Econ ch 14
Profits for a firm can be calculated using which of the following formulas?
(P - ATC)*Q
Refer to the figure. How many units of output will be supplied to the market if there are 200 identical firms and a market price of $4.00?
120,000
Refer to the figure. How many units of output will be supplied to the market if there are 400 identical firms and a market price of $2.00?
120,000
Refer to the figure. How many units of output will be supplied to the market if there are 400 identical firms and a market price of $4.00?
240,000
suppose that a firm in a competitive market faces the following revenues and costs. refer to the table. what is the marginal revenue for the 3rd unit?
5
suppose that a firm in a competitive market faces the following revenues and cots. Refer to the table. At what quantity are profits maximized?
5
suppose that a firm in a competitive market faces the following revenues and cost. Refer to the table. What is the marginal cost to produce the 6th unit?
6
Refer to the table. If the price in this competitive market is $2.00, what is the profit-maximizing level of output for this firm?
6 units
A firm that is currently producing at a level of output where marginal revenue is greater than marginal cost can increase profits by producing one more unit of output.
true
An increase in market demand for a product in a competitive market will raise profits for firms currently in the market.
true
Fixed costs that cannot be recovered are known as sunk costs.
true
If P > ATC then economic profits are positive.
true
If a firm in a competitive market doubles the quantity of units sold, total revenue will exactly double.
true
It is possible to have positive accounting profit and zero economic profit for a firm.
true
Refer to the figure. How many units of output will be supplied to the market if there are 200 identical firms and a market price of $2.00?
60,000
When price equals average total cost, profits for the firm are
zero
In the long-run, firms in a competitive market will have
zero economic profit
If marginal revenue is currently greater than marginal cost at the current the level of output, then
increasing output by one unit will increase profits for the firm.
Refer to the table. If the price in this competitive market is $1.00, in the short run this firm will choose to
shut down and incur a loss.
Fixed costs that are not relevant to production decisions are known as
sunk cost
Which of the following costs should be ignored by a firm when making production decisions in the short run?
sunk costs
Refer to the figure. If the price in this competitive market is $60, this firm will earn profits of
$2,000
A new movie is being released that you are excited to see. The personal value you receive from seeing the movie is $20. You purchase an advanced ticket for $10. If you lose the ticket, what is the most you should be willing to pay for a new ticket if losing the ticket does not change the value received from watching the movie?
$20
You purchase a ticket to a baseball game that you value at $40. You pay $35 for the ticket. Unfortunately you lose the ticket. What is the maximum you would be willing to pay for a new ticket if the value of seeing the baseball game remains the same?
$40
Refer to the table. What is average revenue at a quantity of 5 units?
$5
Refer to the table. What is marginal revenue for this firm from selling the 5th unit?
$5
Which of the following characteristics does not describe a competitive market?
A market where firms sell a differentiated product.
The condition that firms use to exit a competitive market in the long run is
P < ATC
Which of the following characteristics describes a competitive market?
Producers sell nearly identical products.
Refer to the table. What is the change in total revenue if output doubles from 4 units to 8 units?
Total revenue will increase by exactly $20.
Supposed that a firm in a competitive market faces the following revenue and costs. Refer to the table. If a firm is currently producing 7 units, what should the firm do to increase profits?
The firm should decrease output since marginal revenue is less than marginal cost at 7 units.
suppose that a firm in a competitive market faces the following revenue and costs. Refer to the table. If a firm is currently producing 2 units, what should the firm do to increase profits?
The firm should increase output since marginal revenue is greater than marginal cost at 2 units.
Which of the following is true if price is below average variable cost for a firm in a competitive market?
The firm should shut down and limit losses to fixed costs.
ABC Co. brings in $3,400 in revenue from selling 425 units of its product and $3,404 in revenue from selling 426 units of its product. Which of the following conclusions can be drawn from this information?
The marginal revenue of the 426th unit is $4 and ABC Co. does not operate in a competitive market.
Which of the following is an example of a sunk cost?
The unrecoverable fixed costs associated with production decisions.
Which of the following is considered a characteristic of a competitive market?
There are many buyers and sellers in the market.
