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Exam 13: Firms in Competitive Markets

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Question 161

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Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has taken in $3,500 in monthly revenue. In the short run, Susan should

A) shut down her business, and in the long run she should exit the industry.
B) continue to operate her business, but in the long run she should exit the industry.
C) continue to operate her business, but in the long run she will probably face competition from newly entering firms.
D) continue to operate her business, and she is also in long-run equilibrium.

E) A) and D)
F) B) and C)

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Question 162

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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?

A) decrease quantity to 13 units
B) increase quantity to 15 units
C) continue to operate at 14 units
D) increase quantity to 16 units

E) C) and D)
F) All of the above

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Question 163

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The stable, long-run equilibrium in a competitive market occurs when the market price equals the lowest point on a firm's average total cost curve.

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.

Figure 14-10 In the figure below, panel a) depicts the linear marginal cost of a firm in a competitive market, and panel b) depicts the linear market supply curve for a market with a fixed number of identical firms. -Refer to Figure 14-10. If there are 700 identical firms in this market, what is the value of Q2?

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

In the long run, a firm should exit the industry if its total costs exceed its total revenues.

When firms have an incentive to exit a competitive market, their exit will

In the transition from the short run to the long run, the number of firms in a competitive industry is

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price is $5.00, the firm will earn

When new entrants into a competitive market have higher costs than existing firms,

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

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

Suppose that a firm operating in perfectly competitive market sells 300 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 $3. Iii) Total revenue equals $900.

For a firm operating in a perfectly competitive industry, marginal revenue and average revenue are equal.

A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost.

For any competitive market, the supply curve is closely related to the

Scenario 14-4 The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $24.50. • When the firm produces and sells 151 units of output, its average total cost is $24.55. -Refer to Scenario 14-4. When the firm produces 150 units of output, its total cost is

All firms maximize profits by producing an output level where marginal revenue equals marginal cost; for firms operating in perfectly competitive industries, maximizing profits also means producing an output level where price equals marginal cost.

If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, we would expect that