Deck 14: Firms in Competitive Markets

Question 1

Table 14-1

Refer to Table 14-1.If the firm doubles its output from 3 to 6 units,what will happen to total revenue

A)It will increase by less than $45.
B)It will increase by exactly $45.
C)It will decrease by exactly $45.
D)It will decrease by less than $45.

Answer 1

It will increase by exactly $45.

Question 2

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

A)competitive
B)strategic
C)thin
D)powerless

Answer 2

competitive

Question 3

Which statement does NOT reflect a price-taking firm

A)If the firm were to charge more than the going price, it would sell none of its goods.
B)The firm has no incentive to charge less than the going price.
C)The firm can sell as much as it wants to sell at the going price.
D)Consumers have a major impact on price, not firms.

Answer 3

Consumers have a major impact on price, not firms.

Question 4

Which equation is consistent for a competitive firm

A)Total revenue = Average revenue
B)Total revenue = Marginal revenue
C)Total cost = Marginal revenue
D)Average revenue = Marginal revenue

Question 5

Table 14-1

Refer to Table 14-1.Over what range of output is average revenue equal to price

A)1 to 5
B)3 to 7
C)5 to 9
D)1 to 9

Question 6

Table 14-1

Refer to Table 14-1.What is the marginal revenue

A)$0
B)$9
C)$15
D)$126

Question 7

For a firm in a perfectly competitive market,what must the price of the good always be

A)equal to marginal revenue
B)equal to total revenue
C)greater than average revenue
D)less than average revenue

Question 8

When buyers and sellers in a competitive market take the selling price as given,what are they said to be

A)market entrants
B)monopolists
C)free riders
D)price takers

Question 9

How is total profit for a firm calculated

A)marginal revenue minus average cost
B)average revenue minus average cost
C)marginal revenue minus marginal cost
D)total revenue minus total cost

Question 10

In a competitive market,what impact will the actions of any single buyer or seller have

A)They will have a negligible impact on the market price.
B)They will have little effect on overall production but will ultimately change final product price.
C)They will cause a noticeable change in overall production and a change in final product price.
D)They will affect the profitability of other firms and have an impact on the market price.

Question 11

What is a characteristic of a competitive market

A)No single buyer or seller can influence the price of the product.
B)There are a small number of sellers.
C)The goods offered by the different sellers are markedly different.
D)Entry into the market is difficult.

Question 12

In a competitive market,why can no single producer influence the market price

A)Many other sellers are offering a product that is essentially identical.
B)Consumers have more influence over the market price than producers do.
C)Government intervention prevents firms from influencing price.
D)Producers agree not to change the price.

Question 13

If a firm in a perfectly competitive market doubles the number of units of output sold,what will happen to total revenue

A)It will less than double.
B)It will exactly double.
C)It will more than double.
D)It will increase, but by an unpredictable amount.

Question 14

What are the relationships between price and quantity if ABC Company sells its product in a competitive market

A)The price of that product depends on the quantity of the product that ABC Company produces and sells.
B)ABC Company's total revenue is equal to the price of its product multiplied by its quantity of output.
C)ABC Company's total cost is equal to the price of its product multiplied by its quantity of output.
D)The quantity of the product that ABC Company produces and sells depends on the price of the product.

Question 15

What is a characteristic of a competitive market

A)Each seller can sell all he wants to sell at the going price.
B)Sellers are price setters.
C)The goods offered by the different sellers are heterogeneous.
D)There are barriers to entry.

Question 16

What is a characteristic of a perfectly competitive market

A)Firms are price setters.
B)Firms have difficulty entering the market.
C)There are not many sellers in the market.
D)Goods offered for sale are largely the same.

Question 17

The Wheeler Wheat Farm sells wheat to a grain broker in Regina,Saskatchewan.Since the market for wheat is generally considered to be competitive,what does the Wheeler Farm do

A)It chooses the quantity of wheat to produce.
B)It chooses the price at which it sells its wheat.
C)It eliminates any fixed costs of production.
D)It enjoys a markup over marginal cost.