Which of the following explains why the market long-run supply curve would be upward sloping?
all inputs and resources are only available in limited quantities
Which of the following would be an example of a firm in a competitive market?
an Iowa corn farmer
Refer to the Figure. If the price in this competitive market is $30, this firm will
be indifferent between producing and shutting down and will lose $2,400.
In a competitive market, an individual firm
has little to no effect on the market price.
A firm in the short run
cannot avoid paying fixed costs if the firm shuts down
Refer to the table. What type of market can be characterized by the price and quantity values found in the table if these values represent a demand curve for a firm?
competitive market
A market with many buyers and sellers trading a nearly identical product describes a(n)
competitive market.
Refer to the table. If the price in this competitive market is $3.00, in the short run this firm will choose to
continue producing and break even.
Refer to the table. If the price in this competitive market is $4.00, in the short run this firm will choose to
continue producing and earn a profit.
Suppose that a firm in a competitive market faces the following revenues and costs. Refer to the table. In the short run, this firm will choose to
continue producing and earn a profit.
Refer to the table. If the price in this competitive market is $2.00, in the short run this firm will choose to
continue producing but incur a loss.
If a firm in a competitive market decreases the quantity of output sold, total revenue should
decrease
If there is a reduction in market demand in a competitive market, then in the short run profits will
decrease
If there is a reduction in market demand in a competitive market, then in the short run prices will
decrease.
If marginal revenue is currently less than marginal cost at the current level of output, then
decreasing output by one unit will increase profits for the firm.
Firms will have an incentive to exit a competitive market when
economic profits are negative.
Firms will have an incentive to enter a competitive market when
economic profits are positive.
Which of the following correctly describes a firm's entry condition in the long run?
enter if P > ATC
A competitive market where firms currently earn positive economic profit will see firms exit the industry from increased competition.
false
A firm can exit an industry in the short run.
false
A firm in a competitive market can change the market price by changing its own production level.
false
A firm should continue to operate if price is below average variable cost.
false
Firms with identical cost structures in a competitive market will have an upward sloping market long-run supply curve.
false
For all firm types price equals marginal revenue, and for competitive firms price equals average revenue.
false
If P < ATC then economic profits are positive.
false
Which of the following describes why the market long-run supply curve would be upward sloping?
firms have different cost structures.
In the long run market supply will be horizontal if
firms have identical cost structures.
Farmer Brown sells sweet corn in a competitive market. When Farmer Brown sells 10 dozen ears of sweet corn, his total revenue is $30. When Farmer Brown sells 20 dozen ears of sweet corn, his total revenue is $60. Farmer Brown's average revenue is ____________ per dozen and his marginal revenue from selling the 20th dozen _________________.
is $3; is also $3
A firm that shuts down in the short run
is required to pay fixed costs but not variable costs.
When a firm exits a competitive market in the long run
it avoids paying both fixed and variable costs.
Which of the following is true if a firm increases its level of output by one unit and profits increase?
marginal revenue is greater than marginal cost
Which of the following is true if a firm increases its level of output by one unit and profits decrease?
marginal revenue is less than marginal cost
When price is less than average total cost, profits for the firm are
negative
Firms in a competitive market are considered price takers because
no individual buyer or seller can affect the market price.
When price is greater than average total cost, profits for the firm are
positive
Which of the following is not correct with respect to firms in a competitive market in the long-run?
price is above average total cost
A firm in a competitive market will shut down in the short run if
price is below average variable cost.
Which of the following is correct with respect to firms in a competitive market in the long-run?
price is equal to average total costs
The entry decision for a firm in a competitive market in the long run depends on if
price is greater than average total cost.
The exit decision for a firm in a competitive market in the long run depends on if
price is less than average total costs.
Which of the following correctly describes when a firm in a competitive market should shut down in the short run?
price is less than average variable cost
If marginal revenue is equal to marginal cost at the current level of output, then
profits are maximized.
An increase in market demand in a competitive market will have which effect in the short run?
profits for the firm will increase
One explanation for why the market long-run supply curve slopes upward is because
the inputs in production are only available in limited quantities.
An increase in market demand in a competitive market will have which effect in the short run?
the market price will increase
Which of the following is a likely effect from firms entering into a competitive market?
the profits for existing firms will decline.
