Question 1

Scenario 14-5
A study sponsored by the Food Consumer Safety Board found that consumption of irradiated tomatoes increased the health of laboratory rats. As a result of national press coverage of the report, the demand for irradiated tomatoes increased dramatically. Organic farmers were able to switch from organic production of tomatoes to irradiated production with no additional cost. Assume that the tomato market satisfies all of the assumptions of perfect competition.
-Refer to Scenario 14-5. If the increased production of irradiated tomatoes caused a rise in the marginal transportation costs of moving irradiated tomatoes to market, the

Accepted Answer

A)   short-run market supply curve for irradiated tomatoes would be affected but not the long-run market supply.
B)   long-run market supply curve for irradiated tomatoes would be perfectly elastic.
C)   long-run market supply of irradiated tomatoes would be downward sloping.
D)   long-run market supply of irradiated tomatoes would be upward sloping.E) B) and D)
F) B) and C) D

Question 2

Table 14-4
The table represents a demand curve faced by a firm in a competitive market. 
-Refer to Table 14-4. For this firm, the price is

Accepted Answer

A)   $0.
B)   $5.
C)   $10.
D)   $15.E) B) and D)
F) None of the above

Question 3

Table 14-5
The table represents a demand curve faced by a firm in a competitive market. 
-Refer to Table 14-5. For this firm, the average revenue when 14 units are produced and sold is

Accepted Answer

A)   $9.
B)   $11.
C)   $13.
D)   $15.E) C) and D)
F) All of the above

Question 4

Table 14-7
Suppose that a firm in a competitive market faces the following revenues and costs: 
-Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners?

Accepted Answer

A)   decrease quantity to 13 units
B)   increase quantity to 15 units
C)   continue to operate at 14 units
D)   increase quantity to 16 unitsE) All of the above
F) A) and C)

Question 5

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 100th unit for $4.75. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 6

A corporation has been steadily losing money on one of its product lines, plastic flamingo lawn ornaments. The firm produces plastic flamingos in a factory that cost $20 million to build 10 years ago. The firm is now considering an offer to buy that factory for $15 million. Which of the following statements about the decision to sell or not to sell is correct?

Accepted Answer

A)   The firm should turn down the purchase offer because the factory cost more than $15 million to build.
B)   The $20 million spent on the factory is a sunk cost; that cost should not affect the decision.
C)   The $20 million spent on the factory is an implicit cost, which should be included in the decision.
D)   The firm should sell the factory only if it can reduce its costs elsewhere by $5 million.E) A) and D)
F) A) and C)

Question 7

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

Accepted Answer

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.E) All of the above
F) A) and C)

Question 8

Which of the following statements best reflects a price-taking firm?

Accepted Answer

A)   The firm can sell only a limited amount of output at the market price before the market price will fall.
B)   If the firm were to charge less than the going price, it would maximize its profits and revenues.
C)   If the firm were to charge more than the going price, it would sell none of its goods.
D)   Both b and c are correct.E) None of the above
F) B) and C)

Question 9

Firms that operate in perfectly competitive markets try to

Accepted Answer

A)   maximize revenues.
B)   maximize profits.
C)   equate marginal revenue with average total cost.
D)   All of the above are correct.E) A) and B)
F) B) and D) B

Question 10

In the long run, when price is greater than average total cost, some firms in a competitive market will choose to enter the market.

Accepted Answer

A) True 
 B)False

Question 11

A profit-maximizing firm will shut down in the short run when

Accepted Answer

A)   price is less than average variable cost.
B)   price is less than average total cost.
C)   average revenue is greater than marginal cost.
D)   average revenue is greater than average fixed cost.E) B) and C)
F) C) and D)

Question 12

Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company's financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger's

Accepted Answer

A)   total revenues equal his total economic costs.
B)   marginal revenue exceeds his total cost.
C)   marginal revenue exceeds his marginal cost.
D)   marginal cost exceeds his marginal revenue.E) A) and C)
F) All of the above

Question 13

Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At her profit- maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 14

For a firm, marginal revenue minus marginal cost is equal to

Accepted Answer

A)   profit.
B)   average total cost.
C)   change in profit.
D)   change in average revenue.E) A) and B)
F) A) and C)

Question 15

A dairy farmer must be able to calculate sunk costs in order to determine how much revenue the farm receives for the typical gallon of milk.

Accepted Answer

A) True 
 B)False

Question 16

When new firms have an incentive to enter a competitive market, their entry will

Accepted Answer

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.E) A) and B)
F) A) and C) B

Question 17

Table 14-15 
-Refer to Table 14-15. What is the lowest price at which this firm would operate in the short run?

