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Exam 14: Firms in Competitive Markets

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Question 101

Multiple Choice

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When firms think at the margin and make incremental adjustments to the level of production, they are naturally led to a level of production where:

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

E) None of the above
F) All of the above

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Question 102

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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?

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 run

E) A) and B)
F) All of the above

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Question 103

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

Explain what it means if a firm in a competitive market is labelled as a price-taker.

When firms are neither entering nor exiting a perfectly competitive market:

Marginal adjustments to production end when firms in competitive markets experience a price equal to marginal revenue.

When business managers of firms in a competitive market observe falling profits, they are likely to infer that the market is characterised by:

It is not possible for the marginal firm in a competitive market to make an economic profit in the long-run.

Graph 14-7 In this graph, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. Use the graph to answer the following question(s) . -Refer to Graph 14-7. If there are 30 identical firms in this market, what level of output will be supplied to the market when price is $1.00?

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

In the long run, a competitive market with 1000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

The Wheeler Wheat Farm sells wheat to a grain broker. Since the market for wheat is generally considered to be competitive, the Wheeler Farm:

When a forester is making a long-run decision about whether or not to exit an industry, the cost of the land used for the plantation:

Graph 14-9 -Refer to Graph 14-9. If the market starts in equilibrium at point C in panel (b) , a decrease in demand will ultimately lead to:

Profit-maximising producers in a competitive market in general, produce output at a point where:

When total revenue is less than total variable cost, a firm in a competitive market will:

A profit-maximising firm in a competitive market will not increase production when average revenue exceeds marginal cost.

In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

Graph 14-3 This graph depicts the cost structure of a profit-maximising firm in a competitive market. Use the graph to answer the following question(s) . -Refer to Graph 14-3. If the firm is in a short-run position where P < AVC, it is most likely to be on what segment of its supply curve?