Question 18

Table 14-1

Refer to Table 14-1.The price and quantity relationship in the table is most likely faced by a firm in which type of market

A)a monopoly
B)a concentrated market
C)a competitive market
D)a strategic market

Question 19

The goods offered for sale in a competitive market are largely the same.As a result,what do we expect in the market

A)There will be few sellers in the market.
B)There will be few buyers in the market.
C)Buyers will have market power.
D)Sellers will have little reason to charge less than the going market price.

Question 20

When firms are said to be price takers,what will happen if a firm raises its price

A)Buyers will go elsewhere.
B)Buyers will pay the higher price in the short run.
C)Competitors will also raise their prices.
D)Firms in the industry will exercise market power.

Question 21

When a firm in a competitive market produces 15 units of output,it has a marginal revenue of $8.00.What would be the firm's total revenue when it produces 8 units of output

A)$4.80
B)$6.00
C)$48.00
D)$64.00

Question 22

Whenever a perfectly competitive firm chooses to change its level of output,holding the price of the product constant,what happens to its marginal revenue

A)It increases if MR < ATC and decreases if MR > ATC.
B)It does not change.
C)It increases.
D)It decreases.

Question 23

Assume that Sarah places a $70 value on seeing her college football team play in the finals.She purchases a ticket to the game for $50 but when she arrives at the game she discovers that her ticket is missing.A ticket scalper outside the stadium is selling tickets for $65 dollars.If Sarah purchases a ticket from one of the scalpers for $65,what principle is she best demonstrating

A)Sunk costs are irrelevant to many personal decisions.
B)The price of tickets cannot be explained by economic principles.
C)The assumption of rational behaviour does not easily apply to the purchase of college football game tickets.
D)The lost ticket is the opportunity cost of the game.

Question 24

Table 14-2

Refer to Table 14-2.If the firm finds that its marginal cost is $8,what should it do

A)It should reduce fixed costs by lowering production.
B)It should increase production to maximize profit.
C)It should decrease production to maximize profit.
D)It should reduce variable costs by lowering production.

Question 25

When a competitive firm triples the amount of output it sells,what is the result

A)Its total revenue triples.
B)Its average revenue triples.
C)Its marginal revenue triples.
D)Its selling price triples.

Question 26

A profit-maximizing firm in a competitive market discovers that,at its current level of production,price is greater than marginal cost.What should it do

A)It should shut down.
B)It should reduce its output, but continue operating.
C)It should keep output the same.
D)It should increase its output.

Question 27

Which statement explains the relationship between average revenue,marginal revenue,and price in a competitive market

A)Average revenue equals the price of the good, but marginal revenue is different.
B)Marginal revenue equals the price of the good, but average revenue is different.
C)Average revenue equals marginal revenue, but the price of the good is different.
D)Average revenue, marginal revenue, and the price of the good are all equal to one another.

Question 28

Starting from a situation in which a firm in a competitive market produces and sells 5000 doorknobs for a price of $20 per doorknob,which event would decrease the firm's average revenue

A)The market price of doorknobs falls below $20.
B)The market price of doorknobs rises above $20.
C)The firm decreases its output below 5000 doorknobs.
D)The firm increases its output above 5000 doorknobs.

Question 29

Table 14-2

Refer to Table 14-2.If this firm chooses to maximize profit,it will choose a level of output where marginal cost is equal to what dollar amount

A)$6
B)$8
C)$10
D)$12

Question 30

For any given price,a firm in a competitive market will maximize profit by selecting the level of output where price intersects which curve

A)average-total-cost curve
B)average-variable-cost curve
C)marginal-cost curve
D)marginal-revenue curve

Question 31

When a firm in a competitive market receives $8000 in total revenue,it has a marginal revenue of $20.What is the average revenue,and how many units were sold

A)$5 and 1000 units
B)$10 and 500 units
C)$20 and 100 units
D)$20 and 400 units

Question 32

What will change for a perfectly competitive firm if there are changes in its output without any change in the price of the product

A)total revenue
B)marginal revenue
C)average revenue
D)marginal cost

Question 33

When a firm in a competitive market receives $5000 in total revenue,it has a marginal revenue of $100.What is the average revenue,and how many units were sold

A)$50 and 100 units
B)$100 and 50 units
C)$100 and 100 units
D)$50 and 50 units

Question 34

Table 14-2

Refer to Table 14-2.At which quantity of output is marginal revenue equal to marginal cost

A)2
B)4
C)6
D)8

Question 35

Table 14-2

Refer to Table 14-2.If the firm finds that its marginal cost is $12,what should it do

A)It should increase production to maximize profit.
B)It should increase the price of the product to maximize profit.
C)It should decrease the price of the product to minimize loss.
D)It should decrease production to minimize loss.

