question
A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its
answer
variable costs.
question
Firms that operate in perfectly competitive markets try to
answer
maximize profits.
question
Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, in the short run the firm will
answer
experience losses but will continue to produce rubber bands.
question
Scenario 14-4
Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year.
Refer to Scenario 14-4. What is Victor's opportunity costs of operating his new business?
Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year.
Refer to Scenario 14-4. What is Victor's opportunity costs of operating his new business?
answer
$175,000
question
Which of the following industries is least likely to exhibit the characteristic of free entry?
a. selling running apparel
b. satellite radio
c. yoga studios
d. wheat farming
a. selling running apparel
b. satellite radio
c. yoga studios
d. wheat farming
answer
satellite radio
question
Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is
answer
$1,600
question
When entry and exit behavior of firms in an industry does not affect a firm's cost structure,
answer
the long-run market supply curve must be horizontal.
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
For all firms, average revenue equals the price of the good.
question
Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $6, and is earning $240 economic profit in the short run. What is the current market price?
answer
$12
question
For an individual firm operating in a competitive market, marginal revenue equals
answer
average revenue and the price for all levels of output
question
Which of the following is not a characteristic of a perfectly competitive market?
a. Firms are price takers.
b. Individual firms are price setters.
c. Firms are able to sell all of the output that they choose to produce.
d. Firms produce identical goods.
a. Firms are price takers.
b. Individual firms are price setters.
c. Firms are able to sell all of the output that they choose to produce.
d. Firms produce identical goods.
answer
Individual firms are price setters.
question
As a general rule, when accountants calculate profit they account for explicit costs but usually ignore
answer
implicit costs
question
Which of these curves is the competitive firm's short-run supply curve?
a. the average variable cost curve above marginal cost
b. the average total cost curve above marginal cost
c. the marginal cost curve above average variable cost
d. the average fixed cost curve
a. the average variable cost curve above marginal cost
b. the average total cost curve above marginal cost
c. the marginal cost curve above average variable cost
d. the average fixed cost curve
answer
the marginal cost curve above average variable cost.
question
When a certain competitive firm produces and sells 100 units of output, marginal revenue is $80. When the same firm produces and sells 200 units of output, what is average revenue?
answer
$80
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