Question 1

In a long-run equilibrium where firms have identical costs, it is possible that some firms in a competitive market are making a positive economic profit.

Accepted Answer

A) True 
 B)False

Question 2

When a firm sells 1 million coat hangers, its total revenue is $2 million. When it sells 2 million coat hangers, its total revenue is $3.5 million. Is this firm a price taker? Explain.

Accepted Answer

No. When the firm sells 1 million coat h...

Question 3

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

Accepted Answer

A)  fixed cost.
B)  variable cost.
C)  total cost.
D)  revenue.E) B) and C)
F) A) and B)

Question 4

Figure 14-7 
-Refer to Figure 14-7. In the short run, the firm's maximum profit (or minimum loss)  is the same at which of the following pairs of prices?

Accepted Answer

A)  $65 and $75
B)  $75 and $85
C)  $80 and $100
D)  $125 and $175E) A) and C)
F) None of the above

Question 5

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?

Accepted Answer

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.E) None of the above
F) A) and B)

Question 6

When a perfectly competitive firm decides to shut down, it is most likely that

Accepted Answer

A)  marginal cost is above average variable cost.
B)  marginal cost is above average total cost.
C)  price is below the firm's average variable cost.
D)  fixed costs exceed variable costs.E) None of the above
F) B) and D)

Question 7

Robin owns a horse stables and riding academy and gives riding lessons for children at "pony camp." Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $100 per child. In order to maximize profits, Robin should

Accepted Answer

A)  give riding lessons to more than 20 children per month.
B)  give riding lessons to fewer than 20 children per month.
C)  continue to give riding lessons to 20 children per month.
D)  We do not have enough information to answer the question.E) A) and D)
F) C) and D)

Question 8

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $145,000. Because of this information, in the short run, the Brookside Racquet Club should

Accepted Answer

A)  shut down.
B)  exit the industry.
C)  stay open because shutting down would be more expensive.
D)  stay open because the firm is making an economic profit.E) A) and D)
F) None of the above

Question 9

In the long run,

Accepted Answer

A)  competitive firms' profits are zero.
B)  competitive firms' variable costs are zero.
C)  competitive firms' ATC curves shift upward or downward to ensure that all demand is satisfied.
D)  the number of firms in the market is fixed.E) None of the above
F) All of the above

Question 10

Phil sells duck calls in a perfectly competitive market. If duck calls sell for $10 each and average total cost per unit is $11 at the profit-maximizing output level, then in the long run

Accepted Answer

A)  more firms will enter the market.
B)  some firms will exit from the market.
C)  the equilibrium price per duck call will fall.
D)  average total costs will fall.E) A) and B)
F) C) and D)

Question 11

For any given price, a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the

Accepted Answer

A)  average total cost curve.
B)  average variable cost curve.
C)  marginal cost curve.
D)  marginal revenue curve.E) All of the above
F) A) and B)

Question 12

Which of the following statements regarding a competitive market is not correct?

Accepted Answer

A)  There are many buyers and many sellers in the market.
B)  Firms can freely enter or exit the market.
C)  Price equals average revenue.
D)  Price exceeds marginal revenue.E) A) and B)
F) All of the above

Question 13

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. The firm will earn a negative economic profit but remain in business in the short run if the market price is

Accepted Answer

A)  above $6.30 but less than $8.
B)  above $6.30.
C)  less than $6.30 but more than $4.50.
D)  less than $4.50.E) None of the above
F) C) and D)

Question 14

As a general rule, when accountants calculate profit they account for explicit costs but usually ignore

Accepted Answer

A)  certain outlays of money by the firm.
B)  implicit costs.
C)  operating costs.
D)  fixed costs.E) A) and B)
F) A) and C)

Question 15

Which of the following industries is least likely to exhibit the characteristic of free entry?

Accepted Answer

A)  bookstores
B)  hairstyling salons
C)  yoga studios
D)  satellite radioE) A) and B)
F) A) and C)

Question 16

When a profit-maximizing firm is earning profits, those profits can be identified by

Accepted Answer

A)  P × Q.
B)  (MC - AV
C)   × Q.
C)  (P - AT
C)   × Q.
D)  (P - AV
C)   × Q.E) B) and C)
F) C) and D)

Question 17

Robin owns a horse stables and riding academy and gives riding lessons for children at "pony camp." Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $250 per child. In order to maximize profits, Robin should

Accepted Answer

A)  give riding lessons to more than 20 children per month.
B)  give riding lessons to fewer than 20 children per month.
C)  continue to give riding lessons to 20 children per month.
D)  We do not have enough information to answer the question.E) A) and B)
F) A) and C)

Question 18

Suppose a competitive market has a horizontal long-run supply curve and is in long-run equilibrium. If demand decreases, we can be certain that in the short-run,

Accepted Answer

A)  at least some firms will shut down.
B)  price will fall below marginal cost for some firms.
C)  price will fall below average total cost for some firms.
D)  at least some firms will enter the industry.E) B) and C)
F) None of the above

Question 19

A market is competitive if (i) 
Firms have the flexibility to price their own product.
(ii) 
Each buyer is small compared to the market.
(iii) 
Each seller is small compared to the market.

