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CHAPTER 14 QUIZ: FIRMS IN COMPETITIVE MARKETS
1.
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. Entry is limited.
d. Each firm chooses an output level that maximizes profits.
2.
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.
3.
Which of the following statements best reflects a price-taking firm?
a. If the firm were to charge more than the going price, it would sell none of its goods.
b. The firm has an incentive to charge less than the market price to earn higher revenue.
c. The firm can sell only a limited amount of output at the market price before the market
price will fall.
d. Price-taking firms maximize profits by charging a price above marginal cost.
4.
The Doris Dairy Farm sells milk to a dairy broker in Prairie du Chien, Wisconsin. Because the
market for milk is generally considered to be competitive, the Doris Dairy Farm does not
a. choose the quantity of milk to produce.
b. choose the price at which it sells its milk.
c. have any fixed costs of production.
d. set marginal revenue equal to marginal cost to maximize profit.
5.
Which of the following firms is the closest to being a perfectly competitive firm?
a. the New York Yankees
b. Apple, Inc.
c. DeBeers diamond wholesalers
d. a wheat farmer in Kansas
Table 14-5
Quantity
12
13
14
15
16
6.
Total Revenue
$132
$143
$154
$165
$176
Refer to Table 14-5. The price of the product is
a. $9.
b. $11.
c. $13.
d. $15.
7.
Refer to Table 14-5. The average revenue when 14 units are produced and sold is
a. $9.
b. $11.
c. $13.
d. $15.
8.
Refer to Table 14-5. The marginal revenue of the 12th unit is
a. $9.
b. $10.
c. $11
d. The marginal revenue cannot be determined without knowing the total revenue when 11
units are sold.
9.
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
10.
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.
11.
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.
12.
The intersection of a firm's marginal revenue and marginal cost curves determines the level of
output at which
a. total revenue is equal to variable cost.
b. total revenue is equal to fixed cost.
c. total revenue is equal to total cost.
d. profit is maximized.
13.
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.
14.
Sam sells soybeans to a broker in Chicago, Illinois. Because the market for soybeans is
generally considered to be competitive, Sam maximizes his profit by choosing
a. to produce the quantity at which average variable cost is minimized.
b. to produce the quantity at which average fixed cost is minimized.
c. to sell at a price where marginal cost is equal to average total cost.
d. the quantity at which market price is equal to Sam's marginal cost of production.
15.
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
a. total revenues exceed his total accounting costs.
b. marginal revenue exceeds his total cost.
c. marginal revenue exceeds his marginal cost.
d. marginal cost exceeds his marginal revenue.
16.
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 $200. In order to
maximize profits, Laura should
a. make more than 20 wedding cakes per month.
b. make fewer than 20 wedding cakes per month.
c. continue to make 20 wedding cakes per month.
d. We do not have enough information with which to answer the question.
17.
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, its
a. quantity of output is higher than it was previously.
b. average total cost is higher than it was previously.
c. marginal revenue is higher than it was previously.
d. All of the above are correct.
Table 14-8
Suppose that a firm in a competitive market faces the following revenues and costs:
Quantity
Total Revenue
Total Cost
0
$0
$3
1
$7
$5
2
$14
$8
3
$21
$12
4
$28
$17
5
$35
$23
6
$42
$30
7
$49
$38
18. Refer to Table 14-8. The firm will not produce an output level beyond
a. 4 units.
b. 5 units.
c. 6 units.
d. 7 units.
19.
Refer to Table 14-8. The firm will produce a quantity greater than 4 because at 4 units of
output, marginal cost
a. is less than marginal revenue.
b. equals marginal revenue.
c. is greater than marginal revenue.
d. is minimized.
20.
Refer to Table 14-8. In order to maximize profits, the firm will produce
a. 1 unit of output because marginal cost is minimized.
b. 4 units of output because marginal revenue exceeds marginal cost.
c. 6 units of output because marginal revenue equals marginal cost.
d. 8 units of output because total revenue is maximized.
Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:
Price
Quantity Total
Cost
$5
0
$3
$5
1
$5
$5
2
$8
$5
3
$12
$5
4
$17
$5
5
$23
21. Refer to Table 14-11. In order to maximize profits, the firm should stop producing after it
makes the
a. first unit.
b. second unit.
c. fourth unit.
d. fifth unit.
22.
Refer to Table 14-11. Marginal revenue equals marginal cost when the firm produces
a. 2 units.
b. 3 units.
c. 4 units.
d. 5 units.
23.
Refer to Table 14-11. The marginal revenue from producing the 3rd unit equals
(i) $5.
(ii) the price.
(iii) the marginal cost.
a. (i) only
b. (i) and (ii) only
c. (ii) only
d. (i), (ii), and (iii)
24. Refer to Table 14-11. The marginal revenue from producing the 4th unit equals
(i)
$5.
(ii)
the price.
(iii)
the marginal cost.
a. (i) only
b. (i) and (ii) only
c. (ii) only
d. (i), (ii), and (iii)
Table 14-12
Bill’s Birdhouses
Quantity
Produced
0
1
2
3
4
5
6
7
8
COSTS
Total
Cost
$0
$50
$102
$157
$217
$285
$365
$462
$582
Marginal
Cost
--
Quantity
Demanded
0
1
2
3
4
5
6
7
8
REVENUES
Price
Total
Revenue
$80
$80
$80
$80
$80
$80
$80
$80
$80
Marginal
Revenue
--
25.
