Chapter 14 Firms in Competitive Markets

Test B
1

In economics, market power refers to the a. ability of a firm to influence the market price of the good it sells. b. ability of the market system to efficiently allocate scare goods. c. quality of a firms marketing efforts. d. forces that operate the invisible hand. !"#$%& a. ability of a firm to influence the market price of the good it sells. '()$& * +$(1& , "$-'I.!& 1 ./0$-'I1$& 1 % !,.*& (
2

In a competitive market individual firms take as given a. the level of output they produce. b. the price they receive for their output. c. both the level of output they produce and the price they receive. d. neither the level of output they produce nor the price they receive. !"#$%& b. the price they receive for their output. '()$& * +$(1& , "$-'I.!& 1 ./0$-'I1$& 1 % !,.*& (
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'he !ot 4uite /roke %anch sells 1,555 units of beef in a competitive market and has total revenues of 6255,555. 7rom this information alone we know which of the following is 62558 a. average revenue b. marginal revenue c. price d. ll of the above are correct. !"#$%& d. ll of the above are correct. '()$& * +$(1& , "$-'I.!& 1 ./0$-'I1$& 1 % !,.*& (
9

.ther things the same, if a competitive firm doubles its output a. average revenues fall. b. price falls. c. total revenues rise. d. ll of the above are correct. !"#$%& c. total revenues rise. '()$& * +$(1& , "$-'I.!& 1 ./0$-'I1$& 1 % !,.*& (
:

If a competitive firm finds that at the current price and level of output, its marginal revenue is less than its marginal cost, it should a. increase the price of its output. b. decrease the price of its output. c. increase its output. d. decrease its output. !"#$%& d. decrease its output. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 2 % !,.*& (

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1:> -hapter 19?7irms in -ompetitive *arkets

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-ompetitive firms maAimiBe profits by producing the quantity where a. average revenue C average total cost. b. price C average total cost. c. marginal product C marginal cost. d. marginal revenue C marginal cost. !"#$%& d. marginal revenue C marginal cost. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 2 % !,.*& ( NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
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t )aulas )iBBa, the marginal revenue of the last piBBa produced is 612. 'he marginal cost of the last piBBa produced is 615. In order to increase profits, )aula should& a. increase output. b. decrease output. c. not change output. d. offer a different variety of piBBa. !"#$%& a. increase output. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 2 % !,.*& (

>

ccording to the graph, the firm makes Bero economic profits if the price of its output is a. 615. b. 6=. c. 6@. d. 69 !"#$%& b. 6=. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 2 % !,.*& (
D

If the price of a competitive firms output increased, marginal revenue a. and the profitEmaAimiBing level of output would both increase. b. and the profitEmaAimiBing level of output would both decrease. c. would increase and the profitEmaAimiBing level of output would decrease. d. would decrease and the profitEmaAimiBing level of output would increase. !"#$%& a. and the profitEmaAimiBing level of output would both increase. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 2 % !,.*& (
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In a competitive market the individual supply curve of a competitive firm is based on its a. average revenue curve. b. average total cost curve. c. marginal revenue curve. d. marginal cost curve. !"#$%& d. marginal cost curve. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 2 % !,.*& (

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-hapter 19?7irms in -ompetitive *arkets 1:D

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In the short run a firm in a competitive market should a. never shut down. b. shut down only if price is less than average fiAed cost. c. shut down only if price is less than average total cost. d. shut down only if price is less than average variable cost. !"#$%& d. shut down only if price is less than average variable cost. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 3 % !,.*& (
12

In the short run a firm should a. never shut down. b. shut down only if total revenues are less than total cost. c. shut down only if total revenues are less than variable cost. d. shut down only if total revenues are less than fiAed cost. !"#$%& c. shut down only if total revenues are less than variable cost. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 3 % !,.*& ( NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"

13

"uppose the firm depicted in the diagram operates in a competitive market. If price is 615, we know that& in the short run, the firm

a. is earning an economic profit. b. will shut down. c. is earning Bero economic profit. d. is earning an economic loss but will not shut down. !"#$%& d. is earning an economic loss but will not shut down. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 3 % !,.*& (
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'he shortErun supply curve of an individual competitive firm is its marginal cost curve above the a. 7- curve. b. '- curve. c. 1- curve. d. point where the *- curve is downward sloping. !"#$%& c. 1- curve. '()$& * +$(1& , "$-'I.!& 1 ./0$-'I1$& 1 % !,.*& (
1:

"ome restaurants are open for breakfast, lunch, and dinner. In which of the following cases would it necessarily make sense for a restaurant to shut down for a meal8 a. 'otal revenues are less than total costs, but greater than variable costs. b. 'otal revenues are less than variable costs. c. 'otal revenues are less than sunk costs. d. ll of the above are correct. !"#$%& b. 'otal revenues are less than variable costs. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 3 % !,.*& (

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1@5 -hapter 19?7irms in -ompetitive *arkets

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firms shut down decision and its eAit decision are based on comparing total revenues to total cost. and its eAit decision are based on comparing total revenues to variable cost. is based on comparing total revenues to variable cost. #hile its eAit decision is based on comparing total revenues to total costs. d. !one of the above is correct. !"#$%& c. is based on comparing total revenues to variable costs. #hile its eAit decision is based on comparing total revenues to total costs. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& 9 % !,.*& ( a. b. c.
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'he shortErun supply curve of a competitive firm is its a. average variable cost curve below the marginal cost curve. Its longErun supply curve is its average total cost curve below the marginal cost curve. b. average total cost curve below the marginal cost curve. Its longErun supply curve is its average variable cost curve below the marginal cost curve. c. marginal cost curve above the average total cost curve. Its longErun supply curve is its marginal cost curve above the average variable cost curve. d. marginal cost curve above the average variable cost curve. Its longErun supply curve is its marginal cost curve above the average total cost curve. !"#$%& d. marginal cost curve above the average variable cost curve. Its longErun supply curve is its marginal cost curve above the average total cost curve. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& 9 % !,.*& (
1>

-rude oil is used to produce fiberglass boats. "upposing these boats are produced in a competitive market, an increase in the price of crude oil shifts a. both the marginal cost curves of individual firms and the market supply curve right. b. both the marginal cost curves of individual firms and the market supply curve left. c. the marginal cost curves of individual firms right, and the market supply curve left. d. the marginal cost curves of individual firms left, and the market supply curve right. !"#$%& b. both the marginal cost curves of individual firms and the market supply curve left. '()$& * +$(1& - "$-'I.!& 3 ./0$-'I1$& 9 % !,.*& (
1D

competitive profitEmaAimiBing firm makes Bero economic profits. #hich of the following is true8 a. verage total cost equals price. b. *arginal cost equals price. c. verage total cost equals average revenue. d. ll of the above are correct. !"#$%& d. ll of the above are correct. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& 9 % !,.*& ( NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
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In longErun equilibrium, a perfectly competitive firm produces the level of output at which a. total revenue is at a maAimum. b. average total cost is at a minimum. c. marginal cost is at a minimum. d. !one of the above is correct. !"#$%& b. average total cost is at a minimum. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& 9 % !,.*& (

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-hapter 19?7irms in -ompetitive *arkets 1@1

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If firms in a competitive market are earning economic profits greater than Bero, then firms a. enter the market, market supply shifts right and price falls. b. eAit the market, market supply shifts left and price rises. c. enter the market, market supply shifts right and price rises. d. !one of the above is correct. !"#$%& a. enter the market, market supply shifts right and price falls. '()$& * +$(1& , "$-'I.!& 1 ./0$-'I1$& 1 % !,.*& (

22

'his graph of a typical firm in a competitive industry indicates that firms will a. eAit this market, so the market supply curve will shift right. b. eAit this market, so the market supply curve will shift left. c. enter this market, so the market supply curve will shift right. d. enter this market, so the market supply curve will shift left. !"#$%& c. enter this market, so the market supply curve will shift right. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& 9 % !,.*& (
23