Accepted Answer

A)   $3.
B)   $4.
C)   $5.
D)   $6.E) C) and D)
F) A) and B)

Question 18

Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect

Accepted Answer

A)   new firms to enter the market.
B)   the market price to fall.
C)   its profits to fall.
D)   All of the above are correct.E) B) and D)
F) None of the above

Question 19

Table 14-6
The following table presents cost and revenue information for a firm operating in a competitive industry. 
-Refer to Table 14-6. What is the marginal revenue from selling the 3rd unit?

Accepted Answer

A)   $55
B)   $120
C)   $137
D)   $140E) All of the above
F) A) and B)

Question 20

Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs: 
-Refer to Table 14-9. If the firm's marginal cost is $5, it should

Accepted Answer

A)   reduce fixed costs by lowering production.
B)   increase production to maximize profit.
C)   decrease production to maximize profit.
D)   maintain its current level of production to maximize profit.E) A) and D)
F) None of the above

Exam 14: Firms in Competitive Markets

Correct Answer
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D

Table 14-4 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-4. For this firm, the price is

Correct Answer
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Table 14-5 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-5. For this firm, the average revenue when 14 units are produced and sold is

Correct Answer
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Table 14-7 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners?

Correct Answer
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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 100th unit for $4.75. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Correct Answer
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Correct Answer
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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

Correct Answer
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Which of the following statements best reflects a price-taking firm?

Correct Answer
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Firms that operate in perfectly competitive markets try to

Correct Answer
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B

In the long run, when price is greater than average total cost, some firms in a competitive market will choose to enter the market.

Correct Answer
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A profit-maximizing firm will shut down in the short run when

Correct Answer
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Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company's financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger's

Correct Answer
verified

Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At her profit- maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

Correct Answer
verified

For a firm, marginal revenue minus marginal cost is equal to

Correct Answer
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A dairy farmer must be able to calculate sunk costs in order to determine how much revenue the farm receives for the typical gallon of milk.

Correct Answer
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When new firms have an incentive to enter a competitive market, their entry will

Correct Answer
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B

Table 14-15 -Refer to Table 14-15. What is the lowest price at which this firm would operate in the short run?

Correct Answer
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Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect

Correct Answer
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Table 14-6 The following table presents cost and revenue information for a firm operating in a competitive industry. -Refer to Table 14-6. What is the marginal revenue from selling the 3rd unit?

Correct Answer
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Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. If the firm's marginal cost is $5, it should

Correct Answer
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Exam 14: Firms in Competitive Markets

Correct AnswerverifiedD

Table 14-4 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-4. For this firm, the price is

Correct AnswerverifiedShow Answer

Table 14-5 The table represents a demand curve faced by a firm in a competitive market. -Refer to Table 14-5. For this firm, the average revenue when 14 units are produced and sold is

Correct AnswerverifiedShow Answer

Table 14-7 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners?

Correct AnswerverifiedShow Answer

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 100th unit for $4.75. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements best reflects a price-taking firm?

Correct AnswerverifiedShow Answer

Firms that operate in perfectly competitive markets try to

Correct AnswerverifiedB

In the long run, when price is greater than average total cost, some firms in a competitive market will choose to enter the market.

Correct AnswerverifiedShow Answer

A profit-maximizing firm will shut down in the short run when

Correct AnswerverifiedShow Answer

Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company's financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger's

Correct AnswerverifiedShow Answer

Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At her profit- maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

Correct AnswerverifiedShow Answer

For a firm, marginal revenue minus marginal cost is equal to

Correct AnswerverifiedShow Answer

A dairy farmer must be able to calculate sunk costs in order to determine how much revenue the farm receives for the typical gallon of milk.

Correct AnswerverifiedShow Answer

When new firms have an incentive to enter a competitive market, their entry will

Correct AnswerverifiedB

Table 14-15 -Refer to Table 14-15. What is the lowest price at which this firm would operate in the short run?

Correct AnswerverifiedShow Answer

Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect

Correct AnswerverifiedShow Answer

Table 14-6 The following table presents cost and revenue information for a firm operating in a competitive industry. -Refer to Table 14-6. What is the marginal revenue from selling the 3rd unit?

Correct AnswerverifiedShow Answer

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-9. If the firm's marginal cost is $5, it should

Correct AnswerverifiedShow Answer

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D

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B

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B

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