Economics Chapter 14

Refer to Table 14-4. For a firm operating in a competitive market, the average revenue is a. $45. b. $30. c. $15. d. $0.

$15

When profit-maximizing firms in competitive markets are earning profits, a. market demand must exceed market supply at the market equilibrium price. b. market supply must exceed market demand at the market equilibrium price. c. new firms will enter the market. d. the most inefficient firms will be encouraged to leave the market.

new firms will enter the market.

Suppose that a firm in a competitive market is currently maximizing its short-run profit at an output of 50 units. If the current price is $9, the marginal cost of the 50th unit is $9, and the average total cost of producing 50 units is $4, what is the firm's profit? a. $0 b. $200 c. $250 d. $450

$250

Refer to Table 14-12. What is the average revenue when 4 units are sold? a. $0 b. $68 c. $80 d. $400

$80

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct? (i) Marginal revenue equals $4. (ii) Average revenue equals $100. (iii) Total revenue equals $1,600. a. (i) only b. (iii) only c. (i) and (iii) only d. (i), (ii), and (iii)

(I) and (iii) only

In the long run, a firm will exit a competitive industry if . . . a. total revenue exceeds total cost. b. the price exceeds average total cost. c. average total cost exceeds the price. d. Both a and b are correct.

Average total cost exceeds the price

Cold Duck Airlines flies between Tacoma and Portland. The company leases planes on a year-long contract at a cost that averages $600 per flight. Other costs (fuel, flight attendants, etc.) amount to $550 per flight. Currently, Cold Duck's revenues are $1,000 per flight. All prices and costs are expected to continue at their present levels. If it wants to maximize profit, Cold Duck Airlines should a. drop the flight immediately. b. continue the flight. c. continue flying until the lease expires and then drop the run. d. drop the flight now but renew the lease if conditions improve.

Continue flying until the lease expires and then drip the run

Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should a. shut down her business in the short run but continue to operate in the long run. b. continue to operate in the short run but shut down in the long run. c. continue to operate in both the short run and long run. d. shut down in both the short run and long run.

Continue to operate in both the short run and long run.

Which of the following statements regarding a competitive firm is correct? a. Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output. b. If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. c. By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price. d. For all firms, average revenue equals the price of the good.

For all firms, average revenue equals the price of the good.

Suppose that you value a hat from your favorite university at $20. The university bookstore has the hat on sale for $15. You purchase the hat but lose it on the way home. What should you do? Assume that losing the hat does not alter how you value it. a. Go back to the bookstore and purchase another hat. b. Wait until the cost of the hat falls to $15 or less before purchasing another hat. c. Wait until the cost of the hat falls to $5 or less before purchasing another hat. d. Do not purchase another hat regardless of the price.

Go back to the bookstore and purchase another hat

When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch, which of the following principles is (are) best demonstrated? (i) Fixed costs are sunk in the short run. (ii) In the short run, only fixed costs are important to the decision to stay open for lunch. (iii) If revenue exceeds variable cost, the restaurant owner is making a smart decision to remain open for lunch. a. (i) and (ii) only b. (ii) and (iii) only c. (i) and (iii) only d. (i), (ii), and (iii)

I and III only

The firm will make the most profits if it produces the quantity of output at which a. marginal cost equals average cost. b. profit per unit is greatest. c. marginal revenue equals total revenue. d. marginal revenue equals marginal cost.

Marginal revenue equals marginal cost

When buyers in a competitive market take the selling price as given, they are said to be a. market entrants. b. monopolists. c. free riders. d. price takers.

Price takers

If the market price is $16, this firm will 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.

Produce 5 units of output in the short run and face competition from new market entrants in the long run

Profit-maximizing firms enter a competitive market when existing firms in that market have a. total revenues that exceed fixed costs. b. total revenues that exceed total variable costs. c. average total costs that exceed average revenue. d. average total costs less than market price.

average total costs less than market price

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then a. average revenue exceeds marginal cost. b. the firm is earning a positive profit. c. decreasing output would increase the firm's profit. d. All of the above are correct.

decreasing output would increase the firm's profit