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135. The following table presents the total cost of production for various levels of output for a competitive firm:
Q 0 1 2 3 4 5
What is the lowest price at which this firm might choose to operate? a. $2.00 b. $3.00 c. $4.00 d. $5.00 ANS: B PTS: 1 DIF: 3 REF: 14-2 TOP: Profit maximization MSC: Analytical
136. The competitive firm's short-run supply curve
a. is its marginal revenue curve, but only the portion where marginal revenue exceeds marginal cost. b. is its marginal cost curve.
c. is its marginal cost curve, but only the portion above the minimum of average total cost. d. is its marginal cost curve, but only the portion above the minimum of average variable cost. ANS: D PTS: 1 DIF: 2 REF: 14-2 TOP: Supply curve MSC: Interpretive 137. 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)Q d. Profit = (P - AC)Q ANS: D PTS: 1 DIF: 2 REF: 14-2 TOP: Profit MSC: Definitional
138. Suppose that a firm is currently maximizing its short-run 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 cost of producing 50 units is $4, what is the firm's profit? a. $0 b. $200 c. $250 d. $450 ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Profit MSC: Analytical 139. Which of the following represents the firm's short-run condition for shutting down?
a. Shut down if TR < TC b. Shut down if TR < FC c. Shut down if P < ATC d. Shut down if TR < VC ANS: D PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Definitional 140. Which of the following represents the firm's long-run condition for exiting a market?
a. Exit if P < MC b. Exit if P < FC c. Exit if P < ATC d. Exit if MR < MC ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Definitional
TC 4 9 12 13 20 29 600 ? Chapter 14/Firms in Competitive Markets
141. Consider a competitive market with 50 identical firms. Suppose the market demand is given by the equation QD =
200 - 10P and the market supply is given by the equation QS = 10P. In addition, suppose the following table shows the marginal cost of production for various levels of output for firms in this market.
Q 0 1 2 3 4 5
How many units should a firm in this market produce to maximize profit? a. 1 b. 2 c. 3 d. 4 ANS: B PTS: 1 DIF: 3 REF: 14-2 TOP: Profit maximization MSC: Analytical 142. When determining whether to shutdown in the short run, a competitive firm should
a. ignore fixed costs. b. ignore variable costs. c. ignore sunk costs.
d. Both a and c are correct ANS: D PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Analytical 143. Competitive firms that earn a loss in the short run should
a. shut down if P < AVC. b. raise their price. c. lower their output. d. All of the above ANS: A PTS: 1 DIF: 1 REF: 14-2 TOP: Profit maximization MSC: Interpretive
144. Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At her profit-maximizing level of
output, her average total cost of production is $7.00 and her average variable cost of production is $6.00. a. Mrs. Smith is earning a loss and should shutdown in the short run.
b. Mrs. Smith is earning a loss but should continue to operate in the short run. c. Mrs. Smith is earning a profit since the price is above the average variable cost.
d. Without knowing Mrs. Smith's marginal cost we cannot determine whether she should stay in business or shut
down.
ANS: B PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Applicative 145. Mrs. Smith operates a business in a competitive market. The current market price is $8.50, and at her
profit-maximizing level of production, the average variable cost is $8.00 and the average total cost is $8.25. a. Mrs. Smith should shut down her business in the short run but continue to operate in the long run.. b. Mrs. Smith should continue to operate in the short run but shut down in the long run. c. Mrs. Smith should continue to operate in both the short run and long run. d. Mrs. Smith should shut down in both the short run and long run. ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Applicative
MC -- 5 10 15 20 25 Chapter 14/Firms in Competitive Markets ? 601
146. 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 fall. c. its profits to fall. d. All of the above ANS: D PTS: 1 DIF: 1 REF: 14-2 TOP: Profit maximization MSC: Applicative 147. In a competitive market the current price is $7, and the typical firm in the market has ATC = $7.50 and AVC = $7.15.
a. In the short run firms will shut down, and in the long run firms will leave the market.
b. In the short run firms will continue to operate, but in the long run firms will leave the market. c. New firms will likely enter this market to capture any remaining economic profits. d. In the long run the market will cease to exist. ANS: A PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Applicative 148. 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 ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Profit MSC: Analytical 149. Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average 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 ANS: C PTS: 1 DIF: 3 REF: 14-2 TOP: Profit MSC: Analytical 150. 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 $6 value on reading a book.
