CH.14

A competitive market where firms currently earn positive economic profit will see firms exit the industry from increased competition. True False

False

A firm can exit an industry in the short run. True False

False

A firm in a competitive market can change the market price by changing its own production level. True False

False

A firm should continue to operate if price is below average variable cost. True False

False

Firms with identical cost structures in a competitive market will have an upward sloping market long-run supply curve. True False

False

For all firm types price equals marginal revenue, and for competitive firms price equals average revenue. True False

False

If P < ATC then economic profits are positive. True False

False

A firm that is currently producing at a level of output where marginal revenue is greater than marginal cost can increase profits by producing one more unit of output. True False

True

An increase in market demand for a product in a competitive market will raise profits for firms currently in the market. True False

True

Fixed costs that cannot be recovered are known as sunk costs. True False

True

If P > ATC then economic profits are positive. True False

True

If a firm in a competitive market doubles the quantity of units sold, total revenue will exactly double. True False

True

It is possible to have positive accounting profit and zero economic profit for a firm. True False

True

Refer to the figure. A single firm in a competitive market is willing to supply 300 units at a price of $2. The market quantity supplied for a competitive market with 200 identical firms is 60,000 units. True False

True

Refer to the table. What is marginal revenue for this firm from selling the 5th unit? a.$5 b.$10 c.$1 d.$15

a.$5

Refer to the figure. How many units of output will be supplied to the market if there are 400 identical firms and a market price of $4.00? a.240,000 b.160,000 c.200,000 d.120,000

a.240,000

Refer to the table. What is the marginal cost to produce the 6th unit? a.6 b.4 c.5 d.7

a.6

Refer to the table. If the price in this competitive market is $2.00, what is the profit-maximizing level of output for this firm? a.6 units b.5 units c.4 units d.7 units

a.6 units

Refer to the figure. How many units of output will be supplied to the market if there are 200 identical firms and a market price of $2.00? a.60,000 b.100,000 c.80,000 d.120,000

a.60,000

Which of the following characteristics does not describe a competitive market? a.A market where firms sell a differentiated product. b.A market where firms sell a nearly identical product. c.A market where firms can freely enter or exit the market. d.A market with many buyers and sellers.

a.A market where firms sell a differentiated product.

The condition that firms use to exit a competitive market in the long run is a.P < ATC b.P > ATC c.P = MC d.P < MC

a.P < ATC

Refer to the table. If a firm is currently producing 7 units, what should the firm do to increase profits? a.The firm should decrease output since marginal revenue is less than marginal cost at 7 units. b.The firm should not change output since profits are already maximized. c.The firm should increase output since marginal revenue is greater than marginal cost at 7 units. d.The firm should increase output since marginal revenue is less than marginal cost at 7 units.

a.The firm should decrease output since marginal revenue is less than marginal cost at 7 units.

Which of the following is true if price is below average variable cost for a firm in a competitive market? a.The firm should shut down and limit losses to fixed costs. b.The firm should continue to operate as long as price equals marginal cost. c.The firm should continue to operate as long as price exceeds marginal cost. d.The firm should shut down and incur both variable and fixed costs.

a.The firm should shut down and limit losses to fixed costs.

Refer to the table. What is the change in total revenue if output doubles from 4 units to 8 units? a.Total revenue will increase by exactly $20. b.Total revenue will increase by less than $20. c.Total revenue cannot be calculated from the information in the table. d.Total revenue will increase by more than $20

a.Total revenue will increase by exactly $20.

A firm in the short run a.cannot avoid paying fixed costs if the firm shuts down. b.can avoid paying fixed costs if the firm shuts down. c.can avoid paying fixed costs by operating where profits are maximized. d.cannot avoid paying variable costs if the firm shuts down.

a.cannot avoid paying fixed costs if the firm shuts down.

Which of the following correctly describes a firm's entry condition in the long run? a.enter if P > ATC b.enter if P = MC c.enter if P < AVC d.enter if MR > MC

a.enter if P > ATC

Which of the following describes why the market long-run supply curve would be upward sloping? a.firms have different cost structures. b.all inputs and resources are available in unlimited quantities c.entry of new firms does not change the cost structure of existing firms in the market d.consumers have more market power than producers

a.firms have different cost structures.

In a competitive market, an individual firm a.has little to no effect on the market price. b.produces a large share of the market output. c.produces a differentiated product. d.can have a significant effect on the market price.

a.has little to no effect on the market price.

