5.
(iii)Price equals $5.
A. (i) only
B. (iii) only
C. (i) and (ii) only
D. (i), (ii), and (iii)
(i)Marginal revenue equals $5.
(ii)Average revenue equals $5.
(iii)Price equals $5.
A. (i) only
B. (iii) only
C. (i) and (ii) only
D. (i), (ii), and (iii)
answer
D
question
Refer to Table 14-6. What is the marginal revenue from selling the 3rd unit?
$55
$120
$137
$140
$55
$120
$137
$140
answer
$120
question
A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its
A. quantity of output is higher than it was previously.
B. average total cost is higher than it was previously.
C. marginal revenue is higher than it was previously.
D. All of the above are correct.
A. quantity of output is higher than it was previously.
B. average total cost is higher than it was previously.
C. marginal revenue is higher than it was previously.
D. All of the above are correct.
answer
D
question
A key characteristic of a competitive market is that
A. government antitrust laws regulate competition.
B. producers sell nearly identical products.
C. firms minimize total costs.
D. firms have price setting power.
A. government antitrust laws regulate competition.
B. producers sell nearly identical products.
C. firms minimize total costs.
D. firms have price setting power.
answer
B
question
Refer to Table 14-8. In order to maximize profits, the firm will produce
A. 1 unit of output because marginal cost is minimized.
B. 4 units of output because marginal revenue exceeds marginal cost.
C. 6 units of output because marginal revenue equals marginal cost.
D. 8 units of output because total revenue is maximized.
A. 1 unit of output because marginal cost is minimized.
B. 4 units of output because marginal revenue exceeds marginal cost.
C. 6 units of output because marginal revenue equals marginal cost.
D. 8 units of output because total revenue is maximized.
answer
C
question
Refer to Table 14-10. At which level of output in the table is average variable cost equal to $6?
2 units
3 units
4 units
5 units
2 units
3 units
4 units
5 units
answer
5 units
question
When firms are said to be price takers, it implies that if a firm raises its price,
A. buyers will go elsewhere.
B. buyers will pay the higher price in the short run.
C. competitors will also raise their prices.
D. firms in the industry will exercise market power.
A. buyers will go elsewhere.
B. buyers will pay the higher price in the short run.
C. competitors will also raise their prices.
D. firms in the industry will exercise market power.
answer
A
question
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
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.
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.
answer
A
question
Competitive markets are characterized by
A. a small number of buyers and sellers.
B. unique products.
C. the interdependence of firms.
D. free entry and exit by firms.
A. a small number of buyers and sellers.
B. unique products.
C. the interdependence of firms.
D. free entry and exit by firms.
answer
D
question
Refer to Figure 14-13. If the price is P3 in the short run, what will happen in the long run?
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.
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.
answer
C
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
In the long-run equilibrium of a market with free entry and exit, if all firms have the same cost structure, then
A. marginal cost exceeds average total cost.
B. the price of the good exceeds average total cost.
C. average total cost exceeds the price of the good.
D. firms are operating at their efficient scale.
A. marginal cost exceeds average total cost.
B. the price of the good exceeds average total cost.
C. average total cost exceeds the price of the good.
D. firms are operating at their efficient scale.
answer
D
question
Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8.00. What would be the firm's total revenue if it instead produced and sold 4 units of output?
$4
$8
$32
$64
$4
$8
$32
$64
answer
$32
question
In a market with 1,000 identical firms, the short-run market supply is the
A. marginal cost curve above average variable cost for a typical firm in the market.
B. quantity supplied by the typical firm in the market at each price.
C. sum of the prices charged by each of the 1,000 individual firms at each quantity.
D. sum of the quantities supplied by each of the 1,000 individual firms at each price.
A. marginal cost curve above average variable cost for a typical firm in the market.
B. quantity supplied by the typical firm in the market at each price.
C. sum of the prices charged by each of the 1,000 individual firms at each quantity.
D. sum of the quantities supplied by each of the 1,000 individual firms at each price.
answer
D
question
Refer to Table 14-10. This firm should continue to produce and sell units as long as the marginal cost of production is less than or equal to
$3.
$5.
$7.
$9.
$3.
$5.
$7.
$9.
answer
$7
question
Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, total revenue will be
$2,000.
$2,400.
$4,200.
We do not have enough information to answer the question.
$2,000.
$2,400.
$4,200.
