WorksheetsECO101 BAI 14
Total questions: 100
Worksheet time: 50mins
A firm has market power if it can
maximize profits.
minimize costs.
influence the market price of the good it sells.
hire as many workers as it needs at the prevailing wage rate.
The analysis of competitive firms sheds light on the decisions that lie behind the
demand curve.
supply curve.
way firms make pricing decisions in the not-for-profit sector of the economy.
way financial markets set interest rates.
For any competitive market, the supply curve is closely related to the
preferences of consumers who purchase products in that market.
income tax rates of consumers in that market.
firms’ costs of production in that market.
interest rates on government bonds.
Suppose that firms in each of the two markets listed below were to increase their prices by 20 percent. Which pair represents the example where customers would decrease their quantity purchased dramatically in one market and only slightly in the other market due to differences in market structure?
corn and soybeans
gasoline and restaurants
water and cable television
spiral notebooks and college textbooks
A key characteristic of a competitive market is that
government antitrust laws regulate competition.
producers sell nearly identical products.
firms minimize total costs.
firms have price setting power.
Which of the following is not a characteristic of a competitive market?
Buyers and sellers are price takers.
Each firm sells a virtually identical product.
Free entry is limited.
Each firm chooses an output level that maximizes profits.
In a perfectly competitive market,
no one seller can influence the price of the product.
price exceeds marginal revenue for each unit sold.
average revenue exceeds marginal revenue for each unit sold.
administrative barriers can make it difficult for firms to enter an industry.
Who is a price taker in a competitive market?
buyers only
sellers only
both buyers and sellers
neither buyers nor sellers
Competitive markets are characterized by
a small number of buyers and sellers.
unique products.
the interdependence of firms.
free entry and exit by firms.
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.
(i) and (ii) only
(i) and (iii) only
(ii) and (iii) only
(i), (ii), and (iii)
When a firm has little ability to influence market prices it is said to be in a
competitive market.
strategic market.
thin market.
power market.
In a competitive market, the actions of any single buyer or seller will
have a negligible impact on the market price.
have little effect on market equilibrium quantity but will affect market equilibrium price.
affect marginal revenue and average revenue but not price.
adversely affect the profitability of more than one firm in the market.
Because the goods offered for sale in a competitive market are largely the same,
there will be few sellers in the market.
there will be few buyers in the market.
only a few buyers will have market power.
sellers will have little reason to charge less than the going market price.
Which of the following is not a characteristic of a perfectly competitive market?
Firms are price takers.
Firms have difficulty entering the market.
There are many sellers in the market.
Goods offered for sale are largely the same.
Which of the following is not a characteristic of a perfectly competitive market?
Firms are price takers.
Firms can freely enter the market.
Many firms have market power.
Goods offered for sale are largely the same.
Free entry means that
the government pays any entry costs for individual firms
no legal barriers prevent a firm from entering an industry.
a firm's marginal cost is zero.
a firm has no fixed costs in the short run.
Which of the following industries is most likely to exhibit the characteristic of free entry?
nuclear power
municipal water and sewer
dairy farming
airport security
When buyers in a competitive market take the selling price as given, they are said to be
market entrants.
monopolists
free riders.
price takers.
When firms are said to be price takers, it implies that if a firm raises its price,
buyers will go elsewhere.
buyers will pay the higher price in the short run.
competitors will also raise their prices.
firms in the industry will exercise market power.
Which of the following statements best reflects a price-taking firm?
If the firm were to charge more than the going price, it would sell none of its goods.
The firm has an incentive to charge less than the market price to earn higher revenue.
The firm can sell only a limited amount of output at the market price before the market price will fall.
Price-taking firms maximize profits by charging a price above marginal cost.
Why does a firm in a competitive industry charge the market price?
If a firm charges less than the market price, it loses potential revenue.
If a firm charges more than the market price, it loses all its customers to other firms.
The firm can sell as many units of output as it want to at the market price.
All of the above are correct.
In a competitive market, no single producer can influence the market price because
many other sellers are offering a product that is essentially identical.
consumers have more influence over the market price than producers do.
government intervention prevents firms from influencing price.
producers agree not to change the price.
