Question 1

Which of the following is a characteristic of a competitive market?

Accepted Answer

A)   There are many buyers but few sellers.
B)   Many firms have market power because they own patents.
C)   Buyers and sellers are price takers..
D)   Firms sell differentiated products.E) B) and D)
F) A) and B)

Question 2

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

Accepted Answer

The firm could not sell any more of its ...

Question 3

When profit-maximizing firms in competitive markets are earning profits,

Accepted Answer

A)   market demand must exceed market supply at the market equilibrium price.
B)   market supply must exceed market demand at the market equilibrium price.
C)   new firms will enter the market.
D)   the most inefficient firms will be encouraged to leave the market.E) B) and D)
F) B) and C)

Question 4

The exit of existing firms from a competitive market will

Accepted Answer

A)   increase market supply and increase market price.
B)   increase market supply and decrease market price.
C)   decrease market supply and increase market price.
D)   decrease market supply and decrease market price.E) B) and D)
F) A) and D)

Question 5

In the short run, a firm operating in a competitive industry will shut down if price is

Accepted Answer

A)   less than average total cost.
B)   less than average variable cost.
C)   greater than average variable cost but less than average total cost.
D)   greater than marginal cost.E) A) and B)
F) A) and C)

Question 6

Figure 14-7 
-Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 514 units of output, its profit is approximately

Accepted Answer

A)   $24,995.
B)   $25,550.
C)   $25,750.
D)   $26,025.E) B) and C)
F) None of the above

Question 7

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. The firm should shut down if the market price is

Accepted Answer

A)   above $8.
B)   above $6.30 but less than $8.
C)   above $4.50 but less than $6.30.
D)   less than $4.50.E) B) and C)
F) All of the above

Question 8

Suppose that a firm operating in perfectly competitive market sells 50 units of output. Its total revenues from the sale are $500. Which of the following statements is correct?

Accepted Answer

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

Question 9

Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-4. When price rises from P3 to P4, the firm finds that

Accepted Answer

A)   fixed costs decrease as output increases from Q3 to Q4.
B)   it can earn a positive profit by increasing production to Q4.
C)   profit is still maximized at a production level of Q3.
D)   average revenue exceeds marginal revenue at a production level of Q4.E) A) and D)
F) A) and C)

Question 10

When buyers in a competitive market take the selling price as given, they are said to be

Accepted Answer

A)   market entrants.
B)   monopolists.
C)   free riders.
D)   price takers.E) A) and B)
F) B) and D)

Question 11

Table 14-1 
-Refer to Table 14-1. Over what range of output is marginal revenue declining?

Accepted Answer

A)   1 to 6 units
B)   3 to 7 units
C)   7 to 9 units
D)   Marginal revenue is constant over the entire range of output.E) A) and D)
F) None of the above

Question 12

When price is below average variable cost, a firm in a competitive market will

Accepted Answer

A)   shut down and incur fixed costs.
B)   shut down and incur both variable and fixed costs.
C)   continue to operate as long as average revenue exceeds marginal cost.
D)   continue to operate as long as average revenue exceeds average fixed cost.E) None of the above
F) A) and B)

Question 13

Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-4. When price rises from P2 to P3, the firm finds that

Accepted Answer

A)   marginal cost exceeds marginal revenue at a production level of Q2.
B)   if it produces at output level Q3 it will earn a positive profit.
C)   expanding output to Q4 would leave the firm with losses.
D)   it could increase profits by lowering output from Q3 to Q2.E) A) and C)
F) B) and D)

Question 14

A restaurant that has market power can

Accepted Answer

A)   minimize costs more efficiently than its competitors.
B)   influence the market price for the meals it sells.
C)   reduce its marketing budget more than its competitors.
D)   ignore profit-maximizing strategies when setting the price for its meals.E) B) and C)
F) A) and D)

Question 15

When a profit-maximizing firm's fixed costs are considered sunk in the short run, then the firm

Accepted Answer

A)   can set price above marginal cost.
B)   must set price below average total cost.
C)   will never show losses.
D)   can safely ignore fixed costs when deciding how much output to produce.E) None of the above
F) B) and D)

Question 16

Regardless of the cost structure of firms in a competitive market, in the long run

Accepted Answer

A)   firms will experience rising demand for their products.
B)   the marginal firm will earn zero economic profit.
C)   firms will experience a less competitive market environment.
D)   exit and entry is likely to lead to a horizontal long-run supply curve.E) All of the above
F) C) and D)

Question 17

When a resource used in the production of a good sold in a competitive market is available in only limited quantities, the long-run supply curve is likely to be upward sloping.

Accepted Answer

A) True 
 B)False

Question 18

The short-run supply curve for a firm in a perfectly competitive market is

Accepted Answer

A)   horizontal.
B)   likely to slope downward.
C)   determined by forces external to the firm.
D)   the portion of its marginal cost curve that lies above its average variable cost.E) B) and C)
F) A) and C)

Question 19

A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the short run.

Accepted Answer

A) True 
 B)False

Question 20

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-2. Which of the four prices corresponds to a firm earning positive economic profits in the short run?

Accepted Answer

A)   Pa
B)   Pb
C)   Pc
D)   PdE) B) and C)
F) A) and C)

Exam 14: Firms in Competitive Markets

The short-run supply curve for a firm in a perfectly competitive market is

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Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. When price rises from P3 to P4, the firm finds that

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Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. Which of the four prices corresponds to a firm earning positive economic profits in the short run?

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The exit of existing firms from a competitive market will

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A restaurant that has market power can

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Which of the following is a characteristic of a competitive market?

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In the short run, a firm operating in a competitive industry will shut down if price is

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Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. When price rises from P2 to P3, the firm finds that

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Figure 14-7 -Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 514 units of output, its profit is approximately

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When a resource used in the production of a good sold in a competitive market is available in only limited quantities, the long-run supply curve is likely to be upward sloping.

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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 should shut down if the market price is

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Regardless of the cost structure of firms in a competitive market, in the long run

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When a profit-maximizing firm's fixed costs are considered sunk in the short run, then the firm

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When profit-maximizing firms in competitive markets are earning profits,

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Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

Correct AnswerverifiedThe firm could not sell any more of its ...View AnswerShow Answer

When price is below average variable cost, a firm in a competitive market will

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A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the short run.

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When buyers in a competitive market take the selling price as given, they are said to be

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Table 14-1 -Refer to Table 14-1. Over what range of output is marginal revenue declining?

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Suppose that a firm operating in perfectly competitive market sells 50 units of output. Its total revenues from the sale are $500. Which of the following statements is correct?

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The firm could not sell any more of its ...
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