Accepted Answer

A)  (i)  and (ii)  only
B)  (i)  and (iii)  only
C)  (ii)  and (iii)  only
D)  (i) , (ii) , and (iii) E) B) and C)
F) A) and D)

Question 20

Explain the difference between the short run and the long run in terms of the number of firms in a competitive market.

Accepted Answer

In the short run, the number o...

Exam 14: Firms in Competitive Markets

Correct Answer
verified

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?

Correct Answer
verified

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $145,000. Because of this information, in the short run, the Brookside Racquet Club should

Correct Answer
verified

Suppose a competitive market has a horizontal long-run supply curve and is in long-run equilibrium. If demand decreases, we can be certain that in the short-run,

Correct Answer
verified

As a general rule, when accountants calculate profit they account for explicit costs but usually ignore

Correct Answer
verified

When a profit-maximizing firm is earning profits, those profits can be identified by

Correct Answer
verified

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. The firm will earn a negative economic profit but remain in business in the short run if the market price is

Correct Answer
verified

Which of the following statements regarding a competitive market is not correct?

Correct Answer
verified

Phil sells duck calls in a perfectly competitive market. If duck calls sell for $10 each and average total cost per unit is $11 at the profit-maximizing output level, then in the long run

Correct Answer
verified

In the long run,

Correct Answer
verified

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

Correct Answer
verified

When a perfectly competitive firm decides to shut down, it is most likely that

Correct Answer
verified

When a firm sells 1 million coat hangers, its total revenue is $2 million. When it sells 2 million coat hangers, its total revenue is $3.5 million. Is this firm a price taker? Explain.

Correct Answer
verified
No. When the firm sells 1 million coat h...
View Answer

Which of the following industries is least likely to exhibit the characteristic of free entry?

Correct Answer
verified

Explain the difference between the short run and the long run in terms of the number of firms in a competitive market.

Correct Answer
verified
In the short run, the number o...
View Answer

In a long-run equilibrium where firms have identical costs, it is possible that some firms in a competitive market are making a positive economic profit.

Correct Answer
verified

For any given price, a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the

Correct Answer
verified

A market is competitive if (i) Firms have the flexibility to price their own product. (ii) Each buyer is small compared to the market. (iii) Each seller is small compared to the market.

Correct Answer
verified

Figure 14-7 -Refer to Figure 14-7. In the short run, the firm's maximum profit (or minimum loss) is the same at which of the following pairs of prices?

Correct Answer
verified

Correct Answer
verified

Exam 14: Firms in Competitive Markets

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $145,000. Because of this information, in the short run, the Brookside Racquet Club should

Correct AnswerverifiedShow Answer

Suppose a competitive market has a horizontal long-run supply curve and is in long-run equilibrium. If demand decreases, we can be certain that in the short-run,

Correct AnswerverifiedShow Answer

As a general rule, when accountants calculate profit they account for explicit costs but usually ignore

Correct AnswerverifiedShow Answer

When a profit-maximizing firm is earning profits, those profits can be identified by

Correct AnswerverifiedShow Answer

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. The firm will earn a negative economic profit but remain in business in the short run if the market price is

Correct AnswerverifiedShow Answer

Which of the following statements regarding a competitive market is not correct?

Correct AnswerverifiedShow Answer

Phil sells duck calls in a perfectly competitive market. If duck calls sell for $10 each and average total cost per unit is $11 at the profit-maximizing output level, then in the long run

Correct AnswerverifiedShow Answer

In the long run,

Correct AnswerverifiedShow Answer

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

Correct AnswerverifiedShow Answer

When a perfectly competitive firm decides to shut down, it is most likely that

Correct AnswerverifiedShow Answer

When a firm sells 1 million coat hangers, its total revenue is $2 million. When it sells 2 million coat hangers, its total revenue is $3.5 million. Is this firm a price taker? Explain.

Correct AnswerverifiedNo. When the firm sells 1 million coat h...View AnswerShow Answer

Which of the following industries is least likely to exhibit the characteristic of free entry?

Correct AnswerverifiedShow Answer

Explain the difference between the short run and the long run in terms of the number of firms in a competitive market.

Correct AnswerverifiedIn the short run, the number o...View AnswerShow Answer

In a long-run equilibrium where firms have identical costs, it is possible that some firms in a competitive market are making a positive economic profit.

Correct AnswerverifiedShow Answer

For any given price, a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the

Correct AnswerverifiedShow Answer

A market is competitive if (i) Firms have the flexibility to price their own product. (ii) Each buyer is small compared to the market. (iii) Each seller is small compared to the market.

Correct AnswerverifiedShow Answer

Figure 14-7 -Refer to Figure 14-7. In the short run, the firm's maximum profit (or minimum loss) is the same at which of the following pairs of prices?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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No. When the firm sells 1 million coat h...
View Answer

Correct Answer
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Correct Answer
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In the short run, the number o...
View Answer

Correct Answer
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