Refer to Table 14-12. What is the marginal cost of the 5th unit?
a. $55
b. $60
c. $68
d. $80
26.
Refer to Table 14-12. What is the total revenue from selling 4 units?
a. $80
b. $137
c. $320
d. $480
27.
Refer to Table 14-12. What is the marginal revenue from selling the 1st unit?
a. $30
b. $50
c. $80
d. $160
28.
Refer to Table 14-12. What is the average revenue when 4 units are sold?
a. $0
b. $68
c. $80
d. $400
29.
Refer to Table 14-12. At what quantity does Bill maximize profits?
a. 3
b. 6
c. 7
d. 8
30.
When marginal revenue equals marginal cost, the firm
a. should increase the level of production to maximize its profit.
b. may be minimizing its losses rather than maximizing its profit.
c. must be generating positive economic profits.
d. must be generating positive accounting profits.
31.
In order to maximize profits in the short run, a firm should produce where
a. marginal revenue exceeds marginal cost by the greatest amount.
b. marginal cost is minimized.
c. average total cost is minimized.
d. marginal cost equals marginal revenue.
32.
When price is greater than marginal cost for a firm in a competitive market,
a. marginal cost must be falling.
b. the firm must be minimizing its losses.
c. there are opportunities to increase profit by increasing production.
d. the firm should decrease output to maximize profit.
33.
Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At
her profit-maximizing level of production, the average variable cost is $8.00, and the average
total cost is $8.25. Mrs. Smith should
a. shut down her business in the short run but continue to operate in the long run.
b. continue to operate in the short run but shut down in the long run.
c. continue to operate in both the short run and long run.
d. shut down in both the short run and long run.
34.
The accountants hired by the Brookside Racquet Club have determined total fixed cost to be
$75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this
information, in the short run, the Brookside Racquet Club should
a. shut down because staying open would be more expensive.
b. lower their prices to increase their profits.
c. stay open because shutting down would be more expensive.
d. stay open because the firm is making an economic profit.
35.
Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per
week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is
$70. What would you advise Mr. Raiman to do?
a. shut down the business
b. produce more custom-made shoes
c. decrease the price
d. produce fewer custom-made shoes
Scenario 14-2
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.
36.
Refer to Scenario 14-2. To maximize its profit, the firm should
a. increase its output.
b. continue to produce 1,000 units.
c. decrease its output but continue to produce.
d. shut down.
37.
Refer to Scenario 14-2. At Q = 1,000, the firm's profits equal
a. $-5,000.
b. $2,500.
c. $5,000.
d. $10,000.
38.
Refer to Scenario 14-2. At Q = 999, the firm's total costs equal
a. $24,970.
b. $24,975.
c. $24,980.
d. $25,025.
39.
Refer to Scenario 14-2. At Q = 999, the firm's profits equal
a. $4,990.
b. $5,000.
c. $5,020.
d. $5,030.
40.
a.
b.
c.
d.
Who is Mr. Hardison’s favorite Major Baseball Team?
Yankees
Cubs
Red Sox
Cardinals
Figure 14-14
Price
(a)
Price
MC
(b)
S0
S1
ATC
B
P2
P2
P1
P1
P0
P0
A
C
D
D1
D0
Q1
Q2
Quantity
QA QBQD QC
Quantity
41.
Refer to Figure 14-14. When the market is in long-run equilibrium at point A in panel (b), the
firm represented in panel (a) will
a. have a zero economic profit.
b. have a negative accounting profit.
c. exit the market.
d. choose to increase production to increase profit.
42.
Refer to Figure 14-14. Assume that the market starts in equilibrium at point A in panel (b). An
increase in demand from D0 to D1 will result in
a. a new market equilibrium at point D.
b. an eventual increase in the number of firms in the market and a new long-run equilibrium
at point C.
c. rising prices and falling profits for existing firms in the market.
d. falling prices and falling profits for existing firms in the market.
43.
Refer to Figure 14-14. Assume that the market starts in equilibrium at point A in panel (b) and
that panel (a) illustrates the cost curves facing individual firms. Suppose that demand increases
from D0 to D1. Which of the following statements is correct?
a. Points A, B, and C represent both short-run and long-run equilibria.
b. Points A, B, C, and D represent short-run equilibria.
c. Points A and B represent long-run equilibria.
d. Points A and C represent long-run equilibria.
44.
Refer to Figure 14-14. Assume that the market starts in equilibrium at point A in panel (b) and
that panel (a) illustrates the cost curves facing individual firms. Suppose that demand increases
from D0 to D1. Which of the following statements is not correct?
a. Point A is a long-run equilibrium point.
b. Points A, B, and C are short-run equilibria points.
c. Point B is a long-run equilibrium point.
d. Point C is a long-run equilibrium point.
45.
Refer to Figure 14-14. If the market starts in equilibrium at point C in panel (b), a decrease in
demand will ultimately lead to
a. more firms in the industry but lower levels of output for each firm.
b. fewer firms in the market.
c. a new long-run equilibrium at point D in panel (b).
d. lower prices once the new long-run equilibrium is reached.