ECON 2113-Exam 4

14. Profit-maximizing firms enter a competitive market when, for existing firms in that market,

price exceeds average total cost

10. When a perfectly competitive firm makes a decision to shut down, it is most likely that

price is below the minimum of average variable cost

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

Fixed Cost

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

false

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

false

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

false

19. A long-run supply curve that is flatter than a short-run supply curve results from which of the following?

firms can enter and exit a market more easily in the long run than the short run

1. Which of the following is NOT a characteristic of a perfectly competitive market?

firms have difficulty entering the market

13. In a competitive market, the actions of any single buyer or seller will

have a negligible impact on the market price

12. In a competitive market, the actions of any single buyer or seller will

increase market supply and decrease market prices

8. The short-run supply curve for a firm in a perfectly competitive market is

its marginal cost curve (above average variable cost)

23. A profit-maximizing monopolist will produce the level of output at which

marginal revenue is equal to marginal cost

22. If a profit-maximizing monopolist faces a downward-sloping market demand curve, its

marginal revenue is less than the price of the product

18. If marginal cost exceeds marginal revenue, the firm

may still be earning a profit

4. Refer to Table 14-2. At a production level of 4 units which of the following is true?

total revenue is less than marginal cost

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

true

27. Firms in competitive markets are said to be price takers

true

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

true

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

true

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

true

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

true

34. 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

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

true

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

true

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

true

38. 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

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

true

42. When firm experiences zero-profit equilibrium, the firm's revenue must be sufficient to cover all opportunity cost

true

46. 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

47. In the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost

true

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

true

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

true

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

true

11. A firm will exit a market if, for all positive levels of output,

All of the above

5. Refer to Table 14-2. At which quantity of output is margin revenue equal to marginal cost?

6

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

9

24. Refer to Figure 15-2. the marginal revenue curve for a monopoly firm is depicted by curve

B

2. Whenever a perfectly competitive firm chooses to change its level of output, holding the price of the product constant, its marginal revenue

Does not change

25. Refer to Figure 15-2. Profit will be maximized by charging a price equal to

P3

7. Refere to Figure 14-1. When price is equal to P3, the profit maximizing firm will produce what level of output?

Q3

20. Which of the following statements is correct?

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

17. Which of the following expressions is correct for a competitive firm?

all of the above

21. Natural monopolies differ from other forms of monopoly because they

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

3. For a competitive firm,

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

15. For a firm in a perfectly competitive market triples the number of units of output sold, then total revenue will

equal to marginal revenue

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

exactly triple

28. In competitive markets, firms that raise their prices are typically reward with larger profits

false

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

false

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

false

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

false