Question 1

Graph 14-9
 
-Refer to Graph 14-9. When the market is in long-run equilibrium at point A in panel (b) , the firm represented in panel (a)  will:

Accepted Answer

A)   exit the market
B)   be at zero-profit equilibrium
C)   earn negative accounting profit
D)   do all of the aboveE) B) and D)
F) B) and C)

Question 2

A profit-maximising firm should always increase the level of production if marginal cost exceeds marginal revenue

Accepted Answer

A) True 
 B)False

Question 3

A profit-maximising firm's short-run shut down criterion is:

Accepted Answer

A)   average revenue > marginal cost
B)   price 
C)   price 
D)   average revenue > average fixed costE) A) and B)
F) A) and C) B

Question 4

When firms already in a competitive market are profitable, an incentive exists for:

Accepted Answer

A)   existing firms to increase production
B)   new firms to seek government subsidies that would allow them to enter the market
C)   existing firms to raise prices
D)   new firms to enter the marketE) A) and D)
F) B) and D)

Question 5

Table 14-1
This table shows the revenue and costs of a parrot farmer.
 
-Refer to Table 14-1. The maximum profit available to this farmer's firm is:

Accepted Answer

A)   $21
B)   $36
C)   $45
D)   $56E) A) and C)
F) A) and B)

Question 6

When a profit-maximising firm in a competitive market has zero economic profit, accounting profit:

Accepted Answer

A)   is positive
B)   is negative (accounting losses) 
C)   is also zero
D)   could be positive, negative or zeroE) A) and B)
F) All of the above

Question 7

Lee had invested $100 000 in a risk-free unit trust, on which she earned $10 000 each year. She used that money to buy a prawn farm. She also quit her job as a salesperson to devote all of her time to her prawn business. Her salary as a salesperson was $25 000 per year.
-According to the information provided, what are Lee's opportunity costs of operating her new business?

Accepted Answer

A)   $10 000
B)   $25 000
C)   $35 000
D)   $50 000E) A) and B)
F) All of the above

Question 8

If a firm in a competitive market increases production and its marginal revenue remains greater than its marginal cost, raising production will:

Accepted Answer

A)   be profitable
B)   cause the firm to incur losses
C)   leave profit unchanged
D)   It is impossible to tell from the information providedE) None of the above
F) B) and C)

Question 9

When a firm has market power, it can:

Accepted Answer

A)   sell as much as it wants at any market price
B)   control the number of firms that will operate in an industry
C)   influence the market price of the good it sells
D)   choose to disregard government regulationE) A) and B)
F) None of the above

Question 10

The irrelevance of sunk costs is best described by which of the following business decisions?

Accepted Answer

A)   forestry companies continue to sell logs even though they are reporting large losses
B)   forestry companies sell up and exit the market when they report losses
C)   new forestry companies enter the market and earn profits selling logs
D)   all of the aboveE) A) and B)
F) A) and C)

Question 11

The long run supply curve for a perfectly competitive firm is the segment of the marginal cost curve that lies above the average total cost curve.

Accepted Answer

A) True 
 B)False

Question 12

Table 14-2
The price of each David Butterfly a butterfly farmer in Greytown sells is:
 
-Refer to Table 14-2. Price equals average revenue over the range of:

Accepted Answer

A)   one to three
B)   three to six
C)   six to nine
D)   over the whole range of outputE) None of the above
F) C) and D)

Question 13

In making a short-run profit-maximising production decision, the firm must consider both fixed and variable cost.

Accepted Answer

A) True 
 B)False

Question 14

If all incumbent firms and all potential firms have the same cost curves and the market is characterised by free entry and exit, the long-run:

Accepted Answer

A)   supply curve for the market must slope downward
B)   market supply curve must slope upward
C)   supply curve for the market is horizontal and equal to the minimum of long-run average cost for each firm
D)   market supply curve is equal to the sum of marginal costE) B) and D)
F) B) and C)

Question 15

Discuss the process that induces firms to operate at efficient scale in the long run in a competitive market with free entry and exit.

Accepted Answer

If all firms in a competitive industry f...

Question 16

Graph 14-6
 1, a profit-maximising firm's total profit or loss can be represented by which area? A)  (P3 - P1)  *  Q2; loss B)  P1 * Q3; profit C)  ( \Delta P2 - P1)  *  Q1; loss D)  we can't determine it because we don't know the fixed costs " class="answers-bank-image d-inline" rel="preload" > 
This graph depicts the cost structure of a firm in a competitive market. Use the graph to answer the following question(s) .
-Refer to Graph 14-6. When market price is P1, a profit-maximising firm's total profit or loss can be represented by which area?

Accepted Answer

A)   (P3 - P1)  *  Q2; loss
B)   P1 * Q3; profit
C)   ( Δ\DeltaΔ P2 - P1)  *  Q1; loss
D)   we can't determine it because we don't know the fixed costs E) B) and C)
F) B) and D)

Question 17

A rice farmer sells rice to an Australian grain broker. Suppose that the market for rice is competitive. This means that the farmer will maximise profit by choosing:

Accepted Answer

A)   to produce the quantity at which average fixed cost is minimised
B)   to sell its wheat at a price where marginal cost is equal to average total cost
C)   the quantity at which market price is equal to the farm's marginal cost of production
D)   the quantity where average revenue is equal to the farm's average variable costE) A) and B)
F) A) and C)

Question 18

Which of the following is not a characteristic of a perfectly competitive market?

