Question 1

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?

Accepted Answer

A)   ABCF
B)   CD
C)   DF
D)   BCDE) All of the above
F) A) and D)

Question 2

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

Accepted Answer

A)   positive profits.
B)   zero profits.
C)   losses but will remain in business.
D)   losses and will shut down.E) A) and B)
F) B) and C)

Question 3

As a general rule, when accountants calculate profit they account for explicit costs but usually ignore

Accepted Answer

A)   certain outlays of money by the firm.
B)   implicit costs.
C)   operating costs.
D)   fixed costs.E) A) and C)
F) A) and B)

Question 4

If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market, then the individual farmer's elasticity of demand

Accepted Answer

A)   will also be -0.3.
B)   depends on how large a crop the farmer produces.
C)   will range between -0.3 and -1.0.
D)   will be infinite.E) None of the above
F) All of the above

Question 5

Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is

Accepted Answer

A)   -$1,600.
B)   $1,600.
C)   $3,200.
D)   $8,000.E) B) and C)
F) A) and B)

Question 6

Figure 14-7 
-Refer to Figure 14-7. When the price of the good is $175, the firm's maximum profit is

Accepted Answer

A)   $16,500.
B)   $20,375.
C)   $25,750.
D)   $90,125.E) None of the above
F) A) and B)

Question 7

Phil sells duck calls in a perfectly competitive market. If duck calls sell for $10 each and average total cost per unit is $11 at the profit-maximizing output level, then in the long run

Accepted Answer

A)   more firms will enter the market.
B)   some firms will exit from the market.
C)   the equilibrium price per duck call will fall.
D)   average total costs will fall.E) None of the above
F) C) and D)

Question 8

In a long-run equilibrium, the marginal firm has

Accepted Answer

A)   price equal to minimum marginal cost.
B)   total revenue equal to total cost.
C)   accounting profit equal to zero.
D)   All of the above are correct.E) A) and B)
F) A) and D)

Question 9

Which of the following industries is least likely to exhibit the characteristic of free entry?

Accepted Answer

A)   ethnic restaurants
B)   municipal water and sewer
C)   corn farming
D)   grocery storesE) All of the above
F) A) and B)

Question 10

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 P4 but less than P6, individual firms in a competitive industry will earn

Accepted Answer

A)   positive profits.
B)   zero profits.
C)   losses but will remain in business.
D)   losses and will shut down.E) A) and C)
F) A) and D)

Question 11

Which of the following statements best reflects a price-taking firm?

Accepted Answer

A)   If the firm were to charge more than the going price, it would sell none of its goods.
B)   The firm has an incentive to charge less than the market price to earn higher revenue.
C)   The firm can sell only a limited amount of output at the market price before the market price will fall.
D)   Price-taking firms maximize profits by charging a price above marginal cost.E) None of the above
F) A) and B)

Question 12

Willie's Wading Adventures sells hip waders for fishing and duck hunting in a perfectly competitive market. If hip waders sell for $100 each and average total cost per unit is $95 at the profit-maximizing output level, then in the long run

Accepted Answer

A)   more firms will enter the market.
B)   some firms will exit from the market.
C)   the equilibrium price per unit will rise.
D)   average total costs will fall.E) B) and C)
F) All of the above

Question 13

Figure 14-14
 
-Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b)  and that panel (a)  illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is not correct?

Accepted Answer

A)   Point W is a long-run equilibrium point.
B)   Points W, Y, and Z are short-run equilibria points.
C)   Point Y is a long-run equilibrium point.
D)   Point Z is a long-run equilibrium point.E) C) and D)
F) A) and B)

Question 14

Figure 14-8
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-8. Which segment of the supply curve represents the firm shutting down?

Accepted Answer

A)   ABCD
B)   BCD
C)   CD
D)   ABE) C) and D)
F) B) and D)

Question 15

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.

Accepted Answer

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.E) A) and C)
F) All of the above

Question 16

When entry and exit behavior of firms in an industry does not affect a firm's cost structure,

Accepted Answer

A)   the long-run market supply curve must be horizontal.
B)   the long-run market supply curve must be upward-sloping.
C)   the long-run market supply curve must be downward-sloping.
D)   we do not have sufficient information to determine the shape of the long-run market supply curve.E) B) and D)
F) A) and D)

Question 17

A firm in a competitive market has the following cost structure:  If the market price is $4, this firm will

Accepted Answer

A)   produce 2 units in the short run and exit in the long run.
B)   produce 3 units in the short run and exit in the long run.
C)   produce 4 units in the short run and exit in the long run.
D)   shut down in the short run and exit in the long run.E) B) and C)
F) None of the above

Question 18

For a firm in a competitive market, an increase in the quantity produced by the firm will result in

Accepted Answer

A)   a decrease in the product's market price.
B)   an increase in the product's market price.
C)   no change in the product's market price.
D)   either an increase or no change in the product's market price depending on the number of firms in the market.E) All of the above
F) C) and D)

Question 19

Scenario 14-1
Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.
-Refer to Scenario 14-1. At Q = 999, the firm's total costs equal

Accepted Answer

A)   $10,985.
B)   $10,990.
C)   $10,995.
D)   $10,999.E) B) and C)
F) A) and C)

Question 20

Table 14-14
The 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?

Accepted Answer

A)   $0
B)   $3
C)   $5
D)   $9E) C) and D)
F) None of the above

Exam 14: Firms in Competitive Markets

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

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Which of the following statements best reflects a price-taking firm?

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When entry and exit behavior of firms in an industry does not affect a firm's cost structure,

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Willie's Wading Adventures sells hip waders for fishing and duck hunting in a perfectly competitive market. If hip waders sell for $100 each and average total cost per unit is $95 at the profit-maximizing output level, then in the long run

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Which of the following industries is least likely to exhibit the characteristic of free entry?

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Scenario 14-1 Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. -Refer to Scenario 14-1. At Q = 999, the firm's total costs equal

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Figure 14-8 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-8. Which segment of the supply curve represents the firm shutting down?

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If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market, then the individual farmer's elasticity of demand

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Table 14-14 The 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?

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For a firm in a competitive market, an increase in the quantity produced by the firm will result in

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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?

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A firm in a competitive market has the following cost structure: If the market price is $4, this firm will

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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.

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Figure 14-14 -Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b) and that panel (a) illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is not correct?

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As a general rule, when accountants calculate profit they account for explicit costs but usually ignore

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Phil sells duck calls in a perfectly competitive market. If duck calls sell for $10 each and average total cost per unit is $11 at the profit-maximizing output level, then in the long run

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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 P4 but less than P6, individual firms in a competitive industry will earn

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Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is

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Figure 14-7 -Refer to Figure 14-7. When the price of the good is $175, the firm's maximum profit is

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In a long-run equilibrium, the marginal firm has

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