Question 1

You can tell a firm is operating in a market that is in long-run competitive equilibrium if

Accepted Answer

A)  economic profits are positive. 
B)  economic profits are negative. 
C)  accounting profits are negative. 
D)  accounting profits are zero. 
E)  economic profits are zero.

Question 2

Refer to the accompanying table.A firm participating in a competitive market with these costs would break even if the price is

Accepted Answer

A)  $6. 
B)  $8. 
C)  $4. 
D)  $2. 
E)  either $6 or $8.

Question 3

If the short-run supply curve and the demand curve intersect below the long-run supply curve,firms will experience ________ economic profits,meaning the price is ________ the minimum point on the average total cost curve.

Accepted Answer

A)  positive; above 
B)  positive; below 
C)  negative; above 
D)  negative; below 
E)  zero; above

Question 4

The perfectly competitive firm's short-run supply curve is the

Accepted Answer

A)  region of the firm's marginal cost curve below the average variable cost curve. 
B)  region of the firm's marginal cost curve above the average variable cost curve. 
C)  entire marginal revenue curve. 
D)  entire marginal cost curve. 
E)  region of the firm's marginal cost curve above the average total cost curve.

Question 5

In a competitive market,if one firm raises its price relative to the other firms in the market,consumers are willing to go to another firm because

Accepted Answer

A)  the products are similar,which makes them complements. 
B)  the products are similar,which makes them substitutes. 
C)  there are many sellers in the market selling different items. 
D)  consumers can get more producer surplus by going to a different firm. 
E)  consumers can set the price they want to pay.

Question 6

If firms in a competitive market are incurring economic losses,we would expect firms to ________ the market,causing the ________ curve to shift to the ________.

Accepted Answer

A)  leave; demand; right 
B)  enter; demand; left 
C)  leave; supply; right 
D)  enter; supply; left 
E)  leave; supply; left

Question 7

In the long run,if a firm is making a loss,it will

Accepted Answer

A)  continue to operate no matter what. 
B)  continue to operate if it covers its fixed costs. 
C)  increase production in order to increase profits. 
D)  decrease production in order to increase profits. 
E)  stop producing and exit the market.

Question 8

An example of an explicit cost is

Accepted Answer

A)  a payment on a loan for a computer. 
B)  the savings interest lost by investing $10,000 in capital instead of saving the money. 
C)  forgone wages. 
D)  the opportunity cost of a $50,000 investment into a building. 
E)  the amount of money one could receive for renting a company truck to another business.

Question 9

In competitive markets

Accepted Answer

A)  firms set the prices for their products with little concern for the consumer. 
B)  firms control the prices they charge. 
C)  market forces are much stronger than individual firms are. 
D)  individual firms are much stronger than the market forces are. 
E)  market forces set the quantity in the market but not the prices.

Question 10

Use the following scenario to answer the following questions:
Lenora and Uma own a dog-grooming business in upstate New York,called Pawkeepsie Groomers.There are many buyers and many sellers in the dog-grooming service market.Pawkeepsie Groomers experiences normal cost curves,with the marginal cost (MC)curve crossing average variable cost (AVC)at $14 and average total cost (ATC)at $22.
-Pawkeepsie Groomers will make positive economic profits if the market price is

Accepted Answer

A)  $14. 
B)  between $14 and $22. 
C)  below $14. 
D)  $22. 
E)  above $22.

Question 11

A company produces at an output level where marginal revenue is equal to marginal cost and has the following revenue and cost levels: Marginal cost curve intersects the average variable cost curve at $140.
Marginal cost curve intersects the average total cost curve at $150.
Marginal cost curve intersects the marginal revenue curve at $200.
What would you suggest this firm should do in the short run?

Accepted Answer

A)  The firm should shut down. 
B)  The firm should continue to produce at a loss. 
C)  The firm should continue to produce at a profit level of $10 per unit. 
D)  The firm should continue to produce at a profit level of $50 per unit. 
E)  The firm should continue to produce at a profit level of $60 per unit.

Question 12

Use the following scenario to answer the following questions:
Carmela's Churros is a perfectly competitive firm that sells desserts in Houston,Texas.Carmela's Churros currently is taking in $40,000 in revenues,and has $15,000 in explicit costs and $25,000 in implicit costs.
-Carmela's Churros' accounting profits are

Accepted Answer

A)  $40,000. 
B)  $15,000. 
C)  $25,000. 
D)  $0. 
E)  $80,000.

Question 13

Which of the following is the closest example of a perfectly competitive market?

Accepted Answer

A)  the market for cars 
B)  the market for bread 
C)  the market for handmade soaps 
D)  the market for athletic shoes 
E)  the market for newspapers

Question 14

It's easy to determine if a firm is making long-run production decisions by looking at its cost structure because,in the long run,a firm does NOT have any ________ costs.

Accepted Answer

A)  opportunity 
B)  sunk 
C)  fixed 
D)  variable 
E)  marginal

Question 15

The accompanying table represents the quantity produced, the total revenue, and the total cost of a firm operating in a perfectly competitive market. Refer to this table to answer the following questions. 
-Assuming that all firms have the same cost structure,the price is

Accepted Answer

A)  $5. 
B)  $3. 
C)  $10. 
D)  $2. 
E)  $9.

Question 16

Refer to the following figure to answer the following questions. 
-Firm 1 and firm 2 are the sole producers in the industry.At price P1,the industry's total quantity supplied is

Accepted Answer

A)  Q1+Q2+Q3 +Q4. 
B)  Q1 + Q3. 
C)  Q2 + Q4. 
D)  Q1 - Q4. 
E)  Q4 - Q1.

Question 17

If Kang's Knick-Knacks is a perfectly competitive firm and is making zero economic profits,

Accepted Answer

A)  firms will enter the market. 
B)  firms will exit the market. 
C)  Kang's Knick-Knacks will stay in the market. 
D)  the market supply curve will shift to the left. 
E)  the market supply curve will shift to the right.

Question 18

In its simplest form,the long-run market supply curve is a(n)

Accepted Answer

A)  horizontal line at the minimum average total cost (AT
C) . 
B)  horizontal line at the price where accounting profits equal zero. 
C)  vertical line at the quantity produced by the firm. 
D)  upward-sloping line equal to the marginal cost curve. 
E)  upward-sloping line equal to the marginal cost curve only above the minimum average variable cost (AV
C) .

Question 19

When firms exit a market,the ________-run market supply curve shifts ________,causing individual firms' profits to ________.

Accepted Answer

A)  long; right; decrease 
B)  short; left; decrease 
C)  short; left; increase 
D)  short; right; decrease 
E)  short; right; increase

Question 20

If the market price is $15 and marginal cost is represented by the equation 2 * Q,where Q is in thousands of units,what is the profit-maximizing quantity?

Accepted Answer

A)  15,000 
B)  8,000 
C)  7,000 
D)  7,500 
E)  30,000

Exam 9: Firms in a Competitive Market