CHAPTER 14 - Chapter14 FirmsinCompetitiveMarkets 1.

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Chapter 14 Firms in Competitive Markets 1. 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. ANSWER: c a standardized product. SECTION: 1 OBJECTIVE: 1 2. 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 ANSWER: a a hot dog vendor in New York SECTION: 1 OBJECTIVE: 1 3. Java Joe sells 200 cups of coffee each day in a perfectly competitive market at the market price of $1.00 per  cup. If Java Joe independently decreased its price per cup to $0.75, a. its sales would rise to 250 cups. b. its revenues would decrease. c. its revenues would remain constant at $200. d. the market price would fall to $0.75 as other sellers match Java Joe’s price. ANSWER: b its revenues would decrease. SECTION: 1 OBJECTIVE: 1 4. If the market elasticity of demand for potatoes is –.3, then the individual farmer’s elasticity of demand a. is also –.3. b. depends on how large a crop she produces. c. will range between –.3 and –1.0. d. will be infinite. ANSWER: d will be infinite. SECTION: 1 OBJECTIVE: 1 5. Perfect competition may be defined as competition a. among price-taking sellers. b. among buyers with perfect information about the market. c. among sellers of high-quality products. d. in a market where prices adjust quickly to the long-run equilibrium. ANSWER: a competition among price-taking sellers. SECTION: 1 OBJECTIVE: 1 81
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82 Chapter 14/Firms in Competitive Markets 6. 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. ANSWER: b no legal barriers prevent a firm from entering an industry. SECTION: 1 OBJECTIVE: 1 7. This table describes the relationship between 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 b. increase quantity to 15 c. remain at 14 units d. increase quantity to 16 units ANSWER: d increase quantity to 16 units SECTION: 2 OBJECTIVE: 2 Unit Marginal Marginal Quantity                            Cost                            Revenue     12 $5.00 $9.00 13 $6.00 $9.00 14 $7.00 $9.00 15 $8.00 $9.00 16 $9.00 $9.00 17 $10.00 $9.00 8. This table describes the relationship between output, marginal revenue, and marginal cost. If the firm is 
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CHAPTER 14 - Chapter14 FirmsinCompetitiveMarkets 1.

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