Question 1

Competitive markets are characterized by

Accepted Answer

A)   a small number of buyers and sellers.
B)   unique products.
C)   the interdependence of firms.
D)   free entry and exit by firms.E) All of the above
F) C) and D)

Question 2

For a firm operating in a competitive market,both marginal revenue and average revenue exceed the market price.

Accepted Answer

A) True 
 B)False

Question 3

Laura is a gourmet chef who runs a small catering business in a competitive industry.Laura specializes in making wedding cakes.Laura sells 20 wedding cakes per month.Her monthly total revenue is $5,000.The marginal cost of making a wedding cake is $300.In order to maximize profits,Laura should

Accepted Answer

A)   make more than 20 wedding cakes per month.
B)   make fewer than 20 wedding cakes per month.
C)   continue to make 20 wedding cakes per month.
D)   We do not have enough information with which to answer the question.E) A) and D)
F) None of the above

Question 4

In the long run the market supply

Accepted Answer

A)   must always be horizontal.
B)   could be upward sloping if the cost of production falls as new firms enter the market.
C)   could be upward sloping if the cost of production rises as new firms enter the market.
D)   could be upward sloping if technological improvements lower the cost of producing in the market.E) A) and C)
F) All of the above

Question 5

Table 14-4
 
-Refer to Table 14-4.For a firm operating in a competitive market,the average revenue is

Accepted Answer

A)   $45.
B)   $30.
C)   $15.
D)   $0.E) C) and D)
F) B) and D)

Question 6

Table 14-5
 
-Refer to Table 14-5.The average revenue when 14 units are produced and sold is

Accepted Answer

A)   $9.
B)   $11.
C)   $13.
D)   $15.E) A) and B)
F) A) and C)

Question 7

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

Accepted Answer

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.E) C) and D)
F) B) and D)

Question 8

Which of the following statements is not correct?

Accepted Answer

A)   In a long-run equilibrium, marginal firms make zero economic profit.
B)   To maximize profit, firms should produce at a level of output where price equals average variable cost.
C)   The amount of gold in the world is limited. Therefore, the gold jewelry market probably has a long-run supply curve that is upward sloping.
D)   Long-run supply curves are typically more elastic than short-run supply curves.E) A) and D)
F) All of the above

Question 9

The textile industry is composed of a large number of small firms.In recent years,these firms have suffered economic losses,and many sellers have left the industry.Economic theory suggests that these conditions will

Accepted Answer

A)   shift the demand curve outward so that price will rise to the level of production cost.
B)   cause the remaining firms to collude so that they can produce more efficiently.
C)   cause the market supply to decline and the price of textiles to rise.
D)   cause firms in the textile industry to suffer long-run economic losses.E) None of the above
F) A) and B)

Question 10

Table 14-13
Diana's Dress Emporium
 
-Refer to Table 14-13.What is the marginal cost of the 8th unit?

Accepted Answer

A)   $0
B)   $100
C)   $120
D)   $140E) A) and D)
F) All of the above

Question 11

Comparing marginal revenue to marginal cost
(i) reveals the contribution of the last unit of production to total profit.
(ii) is helpful in making profit-maximizing production decisions.
(iii) tells a firm whether its fixed costs are too high.

Accepted Answer

A)   (i)  only
B)   (i)  and (ii)  only
C)   (ii)  and (iii)  only
D)   (i)  and (iii)  onlyE) All of the above
F) None of the above

Question 12

Which of the following characteristics of competitive markets is necessary for firms to be price takers?
(i) There are many sellers.
(ii) Firms can freely enter or exit the market.
(iii) Goods offered for sale are largely the same.

Accepted Answer

A)   (i)  and (ii)  only
B)   (i)  and (iii)  only
C)   (ii)  only
D)   (i) , (ii) , and (iii) E) A) and C)
F) All of the above

Question 13

Suppose that a competitive market is initially in equilibrium.Then demand increases.If entering firms face the same costs as existing firms and sufficient resources are available for entering firms,

Accepted Answer

A)   the long-run market supply curve will be upward sloping.
B)   the long-run market supply curve will be perfectly elastic.
C)   in the long run firms will suffer economic losses, leading them to exit the industry.
D)   the number of firms will decrease, and the market will become a monopoly.E) C) and D)
F) A) and D)

Question 14

Which of the following is not a characteristic of a perfectly competitive market?

