Micro Chapter 14

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A

Because nothing can be done about sunk costs, they are irrelevant to decisions about business strategy True or False

True

Firms in a competitive market are said to be price takers because there are many sellers in the market, and the goods offered by the firms are very similar if not identical. True or False

True

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B

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 increase price in the short run but not in the long run. increase price in the long run but not in the short run. increase price both in the short and the long run. not affect price in either the short or the long run.

A increase price in the short run but not in the long run

Robin owns a horse stable and riding academy and gives riding lessons for children at "pony camp." His business operates in a competitive industry. Robin gives riding lessons to 20 children per month. His monthly total revenue is $4,000. The marginal cost of pony camp is $250 per child. In order to maximize profits, Robin should give riding lessons to more than 20 children per month. give riding lessons to fewer than 20 children per month. continue to give riding lessons to 20 children per month. We do not have enough information to answer the question.

B give riding lessons to fewer than 20 children per month

When marginal revenue equals marginal cost, the firm should increase the level of production to maximize its profit. may be minimizing its losses rather than maximizing its profit. must be generating positive economic profits. must be generating positive accounting profits.

B may be minimizing its losses rather than maximizing its profits

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C

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average fixed cost. variable cost. total cost. revenue.

C Total Cost

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D

A firm operating in a competitive market will stay in business in the short run so long as the market price exceeds the firm's average total cost; otherwise, the firm will shut down. True or False

False

For a firm operating in a perfectly competitive industry, total revenue, marginal revenue, and average revenue are all equal. True or False

False

Suppose a firm is considering producing zero units of output. We call this exiting an industry in the short run and shutting down in the long run. True or False

False