Question 1

Suppose a firm in each of the two markets listed below were to increase its price by 15 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

Accepted Answer

A)   cotton and soybeans
B)   gasoline and corn
C)   #2 lead pencils and college textbooks
D)   electricity and cable televisionE) None of the above
F) A) and B)

Question 2

The assumption of a fixed number of firms is appropriate for analysis of

Accepted Answer

A)   the short run but not the long run.
B)   the long run but not the short run.
C)   both the short run and the long run.
D)   neither the short run nor the long run.E) All of the above
F) A) and B)

Question 3

The analysis of competitive firms sheds light on the decisions that lie behind the

Accepted Answer

A)   demand curve.
B)   supply curve.
C)   way firms make pricing decisions in the not-for-profit sector of the economy.
D)   way financial markets set interest rates.E) B) and C)
F) B) and D)

Question 4

Land of Many Lakes (LML)  sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML

Accepted Answer

A)   can choose the price at which it sells its butter but not the quantity of butter that it produces.
B)   can choose quantity of butter that it produces but not the price at which it sells its butter.
C)   can choose both the price at which it sells its butter and the quantity of butter that it produces.
D)   cannot choose either the price at which it sells it butter or the quantity of butter that it produces.E) A) and B)
F) A) and C)

Question 5

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

Accepted Answer

A)   preferences of consumers who purchase products in that market.
B)   income tax rates of consumers in that market.
C)   firms' costs of production in that market.
D)   interest rates on government bonds.E) A) and C)
F) B) and C)

Question 6

When managers of firms in a competitive market observe falling profits, they may infer that the market is experiencing

Accepted Answer

A)   a violation of conventional market forces.
B)   over-investment.
C)   the entry of new firms.
D)   too few firms in the market.E) B) and C)
F) A) and B)

Question 7

If a firm in a competitive market doubles its number of units sold, total revenue for the firm will

Accepted Answer

A)   more than double.
B)   double.
C)   increase but by less than double.
D)   may increase or decrease depending on the price elasticity of demand.E) A) and D)
F) None of the above

Question 8

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

Accepted Answer

A)   $5 and 50 units
B)   $5 and 100 units
C)   $10 and 50 units
D)   $10 and 100 unitsE) A) and B)
F) A) and C)

Question 9

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

Accepted Answer

A)   Buyers and sellers are price takers.
B)   Each firm sells a virtually identical product.
C)   Entry is limited.
D)   Each firm chooses an output level that maximizes profits.E) A) and B)
F) A) and C)

Question 10

A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has average revenue of $9 and average total cost of $7. It follows that the firm's

Accepted Answer

A)   average total cost curve intersects the marginal cost curve at an output level of less than 200 units.
B)   average variable cost curve intersects the marginal cost curve at an output level of less than 200 units.
C)   profit is $400.
D)   All of the above are correct.E) All of the above
F) None of the above

Question 11

Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's

Accepted Answer

A)   total revenue.
B)   marginal revenue.
C)   average revenue.
D)   All of the above are correct.E) None of the above
F) C) and D)

Question 12

Why does a firm in a competitive industry charge the market price?

Accepted Answer

A)   If a firm charges less than the market price, it loses potential revenue.
B)   If a firm charges more than the market price, it loses all its customers to other firms.
C)   The firm can sell as many units of output as it wants to at the market price.
D)   All of the above are correct.E) A) and D)
F) B) and D)

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) B) and C)
F) C) and D)

Question 14

A certain competitive firm sells its output for $20 per unit. The 50th unit of output that the firm produces has a marginal cost of $22. Production of the 50th unit of output does not necessarily

Accepted Answer

A)   increase the firm's total revenue by $20.
B)   increase the firm's total cost by $22.
C)   decrease the firm's profit by $2.
D)   increase the firm's average variable cost by $0.44.E) B) and D)
F) C) and D)

Question 15

A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as

Accepted Answer

A)   average revenue is greater than average total cost.
B)   average revenue is equal to marginal cost.
C)   marginal cost is greater than average total cost.
D)   price is above or below marginal cost.E) C) and D)
F) A) and D)

Question 16

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) A) and B)
F) A) and C)

Question 17

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs: 
-Refer to Table 14-10. At which level of production will the firm maximize profit?

Accepted Answer

A)   3 units
B)   4 units
C)   5 units
D)   6 unitsE) B) and C)
F) A) and D)

Question 18

Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, an increase in demand will

Accepted Answer

A)   increase price in the short run but not in the long run.
B)   increase price in the long run but not in the short run.
C)   increase price both in the short and the long run.
D)   not affect price in either the short or the long run.E) B) and C)
F) A) and C)

Question 19

Firms operating in competitive markets produce output levels where marginal revenue equals

Accepted Answer

A)   price.
B)   average revenue.
C)   total revenue divided by output.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 20

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs: 
-Refer to Table 14-11. If the firm is producing 3 units of output, it should produce

Accepted Answer

A)   more units of output because its marginal revenue is greater than its marginal cost.
B)   fewer units of output because its marginal revenue is less than its marginal cost.
C)   more units of output because its marginal revenue is less than its marginal cost.
D)   fewer units of output because its marginal revenue is greater than its marginal cost.E) A) and B)
F) A) and C)

Exam 14: Firms in Competitive Markets

When managers of firms in a competitive market observe falling profits, they may infer that the market is experiencing

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Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, an increase in demand will

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Competitive markets are characterized by

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A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as

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The assumption of a fixed number of firms is appropriate for analysis of

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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

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Why does a firm in a competitive industry charge the market price?

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A certain competitive firm sells its output for $20 per unit. The 50th unit of output that the firm produces has a marginal cost of $22. Production of the 50th unit of output does not necessarily

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The analysis of competitive firms sheds light on the decisions that lie behind the

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A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has average revenue of $9 and average total cost of $7. It follows that the firm's

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Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's

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If a firm in a competitive market doubles its number of units sold, total revenue for the firm will

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Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. At which level of production will the firm maximize profit?

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Table 14-11 Suppose that a firm in a competitive market faces the following prices and costs: -Refer to Table 14-11. If the firm is producing 3 units of output, it should produce

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

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

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Firms operating in competitive markets produce output levels where marginal revenue equals

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Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

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Suppose a firm in each of the two markets listed below were to increase its price by 15 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

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Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML

Correct AnswerverifiedShow Answer

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