Accepted Answer

A)   Firms are price takers.
B)   Firms can freely enter the market.
C)   Many firms have market power.
D)   Goods offered for sale are largely the same.E) A) and B)
F) A) and C)

Question 15

A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.

Accepted Answer

A) True 
 B)False

Question 16

Figure 14-12

-Refer to Figure 14-12.If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market,the figure in panel (b) most likely reflects

Accepted Answer

A)   perfectly inelastic long-run market supply.
B)   perfectly elastic long-run market supply.
C)   the entry of firms into the industry when some resources used in production are available only in limited quantities.
D)   the fact that zero profits cannot be sustained in the long run.E) B) and D)
F) B) and C)

Question 17

A firm is currently producing 100 units of output per day.The manager reports to the owner that producing the 100th unit costs the firm $5.The firm can sell the unit for $6.The firm should produce more than 100 units in order to maximize its profits (or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 18

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales.
 
-Refer to Table 14-14.When Bob produces and sells the profit-maximizing quantity,how much profit does he earn?

Accepted Answer

A)   $0.25
B)   $2.75
C)   $4.00
D)   $5.25E) B) and C)
F) None of the above

Question 19

Suppose that a firm operating in perfectly competitive market sells 200 units of output at a price of $3 each.Which of the following statements is correct?
(i) Marginal revenue equals $3.
(ii) Average revenue equals $600.
(iii) Average revenue exceeds marginal revenue,but we don't know by how much.

Accepted Answer

A)   (i)  only
B)   (iii)  only
C)   (i)  and (ii)  only
D)   (i) , (ii) , and (iii) E) C) and D)
F) None of the above

Question 20

The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.

Accepted Answer

A) True 
 B)False

Exam 14: Firms in Competitive Markets.

Figure 14-12 -Refer to Figure 14-12.If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market,the figure in panel (b) most likely reflects

Correct AnswerverifiedShow Answer

Suppose that a firm operating in perfectly competitive market sells 200 units of output at a price of $3 each.Which of the following statements is correct? (i) Marginal revenue equals $3. (ii) Average revenue equals $600. (iii) Average revenue exceeds marginal revenue,but we don't know by how much.

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Table 14-5 -Refer to Table 14-5.The average revenue when 14 units are produced and sold is

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Table 14-13 Diana's Dress Emporium -Refer to Table 14-13.What is the marginal cost of the 8th unit?

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In the long run the market supply

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Competitive markets are characterized by

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Suppose that a competitive market is initially in equilibrium.Then demand increases.If entering firms face the same costs as existing firms and sufficient resources are available for entering firms,

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Which of the following characteristics of competitive markets is necessary for firms to be price takers? (i) There are many sellers. (ii) Firms can freely enter or exit the market. (iii) Goods offered for sale are largely the same.

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A firm is currently producing 100 units of output per day.The manager reports to the owner that producing the 100th unit costs the firm $5.The firm can sell the unit for $6.The firm should produce more than 100 units in order to maximize its profits (or minimize its losses).

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For a firm operating in a competitive market,both marginal revenue and average revenue exceed the market price.

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Which of the following statements is not correct?

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A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.

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Comparing marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high.

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The textile industry is composed of a large number of small firms.In recent years,these firms have suffered economic losses,and many sellers have left the industry.Economic theory suggests that these conditions will

Correct AnswerverifiedShow Answer

The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.

Correct AnswerverifiedShow Answer

Laura is a gourmet chef who runs a small catering business in a competitive industry.Laura specializes in making wedding cakes.Laura sells 20 wedding cakes per month.Her monthly total revenue is $5,000.The marginal cost of making a wedding cake is $300.In order to maximize profits,Laura should

Correct AnswerverifiedShow Answer

Table 14-4 -Refer to Table 14-4.For a firm operating in a competitive market,the average revenue is

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Which of the following is not a characteristic of a perfectly competitive market?

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Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. -Refer to Table 14-14.When Bob produces and sells the profit-maximizing quantity,how much profit does he earn?

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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

Correct AnswerverifiedShow Answer

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