In the long run in a perfectly competitive industry, economic profits of all firms will equal Bero in the long run a. under no circumstances. b. only if the longErun market supply curve is horiBontal. c. only if the longErun market supply curve is upward sloping. d. whether the longErun market supply curve is horiBontal or upward sloping. !"#$%& b. only if the longErun market supply curve is horiBontal. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& : % !,.*& (
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#hich of the following is correct8 a. decrease in the market demand of some good in a competitive market is likely to increase the profits of firms. b. If firms have different costs, in the long run price reflects the costs of the highest cost firm. c. If price falls in a competitive market, the lowest cost firms will be the first to eAit. d. ll of the above are correct. !"#$%& b. If firms have different costs, in the long run price reflects the costs of the highest cost firm. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& : % !,.*& (
2:

In the paper industry, as more paper makers enter the market, the price of raw materials such as pulp will be bid up. If the paper industry operates in a perfectly competitive market, then an increase in demand causes the price of paper to rise in the a. short run only. b. long run only. c. short run and the long run. d. short run, but to fall in the long run. !"#$%& c. short run and the long run. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& : % !,.*& (

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1@2 -hapter 19?7irms in -ompetitive *arkets

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'he longErun supply curve in a perfectly competitive market is more elastic than in the short run because a. firms can enter or eAit the market. b. some firms have higher costs than others. c. some resources are available only in limited quantities. d. ll of the above are correct. !"#$%& a firms can enter or eAit the market. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& : % !,.*& (

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!"#$%& a. ability of a firm to influence the market price of the good it sells. '()$& * +$(1& , "$-'I.!& 1 ./0$-'I1$& 1 % !,.*& (
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!"#$%& b. the price they receive for their output. '()$& * +$(1& , "$-'I.!& 1 ./0$-'I1$& 1 % !,.*& (
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!"#$%& d. ll of the above are correct. '()$& * +$(1& , "$-'I.!& 1 ./0$-'I1$& 1 % !,.*& (
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!"#$%& c. total revenues rise. '()$& * +$(1& , "$-'I.!& 1 ./0$-'I1$& 1 % !,.*& (

:

!"#$%& d. decrease its output. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 2 % !,.*& (

@

!"#$%& d. marginal revenue C marginal cost. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 2 % !,.*& (
=

!"#$%& a. increase output. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 2 % !,.*& (

>

!"#$%& b. 6=. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 2 % !,.*& (

D

!"#$%& a. and the profitEmaAimiBing level of output would both increase. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 2 % !,.*& (
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!"#$%& d. marginal cost curve. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 2 % !,.*& (

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!"#$%& d. shut down only if price is less than average variable cost. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 3 % !,.*& (
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!"#$%& c. shut down only if total revenues are less than variable cost. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 3 % !,.*& (
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!"#$%& d. is earning an economic loss but will not shut down. '()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 3 % !,.*& (
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!"#$%& c. 1- curve. '()$& * +$(1& , "$-'I.!& 1 ./0$-'I1$& 1 % !,.*& (

1:

!"#$%& b. 'otal revenues are less than variable costs.

'()$& * +$(1& , "$-'I.!& 2 ./0$-'I1$& 3 % !,.*& (

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!"#$%& c. is based on comparing total revenues to variable costs. #hile its eAit decision is based on comparing total revenues to total costs. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& 9 % !,.*& (
1=

!"#$%& d. marginal cost curve above the average variable cost curve. Its longErun supply curve is its marginal cost curve above the average total cost curve. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& 9 % !,.*& (
1>

!"#$%& b. both the marginal cost curves of individual firms and the market supply curve left. '()$& * +$(1& - "$-'I.!& 3 ./0$-'I1$& 9 % !,.*& (
1D

!"#$%& d. ll of the above are correct. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& 9 % !,.*& (
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!"#$%& b. average total cost is at a minimum. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& 9 % !,.*& (
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!"#$%& a. enter the market, market supply shift right, price falls. '()$& * +$(1& , "$-'I.!& 1 ./0$-'I1$& 1 % !,.*& (
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!"#$%& c. enter this market, so the market supply curve will shift right. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& 9 % !,.*& (
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!"#$%& b. only if the longErun market supply curve is horiBontal. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& : % !,.*& (
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!"#$%& b. If firms have different costs, in the long run price reflects the costs of the highest cost firm. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& : % !,.*& (
2:

!"#$%& c. short run and the long run. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& : % !,.*& (
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!"#$%& a firms can enter or eAit the market. '()$& * +$(1& , "$-'I.!& 3 ./0$-'I1$& : % !,.*& (