Question 1

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

Accepted Answer

A)   positive economic profits in the short run.
B)   negative economic profits in the short run but remain in business.
C)   negative economic profits and shut down.
D)   zero economic profits in the short run.E) B) and C)
F) None of the above

Question 2

By comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit-maximizing level of production.

Accepted Answer

A) True 
 B)False

Question 3

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 does not

Accepted Answer

A)   choose the quantity of butter to produce.
B)   set marginal revenue equal to marginal cost to maximize profit.
C)   have any fixed costs of production.
D)   choose the price at which it sells its butter.E) A) and D)
F) A) and C)

Question 4

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 5

Profit-maximizing firms enter a competitive market when existing firms in that market have

Accepted Answer

A)   total revenues that exceed fixed costs.
B)   total revenues that exceed total variable costs.
C)   average total costs that exceed average revenue.
D)   average total costs less than market price.E) A) and B)
F) A) and C)

Question 6

Scenario 14-2
Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit.
-Refer to Scenario 14-2. To maximize its profit, the firm should

Accepted Answer

A)   increase its output.
B)   continue to produce 1,000 units.
C)   decrease its output but continue to produce.
D)   shut down.E) None of the above
F) A) and B)

Question 7

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands rises above the minimum of its average variable cost, but still lies below the minimum of average total cost, in the short run the firm will

Accepted Answer

A)   experience losses but will continue to produce rubber bands.
B)   shut down.
C)   earn both economic and accounting profits.
D)   raise the price of its product.E) C) and D)
F) None of the above

Question 8

A competitive firm would benefit from charging a price below the market price because the firm would achieve

Accepted Answer

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

Question 9

Firms operating in perfectly competitive markets try to maximize profits.

Accepted Answer

A) True 
 B)False

Question 10

Table 14-14
The following table presents cost and revenue information for Bob's bakery production and sales. 
-Refer to Table 14-14. When Bob produces and sells the profit-maximizing quantity, how much profit does he earn?

Accepted Answer

A)   $0.25
B)   $2.75
C)   $4.00
D)   $5.25E) A) and B)
F) None of the above

Question 11

Scenario 14-3
Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20.
-Refer to Scenario 14-3. At Q=499, the firm's profits equal

Accepted Answer

A)   $3,980.
B)   $3,992.
C)   $3,997.
D)   $4,017.E) None of the above
F) C) and D)

Question 12

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 average revenue when 4 units are sold?

Accepted Answer

A)   $60
B)   $120
C)   $125
D)   $197E) All of the above
F) A) and B)

Question 13

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 total cost but greater than the firm's average variable cost.

Accepted Answer

A) True 
 B)False

Question 14

Table 14-1 
-Refer to Table 14-1. Over which range of output is average revenue equal to price?

Accepted Answer

A)   1 to 5 units
B)   3 to 7 units
C)   5 to 9 units
D)   Average revenue is equal to price over the entire range of output.E) B) and C)
F) C) and D)

Question 15

Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is

Accepted Answer

A)   -$1,600.
B)   $1,600.
C)   $3,200.
D)   $8,000.E) A) and C)
F) A) and B)

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

In a perfectly competitive market, the process of entry and exit will end when firms face

Accepted Answer

A)   marginal revenue equal to long-run average total cost.
B)   total revenue equal to average total cost.
C)   average revenue greater than marginal cost.
D)   accounting profits equal to zero.E) B) and C)
F) A) and D)

Question 19

If the profit­maximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm

Accepted Answer

A)   will be earning positive economic profit at the profit-maximizing quantity.
B)   will have economic profit less than zero at the profit-maximizing quantity.
C)   will have zero economic profit at the profit-maximizing quantity.
D)   should increase the quantity of production to increase profit.E) A) and C)
F) A) and B)

Question 20

In a competitive market, firms are unable to differentiate their product from that of other producers.

Accepted Answer

A) True 
 B)False

Exam 14: Firms in Competitive Markets

Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. -Refer to Table 14-14. When Bob produces and sells the profit-maximizing quantity, how much profit does he earn?

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Profit-maximizing firms enter a competitive market when existing firms in that market have

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In a perfectly competitive market, the process of entry and exit will end when firms face

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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.

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If the profit­maximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm

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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 does not

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Firms operating in perfectly competitive markets try to maximize profits.

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Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is

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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 average revenue when 4 units are sold?

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Scenario 14-3 Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. -Refer to Scenario 14-3. At Q=499, the firm's profits equal

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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?

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Scenario 14-2 Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. -Refer to Scenario 14-2. To maximize its profit, the firm should

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Table 14-1 -Refer to Table 14-1. Over which range of output is average revenue equal to price?

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

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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 total cost but greater than the firm's average variable cost.

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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. If the market price is $5.00, the firm will earn

Correct AnswerverifiedShow Answer

By comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit-maximizing level of production.

Correct AnswerverifiedShow Answer

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands rises above the minimum of its average variable cost, but still lies below the minimum of average total cost, in the short run the firm will

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In a competitive market, firms are unable to differentiate their product from that of other producers.

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A competitive firm would benefit from charging a price below the market price because the firm would achieve

Correct AnswerverifiedShow Answer

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If the profitmaximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm

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