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32. Which of the following expressions is correct for a competitive firm?
a. Profit = (Quantity of output) x (Price - Average total cost)
b. Marginal revenue = (Change in total revenue)/(Quantity of output) c. Average cost = Total variable cost/Quantity of output
d. Average revenue = (Marginal revenue) x (Quantity of output) ANS: A PTS: 1 DIF: 2 REF: 14-1 TOP: Profit MSC: Definitional 33. For a competitive firm,
a. Total revenue = Average revenue. b. Total revenue = Marginal revenue. c. Total cost = Marginal revenue.
d. Average revenue = Marginal revenue. ANS: D PTS: 1 DIF: 1 REF: 14-1 TOP: Competitive firms MSC: Definitional
34. If a competitive firm is (i) selling 1,000 units of its product at a price of $9 per unit and (ii) earning a positive profit,
then
a. its total cost is less than $9,000. b. its marginal revenue is less than $9. c. its average revenue is greater than $9.
d. the firm cannot be a competitive firm since competitive firms can only earn zero profit. ANS: A PTS: 1 DIF: 2 REF: 14-1 TOP: Profit MSC: Analytical 35. When a competitive firm triples the amount of output it sells,
a. its total revenue triples. b. its average revenue triples. c. its marginal revenue triples. d. its profit must increase. ANS: A PTS: 1 DIF: 2 REF: 14-1 TOP: Total revenue MSC: Analytical
36. Which of the following statements regarding a competitive market is false?
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. ANS: B PTS: 1 DIF: 1 REF: 14-1 TOP: Perfect competition MSC: Interpretive 37. Suppose that in a competitive market the market price is $2.50. What is marginal revenue for the last unit sold by the
typical firm in this market? a. Less than $2.50. b. More than $2.50. c. $2.50.
d. The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm. ANS: C PTS: 1 DIF: 1 REF: 14-1 TOP: Marginal revenue MSC: Interpretive 38. Which of the following statements regarding a competitive firm is true?
a. Since demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower
price to sell the additional output.
b. If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. c. By lowering its price below the market price, the firm will benefit from being able to sell more units at the lower
price than it could have sold by charging the market price. d. For all firms, average revenue equals the price of the good. ANS: D PTS: 1 DIF: 2 REF: 14-1 TOP: Average revenue MSC: Analytical
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Table 14-2
The following table presents cost and revenue information for Soper’s Port Vineyard. Quantity Produced 0 1 2 3 4 5 6 7 8 COSTS Total Cost 100 150 202 257 317 385 465 562 682 Marginal Cost Quantity Demanded 0 1 2 3 4 5 6 7 8 REVENUES Total Price Revenue 120 120 120 120 120 120 120 120 120 Marginal Revenue -- -- 39. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is the total revenue from selling
7 units? a. $120 b. $700 c. $820 d. $840 ANS: D PTS: 1 DIF: 2 REF: 14-1 TOP: Total revenue MSC: Applicative 40. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is the total revenue from selling
4 units? a. $120 b. $217 c. $263 d. $480 ANS: D PTS: 1 DIF: 2 REF: 14-1 TOP: Total revenue MSC: Applicative 41. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is the marginal revenue from
selling the 3rd unit? a. $50 b. $80 c. $120 d. $140 ANS: C PTS: 1 DIF: 2 REF: 14-1 TOP: Marginal revenue MSC: Applicative 42. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is the average revenue when 4
units are sold? a. $50 b. $120 c. $125 d. $130 ANS: B PTS: 1 DIF: 2 REF: 14-1 TOP: Average revenue MSC: Applicative
Chapter 14/Firms in Competitive Markets ? 581
43. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is the marginal cost of the 1st
unit? a. $50 b. $75 c. $80 d. $150 ANS: A PTS: 1 DIF: 2 REF: 14-2 TOP: Marginal cost MSC: Applicative 44. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is the marginal cost of the 8th
unit? a. $0 b. $100 c. $120 d. $140 ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Marginal cost MSC: Applicative 45. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is Soper's Port Vineyard's
economic profit at their profit maximizing point? a. $78 b. $243 c. $278 d. $375 ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Economic profit MSC: Applicative 46. 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 standardized product.