Question 36

Table 14-2

Refer to Table 14-2.At a production level of 5 units,what do we know about marginal revenue

A)Marginal revenue is $6.
B)Marginal revenue is greater than average total cost.
C)Marginal revenue is less than marginal cost.
D)Marginal revenue is less than average revenue.

Question 37

Starting from a situation in which a firm in a competitive market produces and sells 4000 doorknobs for a price of $25 per doorknob,which event would decrease the firm's average revenue

A)The market price of doorknobs falls below $25.
B)The market price of doorknobs rises above $250.
C)The firm decreases its output below 4000 doorknobs.
D)The firm increases its output above 4000 doorknobs.

Question 38

Table 14-2

Refer to Table 14-2.What is the maximum profit available to this firm

A)$2
B)$3
C)$4
D)$5

Question 39

If a firm in a competitive market reduces its output by 30 percent,what is the price of its output likely to do

A)decrease by more than 30 percent
B)decrease by less than 30 percent
C)remain unchanged
D)increase

Question 40

By comparing marginal revenue and marginal cost,a firm in a competitive market is able to adjust production to the level that achieves its objective.What do we assume the objective to be

A)maximization of total revenue
B)maximization of profit
C)minimization of variable cost
D)minimization of average total cost

Question 41

The Wheeler Wheat Farm sells wheat to a grain broker in Regina,Saskatchewan.Since the market for wheat is generally considered to be competitive,what would the Wheeler Wheat Farm choose to do to maximize its profit

A)It would produce the quantity at which average total cost is minimized.
B)It would produce the quantity at which average fixed cost is minimized.
C)It would sell its wheat at a price where marginal cost is equal to average total cost.
D)It would produce the quantity at which market price is equal to the farm's marginal cost of production.

Question 42

Figure 14-1

Refer to Figure 14-1.When the price is P₂ and the firm maximizes its profit or minimizes its losses,what will occur at the firm

A)It will experience a positive profit.
B)It will experience a zero profit.
C)It will experience a loss, but continue to operate.
D)It will shut down.

Question 43

When calculating marginal cost,what must the firm know at each level of output

A)sunk cost
B)variable cost
C)fixed cost
D)average total cost

Question 44

Table 14-3

Refer to Table 14-3.If this firm chooses to maximize profit,it will choose a level of output where marginal cost is equal to what dollar amount

A)$18
B)$20
C)$22
D)$24

Question 45

Figure 14-2

Refer to Figure 14-2.When price rises from P₃ to P4,which of the following does the firm find

A)Profit is maximized at a production level of Q₃.
B)Fixed costs are lower at a production level of Q₄.
C)It can earn a positive profit by increasing production to Q₄.
D)Average revenue exceeds marginal revenue at a production level of Q₄.

Question 46

Table 14-3

Refer to Table 14-3.If the firm finds that its marginal cost is $22,what should it do

A)It should reduce fixed costs by lowering production.
B)It should increase production to maximize profit.
C)It should decrease production to maximize profit.
D)It should reduce variable costs by lowering production.

Question 47

Table 14-3

Refer to Table 14-3.If the firm finds that its marginal cost is $16,what should it do

A)It should increase production to maximize profit.
B)It should increase the price of the product to maximize profit.
C)It should increase the marginal revenue of the product to maximize profit.
D)It should advertise to attract additional buyers to maximize profit.

Question 48

Figure 14-2

Refer to Figure 14-2.When price rises from P₂ to P₃,what does the firm find

A)Marginal cost exceeds marginal revenue at a production level of Q₂.
B)If it produces at output level Q₃ it will earn a zero profit.
C)If it produces at output level Q₃ it will earn a positive profit.
D)Expanding output to Q₃ would leave the firm with losses.

