Chapter 14 Quiz

Consider a firm that operates in a perfectly competitive market. The firm is producing at its profit maximizing output level. If this is true, then average revenue is maximized. ​the firm must be earning a positive economic profit. ​marginal revenue is greater than the market price. ​price must be equal to marginal cost.

price must be equal to marginal cost.

Because there are many buyers and sellers in a perfectly competitive market, no one seller can influence the market price. True or False

true

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

a one-unit increase in output will increase the firm's profit.

Suppose a firm operating in a competitive market has the following cost curves: Refer to Figure 14-3. If the market price is $6, what is the firm's short-run economic profit? Group of answer choices $0 $12 $15 $18

$0

Refer to Figure 14-9. When 100 identical firms participate in this market, at what price will 15,000 units be supplied to this market? Group of answer choices $1.00 $1.50 $2.00 The price cannot be determined from the information provided.

$1.50

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $6, and is earning $240 economic profit in the short run. What is the current market price? Group of answer choices $0 $6 $10 $12

$12

Refer to Table 14-16. For this firm, when output is equal to 12 units, average revenue is Group of answer choices ​$15. ​$150. ​always greater than marginal revenue. ​decreasing.

$15

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, total revenue will be $2,000. $2,400. $4,200. We do not have enough information to answer the question.

$2,400

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? $0 $200 $250 $450

$250

Refer to Table 14-2. For this firm, the average revenue from selling 3 units is $12. $4. $3. $1.

$3

Table 14-14The following table presents cost and revenue information for Bob's bakery production and sales Refer to Table 14-14. What is Bob's total fixed cost? $0 $3 $5 $9

$5

Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3. (ii) Average revenue equals $100. (iii) Total revenue equals $300. (i) only (iii) only (i) and (ii) only (i), (ii), and (iii)

(i) only

Refer to Figure 14-9. If there are 300 identical firms in this market, what level of output will be supplied to the market when price is $2.00? 300 6,000 30,000 60,000

60,000

Figure 14-8 Suppose a firm operating in a competitive market has the following cost curves: Refer to Figure 14-8. Which line segment best reflects the short-run supply curve for this firm? ABCF CD DF BCD

ABCF

Refer to Figure 14-2. Which of the four prices corresponds to a firm earning zero economic profits in the short run? Pa Pb Pc Pd

Pb

Which of the following statements regarding a competitive market is not correct? There are many buyers and many sellers in the market. Firms can freely enter or exit the market. Price equals average revenue. Price exceeds marginal revenue.

Price exceeds marginal revenue.

A firm that has little ability to influence market prices operates in a Group of answer choices competitive market. strategic market. thin market. power market.

competitive market

Which of the following industries is most likely to exhibit the characteristic of free entry? Group of answer choices nuclear power municipal water and sewer dairy farming airport security

dairy farming

Which of the following represents the firm's long-run condition for exiting a market? Group of answer choices exit if P < MC exit if P < FC exit if P < ATC exit if MR < MC

exit if P < ATC

For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price. True or False

false

In the short run, a firm should exit the industry if its marginal cost exceeds its marginal revenue. True or False

false

If a profit-maximizing firm in a competitive market discovers that, at its current level of production, price is greater than marginal cost, it should shut down. reduce its output but continue operating. continue to produce at the current levels. increase its output

increase its output

Refer to Figure 14-1. The firm will earn a negative economic profit but remain in business in the short run if the market price is Group of answer choices above $6.30 but less than $8. above $6.30. less than $6.30 but more than $4.50. less than $4.50.

less than $6.30 but more than $4.50.

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: Refer to Figure 14-5. In the short run, if the market price is higher than P1 but less than P4, individual firms in a competitive industry will earn positive profits. zero profits. losses but will remain in business. losses and will shut down.

losses but will remain in business.

Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $200. In order to maximize profits, Laura should make more than 20 wedding cakes per month. make fewer than 20 wedding cakes per month. continue to make 20 wedding cakes per month. We do not have enough information to answer the question.

make more than 20 wedding cakes per month.

If firms are competitive and profit maximizing, the price of a good equals the marginal cost of production. fixed cost of production. total cost of production. average total cost of production.

marginal cost of production.

By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that achieves its objective, which we assume to be maximizing total revenue. maximizing profit. minimizing variable cost. minimizing average total cost.

maximizing profit.

Scenario 14-5A study sponsored by the Food Consumer Safety Board found that consumption of irradiated tomatoes increased the health of laboratory rats. As a result of national press coverage of the report, the demand for irradiated tomatoes increased dramatically. Organic farmers were able to switch from organic production of tomatoes to irradiated production with no additional cost. Assume that the tomato market satisfies all of the assumptions of perfect competition. Refer to Scenario 14-5. As a result of the increase in the demand for tomatoes, we would predict that in the short run that the Group of answer choices production of tomatoes would be at efficient scale. price of tomatoes would rise. total cost for existing irradiated tomato producers must rise. number of firms in the market would fall as prices fall and firms exit the market.

price of tomatoes would rise.

Scenario 14-5A study sponsored by the Food Consumer Safety Board found that consumption of irradiated tomatoes increased the health of laboratory rats. As a result of national press coverage of the report, the demand for irradiated tomatoes increased dramatically. Organic farmers were able to switch from organic production of tomatoes to irradiated production with no additional cost. Assume that the tomato market satisfies all of the assumptions of perfect competition. Refer to Scenario 14-5. As a result of the increase in the demand for tomatoes, we would predict that in the short run that the production of tomatoes would be at efficient scale. price of tomatoes would rise. total cost for existing irradiated tomato producers must rise. number of firms in the market would fall as prices fall and firms exit the market.

price of tomatoes would rise.

A key characteristic of a competitive market is that Group of answer choices government antitrust laws regulate competition. producers sell nearly identical products. firms minimize total costs. firms have price setting power.

producers sell nearly identical products

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $11 and a marginal cost of $10. It follows that the Group of answer choices production of the 100th unit of output increases the firm's profit by $1. production of the 100th unit of output increases the firm's average total cost by $1. firm's profit-maximizing level of output is less than 100 units. production of the 101st unit of output must increase the firm's profit by more than $1.

production of the 100th unit of output increases the firm's profit by $1.

Entry into a market by new firms will increase the supply of the good. profits of existing firms. price of the good. marginal cost of producing the good

supply of the good

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing Group of answer choices to produce the quantity at which average variable cost is minimized. to produce the quantity at which average fixed cost is minimized. the quantity at which market price is equal to Mr. McDonald's marginal cost of production. the quantity at which market price exceeds Mr. McDonald's marginal cost of production by the greatest amount.

the quantity at which market price is equal to Mr. McDonald's marginal cost of production.

A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its Group of answer choices opportunity costs. fixed costs. variable costs. total costs.

variable costs.