We do not have enough information to answer the question.
answer
$2,400
question
A seller in a competitive market can
A. sell all he wants at the going price, so he has little reason to charge less.
B. influence the market price by adjusting his output.
C. influence the profits earned by competing firms by adjusting his output.
D. All of the above are correct.
A. sell all he wants at the going price, so he has little reason to charge less.
B. influence the market price by adjusting his output.
C. influence the profits earned by competing firms by adjusting his output.
D. All of the above are correct.
answer
A
question
When buyers in a competitive market take the selling price as given, they are said to be
A. market entrants.
B. monopolists.
C. free riders.
D. price takers.
A. market entrants.
B. monopolists.
C. free riders.
D. price takers.
answer
D
question
If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market, then the individual farmer's elasticity of demand
A. will also be -0.3.
B. depends on how large a crop the farmer produces.
C. will range between -0.3 and -1.0.
D. will be infinite.
A. will also be -0.3.
B. depends on how large a crop the farmer produces.
C. will range between -0.3 and -1.0.
D. will be infinite.
answer
D
question
The Doris Dairy Farm sells milk to a dairy broker in Prairie du Chien, Wisconsin. Because the market for milk is generally considered to be competitive, the Doris Dairy Farm does not
A. choose the quantity of milk to produce.
B. choose the price at which it sells its milk.
C. have any fixed costs of production.
D. set marginal revenue equal to marginal cost to maximize profit.
A. choose the quantity of milk to produce.
B. choose the price at which it sells its milk.
C. have any fixed costs of production.
D. set marginal revenue equal to marginal cost to maximize profit.
answer
B
question
If a competitive firm is selling 1,000 units of its product at a price of $8 per unit and earning a positive profit, then
A. its average revenue is greater than $8.
B. its marginal revenue is less than $8.
C. its total cost is less than $8,000.
D. All of the above are correct.
A. its average revenue is greater than $8.
B. its marginal revenue is less than $8.
C. its total cost is less than $8,000.
D. All of the above are correct.
answer
C
question
Refer to Figure 14-13. If the price is P2 in the short run, what will happen in the long run?
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.
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.
answer
A
question
Which of the following is not a characteristic of a competitive market?
A. Buyers and sellers are price takers.
B. Each firm sells a virtually identical product.
C. Entry is limited.
D. Each firm chooses an output level that maximizes profits.
A. Buyers and sellers are price takers.
B. Each firm sells a virtually identical product.
C. Entry is limited.
D. Each firm chooses an output level that maximizes profits.
answer
C
question
Refer to Table 14-12. What is the total revenue from selling 4 units?
$80
$137
$320
$480
$80
$137
$320
$480
answer
$320
question
At the profit-maximizing level of output,
A. marginal revenue equals average total cost.
B. marginal revenue equals average variable cost.
C. marginal revenue equals marginal cost.
D. average revenue equals average total cost.
A. marginal revenue equals average total cost.
B. marginal revenue equals average variable cost.
C. marginal revenue equals marginal cost.
D. average revenue equals average total cost.
answer
C
question
Suppose a firm in a competitive market earned $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?
A. $5 and 50 units
B. $5 and 100 units
C. $10 and 50 units
D. $10 and 100 units
A. $5 and 50 units
B. $5 and 100 units
C. $10 and 50 units
D. $10 and 100 units
answer
D
question
Refer to Figure 14-13. If the price is P1 in the short run, what will happen in the long run?
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.
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.
answer
B
question
Who is a price taker in a competitive market?
A. buyers only
B. sellers only
C. both buyers and sellers
D. neither buyers nor sellers
A. buyers only
B. sellers only
C. both buyers and sellers
D. neither buyers nor sellers
answer
C
question
Refer to Table 14-12. What is the marginal cost of the 8th unit?
$0
$72.75
$120
$502
$0
$72.75
$120
$502
answer
$120
question
Refer to Table 14-9. At which quantity of output is marginal revenue equal to marginal cost?
3 units
6 units
8 units
9 units
3 units
6 units
8 units
9 units
answer
6 units
question
Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be
A. less than $12.
B. more than $12.
C. $12.
D. Any of the above may be correct depending on the price elasticity of demand for the product.
A. less than $12.
B. more than $12.
C. $12.
D. Any of the above may be correct depending on the price elasticity of demand for the product.
answer
C
question
Which of the following is a characteristic of a competitive market?
A. There are many buyers but few sellers.
B. Firms sell differentiated products.
C. There are many barriers to entry.
D. Buyers and sellers are price takers.
A. There are many buyers but few sellers.
B. Firms sell differentiated products.
C. There are many barriers to entry.
D. Buyers and sellers are price takers.
answer
D
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