A competitive firm would benefit from charging a price below the market price because the firm would achieve
higher average revenue.
higher profits.
lower total costs.
None of the above is correct.
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.
(i) and (ii) only
(i) and (iii) only
(ii) only
(i), (ii), and (iii)
Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to
increase.
remain unchanged.
decrease by less than 20 percent.
decrease by more than 20 percent.
The Wheeler Wheat Farm sells wheat to a grain broker in Seattle, Washington. Since the market for wheat is generally considered to be competitive, the Wheeler Farm does not
choose the quantity of wheat to produce.
choose the price at which it sells its wheat.
have any fixed costs of production.
set marginal revenue equal to marginal cost to maximize profit.
In a competitive market,
no single buyer or seller can influence the price of the product.
there are only a small number of sellers.
the goods offered by the different sellers are unique.
accounting profit is driven to zero as firms freely enter and exit the market.
Which of the following statements regarding a competitive market is not correct?
There are many buyers and many sellers in the market.
Because of firm location or product differences, some firms can charge a higher price than other firms and still maintain their sales volume.
Price and average revenue are equal.
Price and marginal revenue are equal.
Which of the following statements regarding a competitive market is not correct?
There are many buyers and many sellers in the market.
Firms can freely enter or exit the market.
Price equals average revenue.
Price exceeds marginal revenue.
One of the defining characteristics of a perfectly competitive market is
a small number of sellers.
a large number of buyers and a small number of sellers.
a similar product.
significant advertising by firms to promote their products.
Which of the following firms is the closest to being a perfectly competitive firm?
a hot dog vendor in New York
Microsoft Corporation
Ford Motor Company
the campus bookstore
Firms that operate in perfectly competitive markets try to
a. maximize revenues.
b. maximize profits.
c. equate marginal revenue with average total cost.
Both b and c are correct.
Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct?
i)
Marginal revenue equals $5.
ii)
Average revenue equals $5.
iii)
Price equals $5.
i) only
iii) only
i) and ii) only
i), ii), and iii)
Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct?
i)
Marginal revenue equals $3.
ii)
Average revenue equals $100.
iii)
Total revenue equals $300.
i) only
iii) only
i) and ii) only
i), ii), and iii)
Which of the following statements is correct?
For all firms, marginal revenue equals the price of the good.
Only for competitive firms does average revenue equal the price of the good.
Marginal revenue can be calculated as total revenue divided by the quantity sold.
Only for competitive firms does average revenue equal marginal revenue.
Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct?
i)
Marginal revenue equals $4.
ii)
Average revenue equals $100.
iii)
Total revenue equals $1,600.
i) only
iii) only
i) and iii) only
i), ii), and iii)
For a firm operating in a competitive industry, which of the following statements is not correct?
Price equals average revenue.
Price equals marginal revenue.
Total revenue is constant.
Marginal revenue is constant.
If ABC Company sells its product in a competitive market, then
the price of that product depends on the quantity of the product that ABC Company produces and sells since ABC Company’s demand curve is downward sloping.
ABC Company's total revenue must be proportional to its quantity of output.
ABC Company's total cost must be a multiple of its quantity of output.
ABC Company's total revenue must be equal to its average revenue.
Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's
total revenue.
marginal revenue.
average revenue.
All of the above are correct.
For a firm in a perfectly competitive market, the price of the good is always
equal to marginal revenue.
equal to total revenue.
greater than average revenue.
equal to the firm’s efficient scale of output.
If a firm in a perfectly competitive market triples the number of units of output sold, then total revenue will
more than triple.
less than triple.
exactly triple.
Any of the above may be true depending on the firm’s labor productivity.
When a competitive firm doubles the amount of output it sells, its
total revenue doubles.
average revenue doubles.
marginal revenue doubles.
profits must increase.
Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8.00. What would be the firm's total revenue if it instead produced and sold 4 units of output?
$4
$8
$32
$64
Suppose a firm in a competitive market received $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?
$5 and 50 units
$5 and 100 units
$10 and 50 units
$10 and 100 units
Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue
increases if MR < ATC and decreases if MR > ATC.
does not change.
increases.
decreases.
Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market?
less than $2.50
more than $2.50
exactly $2.50
The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm
Which of the following statements regarding a competitive firm is correct?
