Question 1

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

Accepted Answer

A)  be profitable
B)  cause the firm to incur losses
C)  leave profit unchanged
D)  It is impossible to tell from the information providedE) B) and D)
F) None of the above

Question 2

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?

Accepted Answer

A)  two units
B)  three units
C)  four units
D)  five unitsE) A) and B)
F) A) and C)

Question 3

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:

Accepted Answer

A)  one to three
B)  three to six
C)  six to nine
D)  over the whole range of outputE) B) and D)
F) A) and C)

Question 4

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

Accepted Answer

Some resources used in production may be...

Question 5

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:

Accepted Answer

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 runE) None of the above
F) A) and B)

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  fixed costs exceed sunk costs
B)  revenue from production is less than total costs
C)  average fixed cost is rising
D)  marginal cost exceeds marginal revenue at the current level of productionE) B) and C)
F) C) and D)

Question 8

When a firm has market power, it can:

Accepted Answer

A)  sell as much as it wants at any market price
B)  control the number of firms that will operate in an industry
C)  influence the market price of the good it sells
D)  choose to disregard government regulationE) A) and D)
F) None of the above

Question 9

Graph 14-1 4, a profit-maximising firm will produce what level of output? A) Q₁ B) Q₂ C) Q₃ D) Q₄" class="answers-bank-image d-inline" rel="preload" > 
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?

Accepted Answer

A)  Q₁
B)  Q₂
C)  Q₃
D)  Q₄E) B) and D)
F) A) and B)

Question 10

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

Accepted Answer

A)  price equals the minimum of 'average total cost' in the short-run
B)  the firms' marginal cost curves are constant (horizontal) 
C)  there is free entry and exit in the marketplace
D)  they will never be identical, the short- and long-run supply curves always differE) B) and C)
F) A) and B)

Question 11

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

Accepted Answer

A)  marginal cost
B)  average variable cost
C)  marginal revenue
D)  average total costE) A) and B)
F) All of the above

Question 12

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:

Accepted Answer

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 profitE) C) and D)
F) None of the above

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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?

Accepted Answer

A)  the firm will immediately stop production to minimise its losses
B)  the firm will continue to produce to attempt to pay fixed costs
C)  the firm will stop production as soon as it is able to pay its sunk costs
D)  the firm will continue to produce in the short run but will likely exit the market in the long runE) B) and D)
F) B) and C)

Question 15

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:

Accepted Answer

A)  upward-sloping
B)  vertical
C)  downward-sloping
D)  horizontalE) A) and C)
F) None of the above

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)  a strategic market
B)  a competitive market
C)  a power market
D)  a thin marketE) None of the above
F) B) and C)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A)  under economies of scale
B)  at their efficient scale
C)  with marginal profitability
D)  under all of the above conditionsE) A) and B)
F) A) and C)

Exam 14: Firms in Competitive Markets

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.

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

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

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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?

Correct AnswerverifiedShow Answer

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

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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:

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

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

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

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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?

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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:

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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:

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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:

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

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

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

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When a firm has market power, it can:

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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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedSome resources used in production may be...View AnswerShow Answer

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.

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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?

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Some resources used in production may be...
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