a. You should leave the theater since the net benefit from seeing the remainder of the show is -$20, while going
home will earn you at least $8 of satisfaction.
b. You should stay and watch the remainder of the show. c. You should go home and watch TV. d. You should go home and read a book. ANS: B PTS: 1 DIF: 2 REF: 14-2 TOP: Sunk costss MSC: Applicative
151. The accountants hired by Davis Golf Course have determined total fixed cost to be $75,000, total variable cost to be
$130,000, and total revenue to be $145,000. Because of this information, in the short run, Davis Golf Course should a. decide to shut-down.
b. decide to exit the industry.
c. decide to stay open because shutting down would be more expensive. d. decide to stay open because they are making an economic profit. ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Profit maximization MSC: Analytical
Table 14-4
The following table presents cost and revenue information for John’s Vineyard.
COSTS REVENUES 602 ? Chapter 14/Firms in Competitive Markets
Quantity Produced 0 1 2 3 4 5 6 7 8 Total Cost 0 50 102 157 217 285 365 462 582 Marginal Cost -- Quantity Demanded 0 1 2 3 4 5 6 7 8 Price 80 80 80 80 80 80 80 80 80 Total Revenue Marginal Revenue -- 152. Refer to Table 14-4. What is the marginal cost of the 5th unit?
a. $55 b. $60 c. $68 d. $80 ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Marginal cost MSC: Applicative 153. Refer to Table 14-4. What is the marginal cost of the 8th unit?
a. $0 b. $68 c. $120 d. $242 ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Marginal cost MSC: Applicative 154. Refer to Table 14-4. What is the total revenue from selling 4 units?
a. $80 b. $320 c. $360 d. $480 ANS: B PTS: 1 DIF: 2 REF: 14-2 TOP: Total revenue MSC: Applicative 155. Refer to Table 14-4. What is the total revenue from selling 7 units?
a. $80 b. $210 c. $540 d. $560 ANS: D PTS: 1 DIF: 2 REF: 14-2 TOP: Total revenue MSC: Applicative 156. Refer to Table 14-4. What is the marginal revenue from selling the 1st unit?
a. $50 b. $80 c. $160 d. $170 ANS: B PTS: 1 DIF: 2 REF: 14-2 TOP: Marginal revenue MSC: Applicative 157. Refer to Table 14-4. What is the marginal revenue from selling the 5th unit?
a. $12 b. $68 c. $80 d. $480 ANS: C PTS: 1 DIF: 2 REF: 14-2 TOP: Marginal revenue MSC: Applicative
Chapter 14/Firms in Competitive Markets ? 603
158. Refer to Table 14-4. What is the average revenue when 4 units are sold?
a. $0 b. $80 c. $90 d. $320 ANS: B PTS: 1 DIF: 2 REF: 14-2 TOP: Average revenue MSC: Applicative 159. Refer to Table 14-4. At what quantity does John’s Vineyard maximize profits?
a. 3 b. 6 c. 7 d. 8 ANS: B PTS: 1 DIF: 3 REF: 14-2 TOP: Profit maximization MSC: Applicative
160. Refer to Table 14-4. What is John’s Vineyard's economic profit at its profit-maximizing output level?
a. $25 b. $75 c. $115 d. $225 ANS: C PTS: 1 DIF: 3 REF: 14-2 TOP: Economic profit MSC: Applicative
Table 14-5 Quantity 12 13 14 15 16 17 161. Refer to Table 14-5. This table provides information on a firm’s output, marginal revenue, and marginal cost. If the
firm is currently producing 14 units, what would you advise them to do? a. Decrease quantity to 13 units. b. Increase quantity to 17 units. c. Continue to operate at 14 units. d. Increase quantity to 16 units. ANS: D PTS: 1 DIF: 1 REF: 14-2 TOP: Profit maximization MSC: Applicative 162. Refer to Table 14-5. This table provides information on a firm’s output, marginal revenue, and marginal cost for a
firm. If the firm is maximizing profit, how much profit is it earning? a. $0.00 b. $1.00 c. $10.00
d. There is insufficient data to determine the firms profit. ANS: D PTS: 1 DIF: 2 REF: 14-2 TOP: Profit MSC: Applicative
Marginal Cost $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 Marginal Revenue $9.00 $9.00 $9.00 $9.00 $9.00 $9.00