Deck 14: Firms in Competitive Markets

Question 1

A key characteristic of a competitive market is that

A) government antitrust laws regulate competition.
B) producers sell nearly identical products.
C) firms minimize total costs.
D) firms have price setting power.

Answer 1

B

Question 2

Which of the following is a characteristic of a competitive market?

A) There are many buyers but few sellers.
B) Firms sell differentiated products.
C) There are many barriers to entry.
D) Buyers and sellers are price takers.

Answer 2

D

Question 3

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

A) discourage entry by competitors.
B) influence the profits of other firms in the market.
C) have a negligible impact on the market price.
D) Both a and b are correct.

Answer 3

C

Question 4

Which of the following is a characteristic of a competitive market?

A) There are many buyers but few sellers.
B) Many firms have market power because they own patents.
C) Buyers and sellers are price takers..
D) Firms sell differentiated products.

Question 5

For any competitive market, the supply curve is closely related to the

A) preferences of consumers who purchase products in that market.
B) income tax rates of consumers in that market.
C) firms' costs of production in that market.
D) interest rates on government bonds.

Question 6

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

A) discourage entry by competitors.
B) influence the profits of other firms in the market.
C) have a negligible impact on the market price.
D) None of the above is correct.

Question 7

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

A) have a negligible impact on the market price.
B) have little effect on market equilibrium quantity but will affect market equilibrium price.
C) affect marginal revenue and average revenue but not price.
D) adversely affect the profitability of more than one firm in the market.

Question 8

Suppose a firm in each of the two markets listed below were to increase its price by 25 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

A) restaurants and MP3 players
B) electricity and natural gas
C) corn and satellite radio
D) rice and soybeans

Question 9

Which of the following is not a characteristic of a competitive market?

A) Buyers and sellers are price takers.
B) Each firm sells a virtually identical product.
C) Entry is limited.
D) Each firm chooses an output level that maximizes profits.

Question 10

A market is competitive if (i) firms have the flexibility to price their own product.
(ii) each buyer is small compared to the market.
(iii) each seller is small compared to the market.

A) (i) and (ii) only
B) (i) and (iii) only
C) (ii) and (iii) only
D) (i), (ii), and (iii)

Question 11

Which of the following is not a characteristic of a perfectly competitive market?

A) Firms are price takers.
B) Firms have difficulty entering the market.
C) There are many sellers in the market.
D) Goods offered for sale are largely the same.

Question 12

Because the goods offered for sale in a competitive market are largely the same,

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

Question 13

A firm has market power if it can

A) maximize profits.
B) minimize costs.
C) influence the market price of the good it sells.
D) hire as many workers as it needs at the prevailing wage rate.

Question 14

Suppose a firm in each of the two markets listed below were to increase its price by 15 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not?

A) cotton and soybeans
B) gasoline and corn
C) #2 lead pencils and college textbooks
D) electricity and cable television

Question 15

Who is a price taker in a competitive market?

A) buyers only
B) sellers only
C) both buyers and sellers
D) neither buyers nor sellers

Question 16

If your local gasoline station raised its price by 20 percent, its sales of gasoline would decrease substantially because your local gas station

A) has little or no market power.
B) is small relative to the size of the gasoline market.
C) is a competitive firm.
D) All of the above are correct.

Question 17

Competitive markets are characterized by

A) a small number of buyers and sellers.
B) unique products.
C) the interdependence of firms.
D) free entry and exit by firms.

Question 18

A restaurant that has market power can

A) minimize costs more efficiently than its competitors.
B) influence the market price for the meals it sells.
C) reduce its marketing budget more than its competitors.
D) ignore profit-maximizing strategies when setting the price for its meals.

Question 19

The analysis of competitive firms sheds light on the decisions that lie behind the

A) demand curve.
B) supply curve.
C) way firms make pricing decisions in the not-for-profit sector of the economy.
D) way financial markets set interest rates.