Which of the following is true if a firm increases its level of output by one unit and profits increase? a.marginal revenue is greater than marginal cost b.marginal revenue is less than marginal cost c.marginal revenue is equal to marginal cost d.price is greater than average total cost

a.marginal revenue is greater than marginal cost

When price is less than average total cost, profits for the firm are a.negative. b.positive. c.zero. d.proportional to marginal cost.

a.negative.

Firms in a competitive market are considered price takers because a.no individual buyer or seller can affect the market price. b.firms produce a highly differentiated product. c.there are a large number of buyers and a small number of sellers. d.a small number of firms have a large influence on the market price.

a.no individual buyer or seller can affect the market price.

Which of the following is not correct with respect to firms in a competitive market in the long-run? a.price is above average total cost b.price is equal to average total cost c.economic profits are zero d.price is equal to marginal cost

a.price is above average total cost

The entry decision for a firm in a competitive market in the long run depends on if a.price is greater than average total cost. b.price is less than average total cost. c.total revenue is less than total cost. d.price is equal to marginal cost.

a.price is greater than average total cost.

If marginal revenue is equal to marginal cost at the current level of output, then a.profits are maximized. b.increasing output by one unit will increase profits. c.decreasing output by one unit will increase profits. d.increasing or decreasing output by one unit will increase profits.

a.profits are maximized.

An increase in market demand in a competitive market will have which effect in the short run? a.profits for the firm will increase b.the market price will decline c.the market price will not change d.the demand curve faced by firms will shift left

a.profits for the firm will increase

Refer to the table. If the price in this competitive market is $1.00, in the short run this firm will choose to a.shut down and incur a loss. b.continue producing but incur a loss. c.continue producing and earn a profit. d.shut down and break even.

a.shut down and incur a loss.

Which of the following is a likely effect from firms entering into a competitive market? a.the profits for existing firms will decline. b.the market supply curve will shift left c.the demand for the product should increase. d.the market price for the product should increase

a.the profits for existing firms will decline.

ABC Co. brings in $3,400 in revenue from selling 425 units of its product and $3,404 in revenue from selling 426 units of its product. Which of the following conclusions can be drawn from this information? a.Average revenue and marginal revenue are the same for ABC Co. b.The marginal revenue of the 426th unit is $4 and ABC Co. does not operate in a competitive market. c.The marginal revenue of the 426th unit is $4 and ABC Co. operates in a competitive market. d.Price and average revenue are not the same for ABC Co.

b.The marginal revenue of the 426th unit is $4 and ABC Co. does not operate in a competitive market.

Which of the following is considered a characteristic of a competitive market? a.Government regulation limits the number of firms in the market. b.There are many buyers and sellers in the market. c.Producers sell highly differentiated products. d.Firms are price setters.

b.There are many buyers and sellers in the market.

Which of the following explains why the market long-run supply curve would be upward sloping? a.firms have identical cost structures. b.all inputs and resources are only available in limited quantities c.entry of new firms does not change the cost structure of existing firms in the market d.consumers have more market power than producers

b.all inputs and resources are only available in limited quantities

Refer to the Figure. If the price in this competitive market is $30, this firm will a.shut down and neither earn a profit nor incur a loss. b.be indifferent between producing and shutting down and will lose $2,400. c.produce 100 units and break even. d.produce 100 units and earn a profit of $3,000.

b.be indifferent between producing and shutting down and will lose $2,400.

Refer to the table. If the price in this competitive market is $2.00, in the short run this firm will choose to a.shut down and incur a loss. b.continue producing but incur a loss. c.continue producing and earn a profit. d.shut down and break even.

b.continue producing but incur a loss.

If a firm in a competitive market decreases the quantity of output sold, total revenue should a.remain the same. b.decrease. c.should change proportionately to the change in total costs for the firm. d.increase.

b.decrease.

If there is a reduction in market demand in a competitive market, then in the short run prices will a.not move from the minimum of marginal cost. b.decrease. c.not move from the minimum of average total cost. d.increase.

b.decrease.

If there is a reduction in market demand in a competitive market, then in the short run profits will a.remain unchanged at positive economic profits. b.decrease. c.remain unchanged at zero economic profits. d.increase.

b.decrease.

Firms will have an incentive to enter a competitive market when a.price is less than marginal cost. b.economic profits are positive. c.price is equal to marginal cost. d.economic profits are negative.

b.economic profits are positive.