Since 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.
If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units.
By lowering its price below the market price, the firm will benefit from being able to sell more units at the lower price than it could have sold by charging the market price.
For all firms, average revenue equals the price of the good.
If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then
a one-unit increase in output will increase the firm's profit.
a one-unit decrease in output will increase the firm's profit.
total revenue exceeds total cost.
total cost exceeds total revenue.
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
a one-unit increase in output will increase the firm's profit.
a one-unit decrease in output will increase the firm's profit.
total revenue exceeds total cost.
total cost exceeds total revenue.
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
average revenue exceeds marginal cost.
the firm is earning a positive profit.
decreasing output would increase the firm's profit.
All of the above are correct.
Comparing marginal revenue to marginal cost
(i)
reveals the contribution of the last unit of production to total profit.
(ii)
is helpful in making profit-maximizing production decisions.
(iii)
tells a firm whether its fixed costs are too high.
(i) only
(i) and (ii) only
(ii) and (iii) only
(i) and (iii) only
At the profit-maximizing level of output,
marginal revenue equals average total cost.
marginal revenue equals average variable cost.
marginal revenue equals average variable cost.
average revenue equals average total cost.
The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which
total revenue is equal to variable cost.
total revenue is equal to fixed cost.
total revenue is equal to total cost.
profit is maximized.
For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $10 and a marginal cost of $7. It follows that the
production of the 100th unit of output increases the firm's profit by $3.
production of the 100th unit of output increases the firm's average total cost by $7.
firm's profit-maximizing level of output is less than 100 units.
production of the 99th unit of output must increase the firm’s profit by less than $3.
For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $10 and a marginal cost of $11. It follows that the
production of the 100th unit of output increases the firm's profit by $1.
production of the 100th unit of output increases the firm's average total cost by $1.
firm's profit-maximizing level of output is less than 100 units.
production of the 110th unit of output must increase the firm’s profit by less than $1.
A certain competitive firm sells its output for $20 per unit. The 50th unit of output that the firm produces has a marginal cost of $22. Which of following is not necessarily true?
Production of the 50th unit of output increases the firm's total revenue by $20.
Production of the 50th unit of output increases the firm's total cost by $22.
Production of the 50th unit of output decreases the firm's profit by $2.
Production of the 50th unit of output increases the firm’s average variable cost by $0.44.
The Wheeler Wheat Farm sells wheat to a grain broker in Seattle, Washington. Since the market for wheat is generally considered to be competitive, the Wheeler Wheat Farm maximizes its profit by choosing
to produce the quantity at which average variable cost is minimized.
to produce the quantity at which average fixed cost is minimized.
to sell its wheat at a price where marginal cost is equal to average total cost.
the quantity at which market price is equal to the farm's marginal cost of production.
If a competitive firm is (i) selling 1,000 units of its product at a price of $9 per unit and (ii) earning a positive profit, then
its total cost is less than $9,000.
its marginal revenue is less than $9.
its average revenue is greater than $9.
the firm cannot be a competitive firm since competitive firms can only earn zero profit.
Christopher is a professional tennis player who gives tennis lessons. The industry is competitive. Christopher hires a business consultant to analyze his financial records. The consultant recommends that Christopher give fewer tennis lessons. The consultant must have concluded that Christopher’s
total revenues exceed his total accounting costs.
marginal revenue exceeds his total cost.
marginal revenue exceeds his marginal cost.
marginal cost exceeds his marginal revenue.
Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should
make more than 20 wedding cakes per month.
make fewer than 20 wedding cakes per month.
continue to make 20 wedding cakes per month.
We do not have enough information with which to answer the question.
A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, which of the following statements is correct?
The firm's quantity of output is higher than it was previously.
The firm's average total cost is higher than it was previously.
The firm's marginal revenue is higher than it was previously.
All of the above are correct.
When profit-maximizing firms in competitive markets are earning profits,
market demand must exceed market supply at the market equilibrium price.
market supply must exceed market demand at the market equilibrium price.
new firms will enter the market.
the most inefficient firms will be encouraged to leave the market.
A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob. Which of the following events would decrease the firm's average revenue?
