ECON Practice Problems Chapter 14

If the firm is in a short=run position where P < AVC, it is most likely to be on the BC segment of its supply curve

False; Not sure answer but is isn't BC, CD, or DE

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

False; Price Takers

When price is equal to P3, the profit-maximizing firm will produce Q1 level of output.

False; Q3

When market price is at P4, a profit-maximizing firm will produce Q1 level of output

False; Q4

The decision to shut down and the decision to exit are both short-run decision, this statement is correct regarding a firm's decision making.

False; decision to exit is long-run

A long-run supply curve that is flatter than a short-run supply curve results from the fact that firms can enter and exit a market more easily in the long run than in the short run.

True

A market is competitive if each buyer is small compared to the market and each seller is small compared to the market

True

Firms have difficulty entering the market, this is NOT a characteristic of a perfectly competitive market.

True

For a competitive firm, Profit = Total Revenue - Total Cost

True

For a firm in a perfectly competitive market, the price of a good is always equal to marginal revenue

True

At production level of 4 units, marginal cost is $6

False **

At 3 quantity of output is marginal revue equal to marginal cost

False; 6 (Not sure how)

If the firm chooses to maximize profit it will choose a level of output where marginal cost is equal to 6

False; 9

When new firms have an incentive to enter a competitive market, their entry will increase the price of the product.

False; entry will drive down profits of existing firms in the market

Firms that shut down in the short run still have to pay their variable costs.

False; fixed costs

If a firm in a perfectly competitive market triples the number of units of output sold, then total revenue will more than triple.

False; it will exactly triple not more not less

If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market, the figure in panel (b) is most likely to reflect long-run market strategy.

False; long-run market supply

The complete description of a competitive firm's supply curve is as follows: The competitive firm's short-run supply curve is that portion of the average variable cost curve that lies above marginal cost.

False; marginal cost curve that lies above average variable cost

When ever a perfectly competitive firm chooses to change its level of output, holding the price of the product constant, its marginal revue increases if MR < ATC and decreases if MR > ATC

False; marginal revenue does not change

For a competitive firm, average revenue equals the price of the good, but marginal revenue is different.

False; marginal revue is equal to the price of the good sold

Line segment BCD best reflects the short-run supply curve for this firm.

False; not sure answer but it isn't BCD, CD, or DE

When a perfectly competitive firm makes a decision to shut down, it is most likely that marginal cost is above average variable cost.

False; price is below the minimum average variable cost

When marginal revenue equals marginal cost, the firm should increase the level of production to maximize its profit.

False; the firm may be minimizing its losses, rather than maximizing its profit

If marginal cost exceeds marginal revenue, the firm is most likely to be at profit-maximizing level of output

False; the firm may still be earning a profit

When total revenue is less than variable costs, a firm in a competitive market will continue to operate as long as average revenue exceeds marginal costs.

False; the firm will shut down

The short-run supply curve for a firm in a perfectly competitive market is likely to be horizontal.

False; the portion of its marginal cost curve that lies above its average variable cost.

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is downward sloping.

False; upward sloping

In a perfectly competitive market, the process of entry and exit will end when, for firms in the market, price is equal to average variable cost.

False; when economic profits are zero

Profit-maximizing firms enter a competitive market when, for existing firms in that market, total revenue exceeds fixed costs

False; when price exceeds average total cost

A firm will exit a market if, for all positive levels of output, it's total revenue is less than its total cost.

True

If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then one-unit increase in output will increase the firm's profit.

True

In a competitive market, the actions of any single buyer or seller will have a negligible impact on the market price.

True

In a market that allows free entry and exit, the process of entry and exit ends when, for the typical firm in the market, profit is zero.

True

In the long run all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is price < average total cost

True

The additional revenue a firm in a competitive market receives if it increases its production by one unit equals is marginal revenue

True

The assumption of a fixed number of firms is appropriate for analysis of the short run, but not for long run.

True

This firm will exit the market for any price on the line segment AB.

True

When a firm has little ability to influence market prices it is said to be in a competitive market

True

The maximum profit available to this firm is $5

True ** not sure how