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Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price is $4.00, the firm will earn A) positive economic profits in the short run. B) negative economic profits in the short run but remain in business. C) negative economic profits and shut down. D) zero economic profits in the short run. -Refer to Figure 14-1. If the market price is $4.00, the firm will earn


A) positive economic profits in the short run.
B) negative economic profits in the short run but remain in business.
C) negative economic profits and shut down.
D) zero economic profits in the short run.

E) B) and D)
F) B) and C)

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The marginal firm in a competitive market will earn zero economic profit in the long run.

A) True
B) False

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Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's


A) total revenues exceed her total accounting costs.
B) marginal revenue exceeds her total cost.
C) marginal revenue exceeds her marginal cost.
D) marginal cost exceeds her marginal revenue.

E) A) and B)
F) C) and D)

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When firms have an incentive to exit a competitive market, their exit will


A) lower the market price.
B) necessarily raise the costs for the firms that remain in the market.
C) raise the profits of the firms that remain in the market.
D) shift the demand for the product to the left.

E) B) and D)
F) None of the above

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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


A) new firms to enter the market.
B) the market price to rise.
C) its profits to rise.
D) Both b and c are correct.

E) B) and D)
F) C) and D)

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The firm will make the most profits if it produces the quantity of output at which


A) marginal cost equals average cost.
B) profit per unit is greatest.
C) marginal revenue equals total revenue.
D) marginal revenue equals marginal cost.

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

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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.

E) A) and D)
F) A) and C)

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Table 14-12 Bill's Birdhouses Table 14-12 Bill's Birdhouses -Refer to Table 14-12. At what quantity does Bill maximize profits? A) 3 B) 6 C) 7 D) 8 -Refer to Table 14-12. At what quantity does Bill maximize profits?


A) 3
B) 6
C) 7
D) 8

E) A) and C)
F) B) and D)

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The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people


A) consider sunk costs.
B) equate prices to the average costs of production.
C) prefer to purchase products from smaller rather than larger firms.
D) think at the margin.

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

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A sunk cost is one that


A) changes as the level of output changes in the short run.
B) was paid in the past and will not change regardless of the present decision.
C) should determine the rational course of action in the future.
D) has the most impact on profit-making decisions.

E) A) and C)
F) A) and D)

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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.

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

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You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $12 value on reading a book.


A) You should stay and watch the remainder of the show.
B) You should go home and watch TV.
C) You should go home and read a book.
D) You should go home and either watch TV or read a book.

E) A) and B)
F) A) and C)

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Table 14-6 The following table presents cost and revenue information for a firm operating in a competitive industry. 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 -Refer to Table 14-6. What is the average revenue when 4 units are sold?


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

E) None of the above
F) A) and C)

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Figure 14-10 In the figure below, 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. Figure 14-10 In the figure below, 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. -Refer to Figure 14-10. If there are 700 identical firms in this market, what is the value of Q2? A) 140,000 B) 210,000 C) 280,000 D) 420,000 -Refer to Figure 14-10. If there are 700 identical firms in this market, what is the value of Q2?


A) 140,000
B) 210,000
C) 280,000
D) 420,000

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

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Table 14-1 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. -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.

E) B) and C)
F) C) and D)

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A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will


A) fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
B) fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
C) fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
D) not fall in the short run because firms will exit to maintain the price.

E) A) and B)
F) None of the above

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Suppose you bought a ticket to a football game for $30 and that you place a $35 value on seeing the game. If you lose the ticket, then what is the maximum price you should pay for another ticket? Assume that losing the ticket does not alter how you value it.


A) $5
B) $30
C) $35
D) $65

E) A) and B)
F) None of the above

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Which of the following statements best expresses a firm's profit­maximizing decision rule?


A) If marginal revenue is greater than marginal cost, the firm should increase its output.
B) If marginal revenue is less than marginal cost, the firm should decrease its output.
C) If marginal revenue equals marginal cost, the firm should continue producing its current level of output.
D) All of the above are correct.

E) B) and C)
F) None of the above

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Figure 14-11 Figure 14-11 -Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were eight identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve? A) A only B) A and C only C) B only D) B and D only -Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were eight identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve? Figure 14-11 -Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were eight identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve? A) A only B) A and C only C) B only D) B and D only


A) A only
B) A and C only
C) B only
D) B and D only

E) None of the above
F) C) and D)

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Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. At which level of production will the firm maximize profit? A) 3 units B) 4 units C) 5 units D) 6 units -Refer to Table 14-10. At which level of production will the firm maximize profit?


A) 3 units
B) 4 units
C) 5 units
D) 6 units

E) A) and C)
F) A) and B)

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