The firm increases its output above 500 doorknobs.
The firm decreases its output below 500 doorknobs.
The market price of doorknobs rises above $10.
The market price of doorknobs falls below $10.
Which of the following statements best expresses a firm’s profit-maximizing decision rule?
If marginal revenue is greater than marginal cost, the firm should increase its output.
If marginal revenue is less than marginal cost, the firm should decrease its output.
If marginal revenue equals marginal cost, the firm should continue producing its current level of output.
All of the above are correct.
Which of the following statements best expresses a firm’s profit-maximizing decision rule?
If marginal revenue is greater than marginal cost, the firm should increase its output.
If marginal revenue is less than marginal cost, the firm should shut down in the short run.
If marginal revenue equals marginal cost, the firm should produce exactly one more unit of output.
All of the above are correct.
If marginal cost exceeds marginal revenue, the firm
is most likely to be at a profit-maximizing level of output.
should increase the level of production to maximize its profit.
should reduce its average fixed cost in order to lower its marginal cost.
may still be earning a positive accounting profit.
When marginal revenue equals marginal cost, the firm
should increase the level of production to maximize its profit.
may be minimizing its losses rather than maximizing its profit.
must be generating positive economic profits.
must be generating positive accounting profits.
Profit-maximizing firms in a competitive market produce an output level where
marginal cost equals marginal revenue.
marginal cost equals average total cost.
marginal revenue is increasing.
marginal revenue is increasing.
A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as
average revenue is greater than average total cost.
average revenue is equal to marginal cost.
marginal cost is greater than average total cost.
price is above or below marginal cost.
When price is greater than marginal cost for a firm in a competitive market,
marginal cost must be falling.
the firm must be minimizing its losses.
there are opportunities to increase profit by increasing production.
the firm should decrease output to maximize profit.
Profit-maximizing firms enter a competitive market when existing firms in that market have
total revenues that exceed fixed costs.
total revenues that exceed total variable costs.
average total costs that exceed average revenue.
average total costs less than market price.
If a profit-maximizing firm in a competitive market discovers that, at its current level of production, price is greater than marginal cost, it should
shut down
reduce its output, but continue operating.
keep output the same.
increase its output.
For any given price, a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the
average total cost curve
average variable cost curve.
marginal cost curve.
marginal revenue curve.
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, which we assume to be
maximizing total revenue.
maximizing profit.
minimizing variable cost.
minimizing average total cost.
A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has average revenue of $9 and average total cost of $7. It follows that the firm's
average total cost curve intersects the marginal cost curve at an output level of less than 200 units.
average variable cost curve intersects the marginal cost curve at an output level of less than 200 units.
profit is $400.
All of the above are correct.
If a competitive firm is currently producing a level of output at which profit is not maximized, then it must be true that
marginal revenue exceeds marginal cost.
marginal cost exceeds marginal revenue.
total cost exceeds total revenue.
None of the above is correct.
Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has taken in $4,500 in monthly revenue.
In the short run, Susan should shut down her business, and in the long run she should exit the industry.
In the short run, Susan should continue to operate her business, but in the long run she should exit the industry.
In the short run, Susan should continue to operate her business, but in the long run she will probably face competition from newly entering firms.
In the short run, Susan should continue to operate her business, and she is also in long-run equilibrium.
The accountants hired by Davis Golf Course have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $145,000. Because of this information, in the short run, Davis Golf Course should
shut-down.
exit the industry.
stay open because shutting down would be more expensive.
stay open because the firm is making an economic profit.
Cold Duck Airlines flies between Tacoma and Portland. The company leases planes on a year-long contract at a cost that averages $600 per flight. Other costs (fuel, flight attendants, etc.) amount to $550 per flight. Currently, Cold Duck's revenues are $1,000 per flight. All prices and costs are expected to continue at their present levels. If it wants to maximize profit, Cold Duck Airlines should
drop the flight immediately.
continue the flight.
continue flying until the lease expires and then drop the run.
drop the flight now but renew the lease if conditions improve.
Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect
new firms to enter the market.
the market price to fall.
its profits to fall.
All of the above are correct.
Which of the following expressions is correct for a competitive firm?
