Question 1

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $5. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)   accounting profits will be the primary determinant of entry into the market.
B)   sunk costs become an important determinant of the short-run entry strategy.
C)   market price will rise.
D)   long-run supply is constant.E) A) and B)
F) A) and C)

Question 3

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

Question 4

When marginal revenue equals marginal cost, the firm

Accepted Answer

A)   should increase the level of production to maximize its profit.
B)   may be minimizing its losses rather than maximizing its profit.
C)   must be generating positive economic profits.
D)   must be generating positive accounting profits.E) All of the above
F) C) and D)

Question 5

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 $125,000. Because of this information, in the short run, the Brookside Racquet Club should

Accepted Answer

A)   shut down because staying open would be more expensive.
B)   lower their prices to increase their profits.
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) A) and C)

Question 6

If a profit-maximizing firm in a competitive market discovers that, at its current level of production, price is greater than marginal cost, it should

Accepted Answer

A)   shut down.
B)   reduce its output but continue operating.
C)   continue to produce at the current levels.
D)   increase its output.E) A) and C)
F) A) and B)

Question 7

If firms are competitive and profit maximizing, the price of a good equals the

Accepted Answer

A)   marginal cost of production.
B)   fixed cost of production.
C)   total cost of production.
D)   average total cost of production.E) C) and D)
F) A) and C)

Question 8

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?

Accepted Answer

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

Question 9

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs: 
-Refer to Table 14-10. This firm should continue to produce and sell units as long as the marginal cost of production is less than or equal to

Accepted Answer

A)   $3.
B)   $5.
C)   $7.
D)   $9.E) B) and D)
F) B) and C)

Question 10

A firm in a competitive market has the following cost structure:  If the market price is $8, how many units of output should the firm produce to maximize profit?

Accepted Answer

A)   5 units
B)   6 units
C)   7 units
D)   8 unitsE) All of the above
F) B) and C)

Question 11

Which of these types of costs can be ignored when an individual or a firm is making decisions?

Accepted Answer

A)   sunk costs
B)   marginal costs
C)   variable costs
D)   opportunity costsE) None of the above
F) C) and D)

Question 12

A popular resort restaurant will maximize profits if it chooses to stay open during the less­crowded "off season" when its total revenues exceed its variable costs.

Accepted Answer

A) True 
 B)False

Question 13

Scenario 14-1
Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.
-Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

Accepted Answer

A)   -$200.
B)   $1,000.
C)   $3,000.
D)   $4,000.E) A) and B)
F) A) and C)

Question 14

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

Accepted Answer

A)   (i)  and (ii)  only
B)   (ii)  and (iii)  only
C)   (ii)  and (iv)  only
D)   (i) , (ii) , (iii) , and (iv) E) All of the above
F) A) and C)

Question 15

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, total revenue will be

Accepted Answer

A)   $2,000.
B)   $2,400.
C)   $4,200.
D)   We do not have enough information to answer the question.E) B) and D)
F) B) and C)

Question 16

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

Accepted Answer

A)   a one-unit increase in output will increase the firm's profit.
B)   a one-unit decrease in output will increase the firm's profit.
C)   total revenue exceeds total cost.
D)   total cost exceeds total revenue.E) C) and D)
F) A) and B)

Question 17

Table 14-13
Diana's Dress Emporium 
-Refer to Table 14-13. What is the marginal cost of the 1st unit?

Accepted Answer

A)   $50
B)   $75
C)   $80
D)   $150E) B) and C)
F) A) and D)

Question 18

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

Question 19

A firm in a competitive market has the following cost structure:  If the market price is $16, this firm will

Accepted Answer

A)   produce 4 units of output in the short run and exit in the long run.
B)   produce 5 units of output in the short run and exit in the long run.
C)   produce 5 units of output in the short run and face competition from new market entrants in the long run.
D)   shut down in the short run and exit in the long run.E) None of the above
F) A) and D)

Question 20

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

Accepted Answer

Average revenue is total revenue divided...

Exam 14: Firms in Competitive Markets

A firm in a competitive market has the following cost structure: If the market price is $16, this firm will

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 $125,000. Because of this information, in the short run, the Brookside Racquet Club should

Correct AnswerverifiedShow Answer

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

Correct AnswerverifiedAverage revenue is total revenue divided...View AnswerShow Answer

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

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Scenario 14-1 Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. -Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

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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?

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If a profit-maximizing firm in a competitive market discovers that, at its current level of production, price is greater than marginal cost, it should

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Which of these types of costs can be ignored when an individual or a firm is making decisions?

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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?

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A popular resort restaurant will maximize profits if it chooses to stay open during the less­crowded "off season" when its total revenues exceed its variable costs.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. This firm should continue to produce and sell units as long as the marginal cost of production is less than or equal to

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

Correct AnswerverifiedShow Answer

If firms are competitive and profit maximizing, the price of a good equals the

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

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Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, total revenue will be

Correct AnswerverifiedShow Answer

A firm in a competitive market has the following cost structure: If the market price is $8, how many units of output should the firm produce to maximize profit?

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When marginal revenue equals marginal cost, the firm

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Table 14-13 Diana's Dress Emporium -Refer to Table 14-13. What is the marginal cost of the 1st unit?

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A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $5. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Correct AnswerverifiedShow Answer

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Average revenue is total revenue divided...
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A popular resort restaurant will maximize profits if it chooses to stay open during the lesscrowded "off season" when its total revenues exceed its variable costs.

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