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Exam 14: Firms in Competitive Markets

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Question 51

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Graph 14-8 -Refer to Graph 14-8.If the figure in panel (a) reflects the long-run equilibrium of a profit-maximising firm in a competitive market, the figure in panel (b) most likely reflects:

A) perfectly inelastic long-run market supply
B) the product of individual firm supply curves for all firms in the market
C) the idea that free entry and exit of firms in the market lead to only one market price in the long run
D) zero profits cannot be sustained in the long run

E) All of the above
F) B) and C)

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Question 52

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Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1.If the farmer is harvesting three parrots, the best response would be to:

A) increase production to maximise profit
B) plant more vines for the parrots to feed on
C) maintain its current level of production to maximise profit
D) decrease production to maximise profit

E) None of the above
F) B) and C)

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Question 53

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In the long-run, a profit-maximising firm will choose to exit a market when:

Suppose a competitive market consists of identical firms.The long-run and short-run supply curves will be identical when:

Table 14-3 The market for Whizzly Jigs consists of many identical firms, each with the cost structure below.Suppose the current market price is $2. -Refer to table 14-3.Suppose the current market price is $2.What is the output of each individual firm?

Table 14-2 The price of each butterfly that David Butterfly, a butterfly farmer in Greytown, sells is: -Refer to Table 14-2.Price equals average revenue over the range of:

If, at a given output, the marginal cost curve lies below the marginal revenue curve but above the average total cost curve, then the firm can increase its profit by decreasing output.

If a firm in a competitive market increases production and its marginal revenue remains greater than its marginal cost, raising production will:

When a firm has little ability to influence market prices, it is said to be in what kind of a market?

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

To maximise profit, a firm should operate at the minimum of average total cost.

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-1.When market price is at MC₄, a profit-maximising firm will produce what level of output?

A firm's short-run supply curve is part of which of the following curves?

When a firm has market power, it can:

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is:

Which of the following statements best reflects the production decision of a profit-maximising firm in a competitive market when price falls below the minimum of average variable cost?

If a firm is making zero economic profit, it can still be making a positive accounting profit.

Sunk costs are relevant to decisions about business strategy, as huge amounts of time have been invested in ensuring that the business is set up for success.

When firms in a perfectly competitive market face the same costs, in the long-run they must be operating:

Give two reasons why the long-run industry supply curve may slope upward.Use an example to demonstrate your reasons.