If marginal revenue is currently greater than marginal cost at the current the level of output, then a.decreasing output by one unit will not affect profits for the firm. b.increasing output by one unit will increase profits for the firm. c.decreasing output by one unit will increase profits for the firm. d.increasing output by one unit will decrease profits for the firm.

b.increasing output by one unit will increase profits for the firm.

Which of the following is true if a firm increases its level of output by one unit and profits decrease? a.marginal revenue is greater than marginal cost b.marginal revenue is less than marginal cost c.marginal revenue is equal to marginal cost d.price is greater than average total cost

b.marginal revenue is less than marginal cost

When price is greater than average total cost, profits for the firm are a.negative. b.positive. c.zero. d.proportional to marginal costs.

b.positive.

Refer to the figure. If the price in this competitive market is $60, this firm will earn profits of a.$1,200. b.$4,000. c.$2,000. d.$2,100.

c.$2,000.

Refer to the table. What is average revenue at a quantity of 5 units? a.$10 b.$15 c.$5 d.$25

c.$5

Refer to the table. At what quantity are profits maximized? a.6 b.4 c.5 d.7

c.5

Refer to the table. What is the marginal revenue for the 3rd unit? a.6 b.4 c.5 d.7

c.5

Which of the following would be an example of a firm in a competitive market? a.Pfizer, Inc. b.Google, Inc. c.An Iowa corn farmer d.the Los Angeles Lakers

c.An Iowa corn farmer

Which of the following characteristics describes a competitive market? a.Producers sell highly differentiated products. b.Natural forces allow for only one firm to operate in the market. c.Producers sell nearly identical products. d.Firms are price setters.

c.Producers sell nearly identical products.

Refer to the table. If a firm is currently producing 2 units, what should the firm do to increase profits? a.The firm should decrease output since marginal revenue is less than marginal cost at 2 units. b.The firm should not change output since profits are already maximized. c.The firm should increase output since marginal revenue is greater than marginal cost at 2 units. d.The firm should increase output since marginal revenue is less than marginal cost at 2 units.

c.The firm should increase output since marginal revenue is greater than marginal cost at 2 units.

Which of the following is a likely effect from firms exiting from a competitive market? a.The demand for the product for the whole market should shift to the right. b.The demand for the product should shift to the left. c.The profits for existing firms should increase. d.The market price for the product should decrease.

c.The profits for existing firms should increase.

Accounting profit and economic profit a.are always the same, even though costs are different under both measures b.are different since accounting profits recognize opportunity costs and economic profits do not. c.are different since economic profits recognize opportunity costs and accounting profits do not. d.are the same since costs are identical under both measures.

c.are different since economic profits recognize opportunity costs and accounting profits do not.

Refer to the table. If the price in this competitive market is $4.00, in the short run this firm will choose to a.shut down and incur a loss. b.continue producing but incur a loss. c.continue producing and earn a profit. d.shut down and break even.

c.continue producing and earn a profit.

Refer to the table. In the short run, this firm will choose to a.continue producing and incur a loss. b.continue producing and break even. c.continue producing and earn a profit. d.shut down and incur a loss.

c.continue producing and earn a profit.

If marginal revenue is currently less than marginal cost at the current level of output, then a.increasing output by one unit will have no effect on profits for the firm. b.increasing output by one unit will increase profits for the firm. c.decreasing output by one unit will increase profits for the firm. d.decreasing output by one unit will decrease profits for the firm.

c.decreasing output by one unit will increase profits for the firm.

In the long run market supply will be horizontal if a.inputs are only available in limited quantities. b.firms have different cost structures. c.firms have identical cost structures. d.the cost of production for firms increases as new firms enter the market.

c.firms have identical cost structures.

Farmer Brown sells sweet corn in a competitive market. When Farmer Brown sells 10 dozen ears of sweet corn, his total revenue is $30. When Farmer Brown sells 20 dozen ears of sweet corn, his total revenue is $60. Farmer Brown's average revenue is ____________ per dozen and his marginal revenue from selling the 20th dozen _________________. a.is $30; is also $30 b.is $3; cannot be determined from the information given c.is $3; is also $3 d.is not equal to the price of sweet corn; cannot be determined from the information given

c.is $3; is also $3

Which of the following is correct with respect to firms in a competitive market in the long-run? a.economic profits are positive b.price is equal average fixed costs c.price is equal to average total costs d.price is below average total costs

c.price is equal to average total costs

An increase in market demand in a competitive market will have which effect in the short run? a.profits for the firm will decrease b.the market price will decline c.the market price will increase d.the demand curve faced by firms will shift left

c.the market price will increase

In the long-run, firms in a competitive market will have a.economic profit proportionate to marginal costs. b.negative economic profit. c.zero economic profit. d.positive economic profit.

c.zero economic profit.