Question 20

A firm that has little ability to influence market prices operates in a

A) competitive market.
B) strategic market.
C) thin market.
D) power market.

Question 21

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

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 22

A competitive firm would benefit from charging a price below the market price because the firm would achieve (i) higher average revenue.
(ii) higher profits.
(iii) lower total costs.

A) (i) only
B) (ii) and (iii) only
C) (i), (ii), and (iii)
D) None of the above is correct.

Question 23

Which of the following statements best reflects 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 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.

Question 24

Why does a firm in a competitive industry charge the market price?

A) If a firm charges less than the market price, it loses potential revenue.
B) If a firm charges more than the market price, it loses all its customers to other firms.
C) The firm can sell as many units of output as it wants to at the market price.
D) All of the above are correct.

Question 25

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

A) bookstores
B) hairstyling salons
C) yoga studios
D) satellite radio

Question 26

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

A) ethnic restaurants
B) municipal water and sewer
C) corn farming
D) grocery stores

Question 27

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

A) The firm can sell only a limited amount of output at the market price before the market price will fall.
B) If the firm were to charge less than the going price, it would maximize its profits and revenues.
C) If the firm were to charge more than the going price, it would sell none of its goods.
D) Both b and c are correct.

Question 28

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not choose the

A) quantity of butter to produce.
B) price at which it sells its butter.
C) profits it earns.
D) All of the above are correct.

Question 29

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

A) electricity
B) satellite radio
C) mineral mining
D) tennis shoes

Question 30

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

A) nuclear power
B) municipal water and sewer
C) dairy farming
D) airport security

Question 31

Why does a firm in a competitive industry charge the market price?

A) If a firm charges less than the market price, it loses potential revenue.
B) If a firm charges more than the market price, it loses all its market power.
C) The firm can only sell limited number of units of output, so it wants to sell at the market price in order to lower its costs.
D) All of the above are correct.

Question 32

Which of the following is not a characteristic of a perfectly competitive market?

A) There are many buyers and sellers.
B) Firms can freely enter and exit the market.
C) Many firms have market power.
D) Firms sell very similar products.

Question 33

Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to

A) increase.
B) remain unchanged.
C) decrease by less than 20 percent.
D) decrease by more than 20 percent.

Question 34

Free entry means that

A) the government pays any entry costs for individual firms.
B) government-funded research lowers the costs of patents and other barriers to entry.
C) a firm's marginal cost is zero.
D) no legal barriers prevent a firm from entering an industry.

Question 35

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

A) selling running apparel
B) satellite radio
C) yoga studios
D) wheat farming

Question 36

Which of the following characteristics of competitive markets is necessary for firms to be price takers? (i) There are many sellers.
(ii) Firms can freely enter or exit the market.
(iii) Goods offered for sale are largely the same.

A) (i) and (ii) only
B) (i) and (iii) only
C) (ii) only
D) (i), (ii), and (iii)

Question 37

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not

A) choose the quantity of butter to produce.
B) set marginal revenue equal to marginal cost to maximize profit.
C) have any fixed costs of production.
D) choose the price at which it sells its butter.

Question 38

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

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

Question 39

When firms are said to be price takers, it implies that 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 40

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML

A) can choose the price at which it sells its butter but not the quantity of butter that it produces.
B) can choose quantity of butter that it produces but not the price at which it sells its butter.
C) can choose both the price at which it sells its butter and the quantity of butter that it produces.
D) cannot choose either the price at which it sells it butter or the quantity of butter that it produces.

Question 41

A seller in a competitive market can

A) sell all he wants at the going price, so he has little reason to charge less.
B) influence the market price by adjusting his output.
C) influence the profits earned by competing firms by adjusting his output.
D) All of the above are correct.

Question 42

Which of the following firms is the closest to being a perfectly competitive firm?

A) the New York Yankees
B) Apple, Inc.
C) DeBeers diamond wholesalers
D) a wheat farmer in Kansas

Question 43

One of the defining characteristics of a perfectly competitive market is

A) a small number of sellers.
B) a large number of buyers and a small number of sellers.
C) a similar product.
D) significant advertising by firms to promote their products.