Accepted Answer

A)   firms are price takers
B)   there are many sellers in the market
C)   goods offered for sale are largely the same
D)   firms have difficulty entering the marketE) None of the above
F) C) and D) D

Question 19

A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

Accepted Answer

A) True 
 B)False

Question 20

Use a graph to demonstrate the circumstances that would prevail in a perfectly competitive market where firms are experiencing economic losses. Identify costs, revenue and the economic losses on your graph. Using your graph, determine whether this firm will shut down in the short run, or choose to remain in the market. Explain your answer.

Accepted Answer

The loss and revenue are identified on the individual firm graph. Total cost is equal to the sum of the losses and revenue. The decision about whether this firm shuts down or remains in the market depends upon the position of average variable cost. If average variable cost is below P₀ at output level Q₀, the firm will remain in the market. If average variable cost is above P₀ at output level Q₀, the firm will exit the market.

Exam 14: Firms in Competitive Markets

Graph 14-9 -Refer to Graph 14-9. When the market is in long-run equilibrium at point A in panel (b) , the firm represented in panel (a) will:

Correct Answer
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A profit-maximising firm should always increase the level of production if marginal cost exceeds marginal revenue

Correct Answer
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A profit-maximising firm's short-run shut down criterion is:

Correct Answer
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B

When firms already in a competitive market are profitable, an incentive exists for:

Correct Answer
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Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1. The maximum profit available to this farmer's firm is:

Correct Answer
verified

When a profit-maximising firm in a competitive market has zero economic profit, accounting profit:

Correct Answer
verified

Correct Answer
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If a firm in a competitive market increases production and its marginal revenue remains greater than its marginal cost, raising production will:

Correct Answer
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When a firm has market power, it can:

Correct Answer
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The irrelevance of sunk costs is best described by which of the following business decisions?

Correct Answer
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The long run supply curve for a perfectly competitive firm is the segment of the marginal cost curve that lies above the average total cost curve.

Correct Answer
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Table 14-2 The price of each David Butterfly a butterfly farmer in Greytown sells is: -Refer to Table 14-2. Price equals average revenue over the range of:

Correct Answer
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In making a short-run profit-maximising production decision, the firm must consider both fixed and variable cost.

Correct Answer
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If all incumbent firms and all potential firms have the same cost curves and the market is characterised by free entry and exit, the long-run:

Correct Answer
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Discuss the process that induces firms to operate at efficient scale in the long run in a competitive market with free entry and exit.

Correct Answer
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If all firms in a competitive industry f...
View Answer

Correct Answer
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A rice farmer sells rice to an Australian grain broker. Suppose that the market for rice is competitive. This means that the farmer will maximise profit by choosing:

Correct Answer
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Which of the following is not a characteristic of a perfectly competitive market?

Correct Answer
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D

A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

Correct Answer
verified

Exam 14: Firms in Competitive Markets

Graph 14-9 -Refer to Graph 14-9. When the market is in long-run equilibrium at point A in panel (b) , the firm represented in panel (a) will:

Correct AnswerverifiedShow Answer

A profit-maximising firm should always increase the level of production if marginal cost exceeds marginal revenue

Correct AnswerverifiedShow Answer

A profit-maximising firm's short-run shut down criterion is:

Correct AnswerverifiedB

When firms already in a competitive market are profitable, an incentive exists for:

Correct AnswerverifiedShow Answer

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1. The maximum profit available to this farmer's firm is:

Correct AnswerverifiedShow Answer

When a profit-maximising firm in a competitive market has zero economic profit, accounting profit:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a firm in a competitive market increases production and its marginal revenue remains greater than its marginal cost, raising production will:

Correct AnswerverifiedShow Answer

When a firm has market power, it can:

Correct AnswerverifiedShow Answer

The irrelevance of sunk costs is best described by which of the following business decisions?

Correct AnswerverifiedShow Answer

The long run supply curve for a perfectly competitive firm is the segment of the marginal cost curve that lies above the average total cost curve.

Correct AnswerverifiedShow Answer

Table 14-2 The price of each David Butterfly a butterfly farmer in Greytown sells is: -Refer to Table 14-2. Price equals average revenue over the range of:

Correct AnswerverifiedShow Answer

In making a short-run profit-maximising production decision, the firm must consider both fixed and variable cost.

Correct AnswerverifiedShow Answer

If all incumbent firms and all potential firms have the same cost curves and the market is characterised by free entry and exit, the long-run:

Correct AnswerverifiedShow Answer

Discuss the process that induces firms to operate at efficient scale in the long run in a competitive market with free entry and exit.

Correct AnswerverifiedIf all firms in a competitive industry f...View AnswerShow Answer

Graph 14-6 This graph depicts the cost structure of a firm in a competitive market. Use the graph to answer the following question(s) . -Refer to Graph 14-6. When market price is P1, a profit-maximising firm's total profit or loss can be represented by which area?

Correct AnswerverifiedShow Answer

A rice farmer sells rice to an Australian grain broker. Suppose that the market for rice is competitive. This means that the farmer will maximise profit by choosing:

Correct AnswerverifiedShow Answer

Which of the following is not a characteristic of a perfectly competitive market?

Correct AnswerverifiedD

A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

Correct AnswerverifiedShow Answer

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B

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If all firms in a competitive industry f...
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D

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