When price equals average total cost, profits for the firm are a.negative. b.positive. c.zero. d.proportional to marginal cost.

c.zero.

A new movie is being released that you are excited to see. The personal value you receive from seeing the movie is $20. You purchase an advanced ticket for $10. If you lose the ticket, what is the most you should be willing to pay for a new ticket if losing the ticket does not change the value received from watching the movie? a.$15 b.$5 c.$10 d.$20

d.$20

You purchase a ticket to a baseball game that you value at $40. You pay $35 for the ticket. Unfortunately you lose the ticket. What is the maximum you would be willing to pay for a new ticket if the value of seeing the baseball game remains the same? a.$30 b.$5 c.$20 d.$40

d.$40

Profits for a firm can be calculated using which of the following formulas? a.AFC *Q b.(P - MC) *Q c.(ATC - AVC)*Q d.(P - ATC)*Q

d.(P - ATC)*Q

Refer to the figure. How many units of output will be supplied to the market if there are 200 identical firms and a market price of $4.00? a.60,000 b.100,000 c.80,000 d.120,000

d.120,000

Refer to the figure. How many units of output will be supplied to the market if there are 400 identical firms and a market price of $2.00? a.240,000 b.160,000 c.200,000 d.120,000

d.120,000

Which of the following is an example of a sunk cost? a.The average costs associated with increasing production. b.The variable costs associated with increasing production. c.The opportunity cost associated with making a decision. d.The unrecoverable fixed costs associated with production decisions

d.The unrecoverable fixed costs associated with production decisions

Refer to the table. What type of market can be characterized by the price and quantity values found in the table if these values represent a demand curve for a firm? a.oligopoly b.monopoly c.monopsony d.competitive market

d.competitive market

A market with many buyers and sellers trading a nearly identical product describes a(n) a.oligopoly. b.monopoly. c.monopsony. d.competitive market.

d.competitive market.

Refer to the table. If the price in this competitive market is $3.00, in the short run this firm will choose to a.shut down and incur a loss. b.continue producing but incur a loss. c.continue producing and earn a profit. d.continue producing and break even.

d.continue producing and break even.

Firms will have an incentive to exit a competitive market when a.price is less than marginal cost. b.economic profits are positive. c.price is equal to marginal cost. d.economic profits are negative.

d.economic profits are negative.

If a firm in a competitive market increases the quantity of output sold, total revenue should a.remain the same. b.decrease. c.change proportionately to the change in total costs for the firm. d.increase.

d.increase.

A firm that shuts down in the short run a.is required to pay variable costs and fixed costs. b.is not required to pay fixed costs or variable costs. c.is required to pay variable costs but not fixed costs. d.is required to pay fixed costs but not variable costs.

d.is required to pay fixed costs but not variable costs.

When a firm exits a competitive market in the long run a.it does not avoid paying either fixed or variable costs. b.it avoids paying variable costs but not fixed costs. c.it avoids paying fixed costs but not variable costs. d.it avoids paying both fixed and variable costs.

d.it avoids paying both fixed and variable costs.

A firm in a competitive market will shut down in the short run if a.price is below marginal cost. b.price is below average total cost. c.price is equal to marginal cost. d.price is below average variable cost.

d.price is below average variable cost.

The exit decision for a firm in a competitive market in the long run depends on if a.total revenue exceeds total costs. b.price is greater than average total cost. c.price is equal to marginal cost. d.price is less than average total costs.

d.price is less than average total costs.

Which of the following correctly describes when a firm in a competitive market should shut down in the short run? a.price is less than average total cost b.price is greater than marginal cost c.price is equal to marginal cost d.price is less than average variable cost

d.price is less than average variable cost

Fixed costs that are not relevant to production decisions are known as a.implicit costs b.opportunity costs. c.explicit costs d.sunk cost

d.sunk cost

Which of the following costs should be ignored by a firm when making production decisions in the short run? a.implicit costs b.opportunity costs c.explicit costs d.sunk costs

d.sunk costs

One explanation for why the market long-run supply curve slopes upward is because a.prices to adjust efficiently in competitive markets. b.firms have identical cost structures. c.firms in a competitive market cannot freely enter or exit. d.the inputs in production are only available in limited quantities.

d.the inputs in production are only available in limited quantities.