Question 44

Which of the following statements regarding a competitive market is not correct?

A) There are many buyers and many sellers in the market.
B) Because of firm location or product differences, some firms can charge a higher price than other firms and still maintain their sales volume.
C) Price and average revenue are equal.
D) Price and marginal revenue are equal.

Question 45

Firms that operate in perfectly competitive markets try to

A) maximize revenues.
B) maximize profits.
C) equate marginal revenue with average total cost.
D) All of the above are correct.

Question 46

In a perfectly competitive market,

A) no one seller can influence the price of the product.
B) price exceeds marginal revenue for each unit sold.
C) average revenue exceeds marginal revenue for each unit sold.
D) All of the above are correct.

Question 47

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

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.

Question 48

Table 14-1

Refer to Table 14-1. Over what range of output is marginal revenue declining?

A) 1 to 6 units
B) 3 to 7 units
C) 7 to 9 units
D) Marginal revenue is constant over the entire range of output.

Question 49

Table 14-1

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

A) 1 to 5 units
B) 3 to 7 units
C) 5 to 9 units
D) Average revenue is equal to price over the entire range of output.

Question 50

In a competitive market,

A) no single buyer or seller can influence the price of the product.
B) there are only a small number of sellers.
C) the goods offered by the different sellers are unique.
D) accounting profit is driven to zero as firms freely enter and exit the market.

Question 51

Which of the following firms is the closest to being a perfectly competitive firm?

A) a hot dog vendor in New York
B) Microsoft Corporation
C) Ford Motor Company
D) the campus bookstore

Question 52

Which of the following statements regarding a competitive market is not correct?

A) There are many buyers and many sellers in the market.
B) Firms can freely enter or exit the market.
C) Price equals average revenue.
D) Price exceeds marginal revenue.

Question 53

If a firm in a competitive market doubles its number of units sold, total revenue for the firm will

A) more than double.
B) double.
C) increase but by less than double.
D) may increase or decrease depending on the price elasticity of demand.

Question 54

When a competitive firm doubles the quantity of output it sells, its

A) total revenue doubles.
B) average revenue doubles.
C) marginal revenue doubles.
D) profits must increase.

Question 55

Table 14-1

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

A) increase by less than $15.
B) increase by exactly $15.
C) increase by more than $15.
D) Total revenue cannot be determined from the information provided.

Question 56

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

A) more than triple.
B) less than triple.
C) exactly triple.
D) Any of the above may be true depending on the firm's labor productivity.

Question 57

A seller in a competitive market

A) can sell all he wants at the going price, so he has little reason to charge less.
B) will lose all his customers to other sellers if he raises his price.
C) considers the market price to be a "take it or leave it" price.
D) All of the above are correct.

Question 58

Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's

A) total revenue.
B) marginal revenue.
C) average revenue.
D) All of the above are correct.

Question 59

If Bradley's Butcher Shop sells its product in a competitive market, then

A) the price of that product depends on the quantity of the product that Bradley's Butcher Shop produces and sells because the firm's demand curve is downward sloping.
B) Bradley's Butcher Shop's total cost must be a constant multiple of its quantity of output.
C) Bradley's Butcher Shop's total revenue must be proportional to its quantity of output.
D) Bradley's Butcher Shop's total revenue must be equal to its average revenue.

Question 60

Table 14-1

Refer to Table 14-1. The price and quantity relationship in the table is most likely a demand curve faced by a firm in a

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

Question 61

Which of the following statements is correct?

A) For all firms, marginal revenue equals the price of the good.
B) Only for competitive firms does average revenue equal the price of the good.
C) Marginal revenue can be calculated as total revenue divided by the quantity sold.
D) Only for competitive firms does average revenue equal marginal revenue.

Question 62

Table 14-3
The table represents a demand curve faced by a firm in a competitive market.