d. significant advertising by firms to promote their products. ANS: C PTS: 1 DIF: 1 REF: 14-1 TOP: Perfect competition MSC: Definitional
47. Which of the following firms is the closest to being a perfectly competitive firm?
a. A hot dog vendor in New York b. Microsoft Corporation c. Ford Motor Company d. The campus bookstore ANS: A PTS: 1 DIF: 1 REF: 14-1 TOP: Perfect competition MSC: Interpretive
48. If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market, then the individual farmer's
elasticity of demand a. will also be -0.3.
b. depends on how large a crop the farmer produces. c. will range between -0.3 and -1.0. d. will be infinite. ANS: D PTS: 1 DIF: 3 REF: 14-1 TOP: Elasticity MSC: Analytical
49. Free entry means that
a. there are no costs of entering into an industry.
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. ANS: B PTS: 1 DIF: 2 REF: 14-1 TOP: Entry into industry MSC: Interpretive
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50. Total profit for a firm is calculated as
a. (marginal revenue) minus (average cost). b. (average revenue) minus (average cost). c. (marginal revenue) minus (marginal cost).
d. (price minus average cost) times (quantity of output). ANS: D PTS: 1 DIF: 1 REF: 14-2 TOP: Profit MSC: Definitional
Table 14-3
Use the information for a competitive firm in the table below to answer the following questions. Quantity 0 1 2 3 4 5 6 7 8 9 Total Revenue $0 9 18 27 36 45 54 63 72 81 Total Cost $10 14 19 25 32 40 49 59 70 82 51. Refer to Table 14-3. At a production level of 4 units which of the following is true?
a. Marginal cost is $6.
b. Total revenue is greater than variable cost. c. Marginal revenue is less than marginal cost. d. The firm is maximizing profit. ANS: B PTS: 1 DIF: 2 REF: 14-2 TOP: Competitive firms MSC: Analytical 52. Refer to Table 14-3. At which quantity of output is marginal revenue equal to marginal cost?
a. 3 b. 6 c. 8 d. 9 ANS: B PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Applicative
53. Refer to Table 14-3. If this firm chooses to maximize profit it will choose a level of output where marginal revenue
is equal to a. 6 b. 7 c. 8 d. 9 ANS: D PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Applicative 54. Refer to Table 14-3. The maximum profit available to this firm is
a. $2 b. $3 c. $4 d. $5 ANS: D PTS: 1 DIF: 1 REF: 14-2 TOP: Profit MSC: Applicative
Chapter 14/Firms in Competitive Markets ? 583
55. Refer to Table 14-3. If the firm finds that its marginal cost is $11, it should
a. increase production to maximize profit.
b. increase the price of the product to maximize profit. c. advertise to attract additional buyers to maximize profit. d. reduce production to increase profit. ANS: D PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Analytical 56. Refer to Table 14-3. If the firm finds that its marginal cost is $5, it should
a. reduce fixed costs by lowering production. b. increase production to maximize profit. c. decrease production to maximize profit.
d. maintain its current level of production to maximize profit. ANS: B PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Analytical
57. The Wheeler Wheat Farm sells wheat to a grain broker in Seattle, Washington. Since the market for wheat is
generally considered to be competitive, the Wheeler Wheat Farm maximizes its 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 its wheat at a price where marginal cost is equal to average total cost.
d. the quantity at which market price is equal to the farm's marginal cost of production. ANS: D PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Analytical 58. Comparison of marginal revenue to marginal cost
(i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high. a. (i) only
b. (i) and (ii) only c. (ii) and (iii) only d. (i) and (iii) only ANS: B PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Interpretive 59. If marginal cost exceeds marginal revenue, the firm
a. is most likely to be at a profit-maximizing level of output. b. should increase the level of production to maximize its profit. c. must be experiencing losses.
d. may still be earning a positive accounting profit. ANS: D PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Analytical 60. 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. ANS: B PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Analytical
61. As a general rule, profit-maximizing producers in a competitive market produce output at a point where
a. marginal cost is increasing. b. marginal cost is decreasing. c. marginal revenue is increasing. d. price is less than marginal revenue. ANS: A PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Analytical