Question 49

Table 14-3

Refer to Table 14-3.What is the maximum profit available to this firm

A)$20
B)$24
C)$26
D)$28

Question 50

As a general rule,what do we know about the level at which profit-maximizing producers in a competitive market produce output

A)Marginal cost is increasing.
B)Marginal cost is decreasing.
C)Marginal revenue is increasing.
D)Marginal revenue is decreasing.

Question 51

Table 14-3

Refer to Table 14-3.At what quantity of output is marginal revenue equal to marginal cost

A)2
B)4
C)6
D)8

Question 52

Figure 14-1

Refer to Figure 14-1.When market price is at P₂,what would a firm producing output level Q₁ experience

A)losses, because P₂ < ATC at output level Q₁
B)losses equal to (P₂ - P₁) × Q₁
C)zero profits
D)profits equal to (P₂ - P₁) × Q₁

Question 53

Figure 14-1

Refer to Figure 14-1.When market price is at P4,what level of output will a profit-maximizing firm produce

A)Q₁
B)Q₂
C)Q₃
D)Q₄

Question 54

When marginal revenue for a firm equals marginal cost,what can be said about the firm

A)It should increase the level of production to maximize its profit.
B)It may be minimizing its losses, rather than maximizing its profit.
C)It must be generating economic profits.
D)It must be generating economic losses.

Question 55

Figure 14-2

Refer to Figure 14-2.Which statement best reflects the situation faced by the firm when price falls from P4 to P₂

A)The firm will suffer a loss equal to (P4 - P₂) × Q₂.
B)The firm will earn profit equal to (P4 - P₂) × Q₂.
C)Marginal revenue is now lower than marginal cost at the previous level of output (Q₄), so it decreases production.
D)Marginal revenue is now higher than marginal cost at the previous level of output (Q₄), so it increases production.

Question 56

Table 14-3

Refer to Table 14-3.At a production level of 3 units,what do we know about the marginal revenue or the total revenue

A)Marginal revenue is $6.
B)Total revenue is greater than total variable cost.
C)Total revenue is less than total cost.
D)Marginal revenue is less than marginal cost.

Question 57

Managers of a firm think at the margin and make incremental adjustments to the level of production.For the managers to be satisfied with the correct level of production,what must result

A)average variable cost exceeds marginal cost
B)total cost is less than average revenue
C)costs are minimized
D)profit is maximized

Question 58

Figure 14-2

Refer to Figure 14-2.When price falls from P₃ to P₁,which of the following does the firm find

A)It should produce Q₁ units of output.
B)It should produce Q₃ units of output.
C)Fixed cost is higher at a production level of Q₁ than it is at Q₃.
D)It is unwilling to produce any output.

Question 59

Figure 14-1

Refer to Figure 14-1.When price is equal to P₃,at what level of output will the profit-maximizing firm produce

A)Q₁
B)Q₂
C)Q₃
D)Q₄

Question 60

If marginal cost for a firm exceeds marginal revenue,what can be said about the firm

A)It is most likely to be at a profit-maximizing level of output.
B)It should increase the level of production to maximize its profit.
C)It must be experiencing losses.
D)It may still be earning a profit.

Question 61

When price is greater than marginal cost for a firm in a competitive market,what should the firm do to maximize profit

A)The firm should increase production since its marginal cost is falling.
B)The firm must be minimizing its losses since its marginal cost is rising.
C)There are opportunities to increase profit by increasing production.
D)The firm should decrease output to maximize profit.

Question 62

If a competitive firm is currently producing a level of output at which profit is not maximized,then what must be the case for the firm

A)Marginal revenue exceeds marginal cost.
B)Marginal cost exceeds marginal revenue.
C)Total cost exceeds total revenue.
D)Marginal revenue is not equal to marginal cost.

Question 63

When will a profit-maximizing firm shut down in the short run

A)when price is less than average variable cost
B)when price is less than average total cost
C)when average revenue is greater than marginal cost
D)when average revenue is greater than average fixed cost

Question 64

Why is a competitive firm's marginal-cost curve regarded as its supply curve

A)The position of the marginal-cost curve determines the price for which the firm should sell its product.
B)Among the various cost curves, the marginal-cost curve is the only one that slopes upward.
C)The marginal cost curve determines the quantity of output the firm is willing to supply at any price.
D)The firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized.