Profit = (Quantity of output) x (Price - Average total cost)
Marginal revenue = (Change in total revenue)/(Quantity of output)
Average total cost = Total variable cost/Quantity of output
Average revenue = (Marginal revenue) x (Quantity of output)
Total profit for a firm is calculated as
marginal revenue minus average total cost.
average revenue minus average total cost.
marginal revenue minus marginal cost.
(price minus average cost) times quantity of output.
We can measure the profits earned by a firm in a competitive industry as
(P - ATC) x Q.
(P - MC) x Q.
MR x MC.
(MC - ATC) x Q.
Assume a firm is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is
$-1,600.
$1,600.
$3,200.
$8,000.
Suppose that a firm is currently maximizing its short-run profit at an output of 50 units. If the current price is $9, the marginal cost of the 50th unit is $9, and the average total cost of producing 50 units is $4, what is the firm's profit?
$0
$200
$250
$450
In a competitive market the price is $8. A typical firm in the market has ATC = $6, AVC = $5, and MC = $8. How much economic profit is the firm earning in the short run?
$0 per unit
$1 per unit
$2 per unit
$3 per unit
When a profit-maximizing competitive firm finds itself minimizing losses because it is unable to earn a positive profit, this task is accomplished by producing the quantity at which price is equal to
sunk cost.
average fixed cost.
average variable cost.
marginal cost.
A profit-maximizing firm in a competitive market is able to sell its product for $7. At its current level of output, the firm's average total cost is $10. The firm’s marginal cost curve crosses its marginal revenue curve at an output level of 9 units. The firm experiences a
profit of more than $27.
profit of exactly $27.
loss of more than $27.
loss of exactly $27.
A sunk cost is one that
changes as the level of output changes in the short run.
was paid in the past and will not change regardless of the present decision.
should determine the rational course of action in the future.
has the most impact on profit-making decisions.
When economists refer to a production cost that has already been committed and cannot be recovered, they use the term
implicit cost.
explicit cost.
variable cost.
sunk cost.
When a perfectly competitive firm decides to shut down, it is most likely that
marginal cost is above average variable cost.
marginal cost is above average total cost.
price is below the firm’s average variable cost.
fixed costs exceed variable costs.
A profit-maximizing firm will shut down in the short run when
price is less than average variable cost.
price is less than average total cost.
average revenue is greater than marginal cost.
average revenue is greater than average fixed cost.
In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if
price is less than average total cost.
price is greater than average total cost
average revenue is greater than average fixed cost.
average revenue is greater than marginal cost.
When new firms enter a perfectly competitive market,
economic profits of existing firms will continue to be zero
entering firms will earn zero economic profit upon entry into the market.
existing firms may see their costs rise if more firms compete for limited resources.
prices will rise as existing firms raise prices to keep new firms out of the market.
Suppose a competitive market is comprised of firms that face identical cost curves. The firms experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur?
(i)
New firms will enter the market.
(ii)
In the short run, price will rise; in the long run, price will rise further.
(iii)
In the long run, all firms will be producing at their efficient scale.
(i) and (ii) only
(i) and (iii) only
(ii) and (iii) only
(i), (ii) and (iii)
Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, an increase in demand will
increase price in the short run but not in the long run.
increase price in the long run but not in the short run.
increase price both in the short and the long run.
not affect price in either the short or the long run.
A long-run supply curve is flatter than a short-run supply curve because
firms can enter and exit a market more easily in the long run than in the short run.
long-run supply curves are sometimes downward sloping.
competitive firms have more control over demand in the long run.
firms in a competitive market face identical cost structures.
A market might have an upward-sloping long-run supply curve if
firms have different costs.
consumers exercise market power over producers.
all factors of production are essentially available in unlimited supply.
the entry of new firms into the market has no effect on the cost structure of firms in the market.
When entry and exit behavior of firms in an industry does not affect a firm's cost structure,
the long-run market supply curve must be horizontal.
the long-run market supply curve must be upward-sloping.
the long-run market supply curve must be downward-sloping.
we can't tell anything about the shape of the long-run market supply curve.
In a long-run equilibrium, the marginal firm has
price equal to average total cost.
total revenue equal to total cost.
economic profit equal to zero.
All of the above are correct.
