ECON2113 EXAM 4

The short run supply curve in a competitive market must be more elastic than the long run supply curve

False

The marginal firm in a competitive market will earn zero economic profits in the long run

True

A firm will exit a market if, for all positive levels of output a. Its total revenue is less that its total cost b. Its profit is negative c. The price of its product is less than its average total cost d. All of the above are correct

All of the above are correct

Refer to Table 14-2. At which quantity of output is marginal revenue equal to marginal cost? a. 3 b. 6 c. 8 d. All of the above are correct

6

Refer to Table 14-2. If this firm chooses to maximize profit it will choose a level of output where marginal cost is equal to a. 8 b. 9 c. 7 d. 6

9

Which of the following statements is correct? a. Both competitive firms and monopolies are price makers b. Both competitive firms and monopolies are price takers c. A competitive firm is a price maker and a monopoly is a price taker d. A competitive firm is a price taker and a monopoly is a price maker

A competitive firm is a price taker and a monopoly is a price maker

Allowing an inventor to have the exclusive rights to market her new invention will lead to (1) a product that is priced higher than it would be without the exclusive rights (2) desirable behavior in the sense that inventors are encouraged to invent (3) higher profits for the inventor a. (1) and (2) b. (2) and (3) c. (1) and (3) d. All of the above are correct

All of the above are correct

Which of the following expressions is correct for a competitive firm? a. Profit = Total revenue - Total cost b. Marginal revenue = (change in total revenue)/(change in quantity of output) c. Average revenue = total revenue/quantity of output d. All of the above are correct

All of the above are correct

Which of the following is an example of a barrier to entry? (1) a key resource is owned by a single firm (2) The costs of production make a single producer more efficient than a large number of producers (3) The government has given the existing monopoly the exclusive right to produce the good a. (1) and (2) b. (2) and (3) c. (1) only d. All of the above are correct

All of the above are correct

Natural monopolies differ from other forms of monopoly because they a. Are not subject to barriers to entry b. Are not regulated by government c. Generally don't make a profit d. Are generally not worried about competition eroding their monopoly position in the market

Are generally not worried about competition eroding their monopoly position in the market

For a competitive firm a. Average revenue equals the price of the good, but marginal revenue is different b. Marginal revenue equals the price of the good, but average revenue is different c. Average revenue equals marginal revenue, but the price of the good is different d. Average revenue, marginal revenue, and the price of the good are all equal to one another

Average revenue, marginal revenue, and the price of the good are all equal to one another

Whenever a perfectly competitive firm chooses to change its level of output, holding the price of the product constant, its marginal revenue a. Does not change b. Increases c. Increases if MR < ATC and decreases if MR > ATC d. Decreases

Does not change

For a firm in a perfectly competitive market, the price of the good is always a. Equal to marginal revenue b. Equal to total revenue c. Greater than average revenue d. All of the above are correct

Equal to marginal revenue

If a firm in a perfectly competitive market triples the number of units of output sold, then total revenue will a. More than triple b. Less than triple c. Exactly triple d. All of the above are potentially true

Exactly triple

A competitive market will typically experience entry and exit until all accounting profits are zero

False

A firm will shut down in the short run if revenue is not sufficient to cover all of its fixed costs of production

False

A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run

False

For a firm in a competitive market, marginal revenue is always equal to average revenue.

False

In competitive markets, firms that raise their prices are typically rewarded with larger profits

False

The supply curve of a firm in a competitive market is the average variable cost curve, above the minimum of marginal cost

False

When individual firms in competitive markets increase their production, it is likely that the market price will fall

False

A long-run supply curve that is flatter than a short-run supply curve results from which of the following? a. Competitive firms have more control over demand in the long run b. Long-run supply curves are sometimes downward sloping c. Firms in a competitive market face identical cost structures d. Firms can enter and exit more easily in the long-run than it the short-run

Firms can enter and exit more easily in the long-run than it the short-run

Which of the following is NOT a characteristic of a perfectly competitive market? a. Goods offered for sale are largely the same b. There are many sellers in the market c. Firms are price takers d. Firms have difficulty entering the market

Firms have difficulty entering the market

Firms that shut down in the short run still have to pay their a. Variable costs b. Fixed costs c. Total cost d. All of the above are correct

Fixed costs

In a competitive marker, the actions of any single buyer or seller will a. Have a negligible impact on the market b. Have little effect on overall production but will ultimately change final product price c. Adversely affect the profitability of more than one firm in the market d. Cause a noticeable change in overall production and a change in final product price

Have a negligible impact on the market

The entry of new firms into a competitive market will a. Increase market supply and decrease market prices b. Decrease market supply and decrease market prices c. Decrease market supply and increase market prices d. Increase market supply and increase market prices

Increase market supply and decrease market prices

The short-run supply curve for a firm in a perfectly competitive market is a. Its marginal cost curve (above average variable cost) b. Determined by forces external to the firm c. Likely to be horizontal d. Likely to slope downward

Its marginal cost curve (above average variable cost)

In order to sell more of its product, a monopolist must a. Sell to the government b. Use its market power to force up the price of complementary products c. Lower its price d. Sell in international markets

Lower its price

If marginal cost exceeds marginal revenue, the firm a. May still be earning a profit b. Must be experiencing losses c. Is most likely to be at a profit-maximizing level of output d. Should increase the level of production to maximize its profit

May still be earning a profit

Profit-maximizing firms enter a competitive market when, for existing firms in that market, a. Average total cost exceeds average revenue b. Total revenue exceeds total variable cost c. Price exceeds average total cost d. Total revenue exceeds fixed costs

Price exceeds average total cost

When a perfectly competitive firm makes a decision to shut down, it is most likely that a. Price is below the minimum of average variable cost b. Marginal cost is above average total cost c. Fixed costs exceed variable costs d. Marginal cost is above average variable cost

Price is below the minimum of average variable cost

Refer to Figure 14-1. When price is equal to p3, the profit-maximizing firm will produce what level of output? a. Q3 b. Q1 c. Q2 d. Q4

Q3

The key difference between a competitive firm and a monopoly firm is the ability to select a. The price of its output b. The level of competition in the market c. Inputs in the production process d. The level of production

The price of its output

Refer to Table 14-2. At a production level of 4 units which of the following is true? a. Marginal cost is $6 b. Total revenue is greater than variable cost c. Marginal revenue is less than marginal cost d. All of the above are correct

Total revenue is greater than variable cost

A firm in a competitive market will maximize profit when the level of production is such that marginal cost equals price

True

A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production

True

A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin

True

A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost

True

At the end of the process of entry and exit, it is possible that some firms in a competitive market are making a positive economic profit

True

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

True

Declining average total cost with increased production is one of the defining characteristics of a natural monopoly

True

Firms in competitive markets are said to be price takers In competitive markets, firms that raise their prices are typically rewarded with larger profits

True

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

True

In the long run, a competitive market with 1000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost

True

In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market

True

The De Beers Diamond company advises heavily to promote the sale of diamonds, not just its own. This is evidence that they have a monopoly position to some degree.

True

The amount of power that a monopoly has is a function of whether there are close substitutes for its product.

True

The long run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale

True

When a firm experiences zero-profit equilibrium, the firm's revenue must be sufficient to cover all opportunity costs

True

When a profit-maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production

True