Competitive Markets and Firm Behavior - Key Concepts in Microeconomics

CHAPTER 14 1.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. 2. 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. 3.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 4. 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. Free entry is limited. d. Each firm chooses an output level that maximizes profits. 5.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. administrative barriers can make it difficult for firms to enter an industry. 6.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 7.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) 8.When a firm has little ability to influence market prices it is said to be in a a. competitive market. b. strategic market. c. thin market. d. power market. 9. 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. 10.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. 11. Which of the following is not a characteristic of a perfectly competitive market? a. Firms are price takers. b. Firms can freely enter the market. c. Many firms have market power d. Goods offered for sale are largely the same. 12. Free entry means that a. the government pays any entry costs for individual firms. b. no legal barriers prevent a firm from entering an industry c. a firm's marginal cost is zero. d. a firm has no fixed costs in the short run. 13.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 14. 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 15. 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 16. 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. 17.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. 18.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. 19.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. 20.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 21. 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. 22. Firms that operate in perfectly competitive markets try to a. maximize revenues. b. maximize profits. c. equate marginal revenue with average total cost. d. Both b and c are correct. 23. For a competitive firm, a. total revenue equals average revenue. b. total revenue equals marginal revenue. c. total cost equals marginal revenue. d. average revenue equals marginal revenue 24.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. a. i) only b. iii) only c. i) and ii) only d. i), ii), and iii) 25. Suppose that a firm operating in perfectly competitive market sells 200 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 $600. iii) Average revenue exceeds marginal revenue, but we don’t know by how much. a. i) only b. iii) only c. i) and ii) only d. i), ii), and iii) 26. 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. 27.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? a. $4 b. $8 c. $32 d. $64 28. Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue a. increases if MR < ATC and decreases if MR > ATC. b. does not change c. increases. d. decreases. 29.If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then a. a one-unit increase in output will increase the firm's profit. b. a one-unit decrease in output will increase the firm's profit c. total revenue exceeds total cost. d. total cost exceeds total revenue. 30.If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then a. average revenue exceeds marginal cost. b. the firm is earning a positive profit. c. decreasing output would increase the firm's profit d. All of the above are correct 31.At the profit-maximizing level of output, a. marginal revenue equals average total cost. b. marginal revenue equals average variable cost. c. marginal revenue equals marginal cost. d. average revenue equals average total cost. 32. 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 a. production of the 100th unit of output increases the firm's profit by $3. b. production of the 100th unit of output increases the firm's average total cost by $7. c. firm's profit-maximizing level of output is less than 100 units. d. production of the 99th unit of output must increase the firm’s profit by less than $3. 33. The following table 1 presents cost and revenue information for Soper’s Port Vineyard Refer to Table 1. What is the marginal cost of the 1st unit? a. $50 b. $75 c. $80 d. $150 34. Refer to Table 1. What is the marginal cost of the 8th unit? a. $0 b. $100 c. $120 d. $140 35. Refer to Table 1. What is Soper’s Port Vineyard’s economic profit at their profit maximizing point? a. $78 b. $243 c. $278 d. $375 36.Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. At Q = 1,000, the firm's profits equal a. $-200. b. $1,000 c. $3,000. d. $4,000. 37. According to the data of question 36. At Q = 999, the firm's total cost amounts to a. $10,985 b. $10,990. c. $10,995. d. $10,999. 38. According to the data of question 36. At Q = 999, the firm's profits equal a. $993. b. $997. c. $1,003 d. $1,007. 39. Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. At Q = 999, the firm's total cost amounts to a. $24,970. b. $24,975. c. $24,980 d. $25,025. 40.A firms want to enter a competitive market when existing firms in that market have a. total revenues that exceed fixed costs. b. total revenues that exceed total variable costs. c. average total costs that exceed average revenue. d. average total costs less than market price 41.Which of the following could be used to calculate the profit for a firm? a. Profit = MR - MC b. Profit = MR - TC c. Profit = (P - MC)xQ d. Profit = (P - ATC)xQ 42. Suppose that a firm is currently maximizing its shortrun 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? a. $0 b. $200 c. $250 d. $450 43. 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? a. $0 per unit b. $1 per unit c. $2 per unit d. $3 per unit 44. Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price? a. $9 b. $10 c. $11 d. $12 45. 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 a. profit of more than $27. b. profit of exactly $27. c. loss of more than $27. d. loss of exactly $27.