Refer to Table 14-3. For this firm, the average revenue is

A) $26.
B) $39.
C) $13.
D) $0.

Question 63

Table 14-2
The table represents a demand curve faced by a firm in a competitive market.

Refer to Table 14-2. For this firm, the marginal revenue from selling the 3rd unit is

A) $12.
B) $4.
C) $3.
D) $1.

Question 64

Table 14-6
The following table presents cost and revenue information for a firm operating in a competitive industry.

Refer to Table 14-6. What is the total revenue from selling 7 units?

A) $120
B) $490
C) $562
D) $840

Question 65

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

A) $5 and 50 units
B) $5 and 100 units
C) $10 and 50 units
D) $10 and 100 units

Question 66

Table 14-6
The following table presents cost and revenue information for a firm operating in a competitive industry.

Refer to Table 14-6. What is the marginal revenue from selling the 3rd unit?

A) $55
B) $120
C) $137
D) $140

Question 67

Table 14-4
The table represents a demand curve faced by a firm in a competitive market.

Refer to Table 14-4. For this firm, the price is

A) $0.
B) $5.
C) $10.
D) $15.

Question 68

Table 14-5
The table represents a demand curve faced by a firm in a competitive market.

Refer to Table 14-5. For this firm, the price of the product is

A) $11.
B) $9.
C) $13.
D) $15.

Question 69

Table 14-3
The table represents a demand curve faced by a firm in a competitive market.

Refer to Table 14-3. For this firm, the price is

A) $26.
B) $39.
C) $13.
D) $0.

Question 70

Table 14-4
The table represents a demand curve faced by a firm in a competitive market.

Refer to Table 14-4. For this firm, the marginal revenue is

A) $0.
B) $5.
C) $10.
D) $15.

Question 71

Table 14-6
The following table presents cost and revenue information for a firm operating in a competitive industry.

Refer to Table 14-6. What is the total revenue from selling 4 units?

A) $120
B) $257
C) $317
D) $480

Question 72

Table 14-3
The table represents a demand curve faced by a firm in a competitive market.

Refer to Table 14-3. For this firm, the marginal revenue is

A) $26.
B) $39.
C) $13.
D) $0.

Question 73

Table 14-6
The following table presents cost and revenue information for a firm operating in a competitive industry.

Refer to Table 14-6. What is the average revenue when 4 units are sold?

A) $60
B) $120
C) $125
D) $197

Question 74

Table 14-5
The table represents a demand curve faced by a firm in a competitive market.

Refer to Table 14-5. For this firm, the marginal revenue of the 12th unit is

A) $9.
B) $10.
C) $11
D) The marginal revenue cannot be determined without knowing the total revenue when 11 units are sold.

Question 75

Table 14-5
The table represents a demand curve faced by a firm in a competitive market.

Refer to Table 14-5. For this firm, the average revenue when 14 units are produced and sold is

A) $11.
B) $9.
C) $13.
D) $15.

Question 76

When a certain competitive firm produces and sells 100 units of output, marginal revenue is $80. When the same firm produces and sells 200 units of output, what is average revenue?

A) $40
B) $80
C) $160
D) This cannot be determined from the given information.

Question 77

Which of the following statements regarding a competitive firm is correct?

A) Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output.
B) If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units.
C) By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price.
D) For all firms, average revenue equals the price of the good.

Question 78

Table 14-2
The table represents a demand curve faced by a firm in a competitive market.

Refer to Table 14-2. For this firm, the average revenue from selling 3 units is

A) $12.
B) $4.
C) $3.
D) $1.

Question 79

Table 14-2
The table represents a demand curve faced by a firm in a competitive market.

Refer to Table 14-2. This firm maximizes total revenue by producing

A) 1 units.
B) 3 units.
C) 5 units.
D) as many units as possible.

Question 80

Table 14-4
The table represents a demand curve faced by a firm in a competitive market.

Refer to Table 14-4. For this firm, the average revenue is

A) $0.
B) $5.
C) $10.
D) $15.