Question 65

Suppose that in 2015,farmers in western Canada slaughtered 10,000 sheep and buried them in large open pits rather than truck them to the market to be sold.What would most likely explain this behaviour

A)farmers making a shut-down decision to save the variable cost of transporting sheep to a slaughter house
B)farmers making an exit decision to recover the fixed cost of raising the sheep
C)the rising marginal cost of producing sheep
D)irrational behaviour of farmers

Question 66

Figure 14-3

Refer to Figure 14-3.What line segment best reflects the short-run supply curve for this firm

A)BCD
B)CD
C)CE
D)DE

Question 67

When a profit-maximizing firm in a competitive market is unable to generate enough revenue to pay all of its fixed costs,what should it do in the short run

A)It should shut down and incur a loss equal to its fixed costs.
B)It should shut down until it is able to produce where average revenue exceeds average fixed cost.
C)It should continue to produce as long as marginal cost is less than average revenue.
D)It should continue to produce as long as total revenue is sufficient to pay variable costs.

Question 68

When price is below average variable cost in the short run,what will a firm in a competitive market do

A)It will shut down and incur fixed costs.
B)It will shut down and incur both variable and fixed costs.
C)It will continue to operate as long as average revenue exceeds marginal cost.
D)It will continue to operate as long as average revenue exceeds average fixed cost.

Question 69

What happens if a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost

A)A one-unit increase in output will increase the firm's profit.
B)A one-unit decrease in output will increase the firm's profit.
C)Total revenue exceeds total cost.
D)Total cost exceeds total revenue.

Question 70

What costs do firms that shut down in the short run still have to pay

A)variable costs
B)fixed costs
C)total cost
D)marginal cost

Question 71

What happens if a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue

A)Average revenue exceeds marginal cost.
B)The firm is earning a positive profit.
C)A one-unit decrease in output would increase the firm's profit.
D)The firm must lower marginal costs.

Question 72

When a firm makes a short-run decision not to produce anything during a specified period of time because of current market conditions,what is the firm said to do

A)shut down
B)exit
C)withdraw
D)leave the industry

Question 73

When will a profit-maximizing firm in a competitive market always make marginal adjustments to production

A)as long as average revenue is greater than average total cost
B)as long as average revenue is equal to marginal cost
C)as long as marginal cost is greater than average total cost
D)as long as price is above or below marginal cost

Question 74

Which curve is a firm's short-run supply curve part of

A)marginal-revenue
B)average-variable-cost
C)average-total-cost
D)marginal-cost

Question 75

What is one of the most important determinants of the success of free-market capitalism

A)enlightened governments selecting firms that should not be allowed to exit a market
B)free entry and exit in markets
C)government regulation of market participants
D)having a few large firms rather than thousands of small ones

Question 76

What do we know about the short-run supply curve for a firm in a perfectly competitive market

A)It is likely to be horizontal.
B)It is likely to slope downward.
C)It is determined by forces external to the firm.
D)It is the same as its marginal-cost curve (above average variable cost).

Question 77

Figure 14-3

Refer to Figure 14-3.If the firm is in a short-run position where P < AVC,what segment of the supply curve is it most likely to be on

A)AC
B)BC
C)CD
D)DE

Question 78

When total revenue is less than variable costs in the short run,what will a firm in a competitive market do

A)It will continue to operate as long as average revenue exceeds marginal cost.
B)It will continue to operate as long as average revenue exceeds average fixed cost.
C)It will shut down.
D)It will always exit the industry.

Question 79

Which production decision is a profit-maximizing firm in a competitive market most likely to take when price falls below the minimum of average variable cost

A)The firm will continue to produce to attempt to pay fixed costs.
B)The firm will immediately stop production to minimize its losses.
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 run.

Question 80

A profit-maximizing firm in a competitive market produces small rubber balls.When the market price for small rubber balls falls below the minimum of its average total cost but still lies above the minimum of average variable cost,what happens to the firm

A)It will experience losses, but it will continue to produce rubber balls.
B)It will shut down.
C)It will be earning both economic and accounting profits.
D)It will be earning only accounting profits.