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ECO 251 Ch. 14 Document(2)

ECO 251 Ch. 14 Document(2) - CHAPTER 14 FIRMS IN...

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Unformatted text preview: CHAPTER 14 FIRMS IN COMPEI'ITJVE MARKETS 219 SELF -TEST True/False Questions 1. The only requirement for a market to be perfectly competitive is for the market to have - any buyers and sellers. 2. For a co ‘ petitive firm, marginal revenue equals the price of the good it sells. 3. If a comp --'tive firm sells three times the amount of output, its total revenue also increases b i a factor of three. 4. A firm ma ' ' es profit when it produces output up to the point Where ma ; nal cost equals . - 3' a1 revenue. 5. If marginal cost e ceeds marginal revenue at a firm’s current level r. output, the firm can increase p ofit if it increases its level of output. 6. A competitive firm’ ‘hort-run supply curve is the portio of its marginal-cost curve that lies above it. average—total-cost curve. 7. A competitive firm’s 10 -run supply curve is th - ortion of its marginal-cost curve that lies above its a - -rage—variable-cost . e. 8. In the short run, if the price firm receives ., a good is above its average variable costs but below its average tal costs c production, the firm will temporarily shut down. 9. In a competitive market, both ._ 4 ers and sellers are price takers. 10. In the long run, if the pri - ' . eceive for their output is below their average total costs of productio - , some I' . will exit the market. 11. In the short run, - - market supply e for a good is the sum of the quantities supplied by ea firm at each price. 12. The short— - market supply curve is mr - elastic than the long-run market sup- plyc e. 13. i e long run, perfectly competitive - _ earn small but positive economic 'I-rofits. 4. In the long run, if firms are identical and there is i -e entry and exit in the market. all firms in the market operate at their efficient sca . 15. If the price of a good rises above the minimum avera - total cost of production, positive economic profits will cause new firms to enter t - market, which drives the price back down to the minimum average total cost of production. Multiple-Choice Questions 1. Which of the following is not a characteristic of a competitive market? a. There are many buyers and sellers in the market. b. The goods offered for sale are largely the same. c. Firms can freely enter or exit the market. Firms generate small but positive economic profits in the long run. e. All of the above are characteristics of a competitive market. 220 PART 5 FIRM BEHAVIOR AND TH E- ORGANIZATION OF INDUSTRY 2. Which of the following markets would most closely satisfy the requirements for a'competitive market? a. gold bullion . electricity :2. cable television d. Soda e. All of the'above represent Competitive markets. 3. If a competitive firm double; its output, its total revenue _-.. . more than doubles. 9 dwbles. c- less than doubles. d. cannot be determined because the. price-of thegood may rise or fall. 4. For 'a coutpefifive firm. marginalravmue is. equal to the price of'thé good sold. 0. average revenue divided by the quantity 501d. c. total revenue divided by the quantity sold. d. equal to the quantity of the good sold. 5. The competitive firm maxmuzesprofit when it produces output up to'the point where a. marginal cost equals total revenue; b. margiml. revenue-equalaaverage revenue. @ marginal cost equals marginal ravenue. d. price equals average variable cost. 6. If a competitive firm is producing a level of output where marginal revenue ex- ceeds marginal cost, the firm could increase profits if it .. increasecl production. 'b. decreased production. c. maintained productiOn at the current level. cl. temporarily shut down. Use Eqdnibit 4- to answer questions 7 through 11. CHAPTER 14 FIRMS IN COMPETITIVE MARKETS 221 8. If the price is P4, the firm will earn profits equal to the area a. (P2 — P1) x Q. [email protected]fimxg. c. (P4 MPZ) x Q. (90kgwg e. None of the above is correct. 9. In the short run, competitive firms will temporarily shut down production if the price falls below iii SIN H P Siam “@e 5' [email protected] 5* as long run, some competitive firms will exit the market if the price is below $$$F 9 e long run, the competitive equilibrium is Q . Q . Q Q4- 4’ Q5' 12. In the short run, the competitive firm’s supply curve is the a. entire marginal—cost curve: b. portion of the marginal-cost curve that lies above the average-total—cost curve. 6) portion of the marginal-cost curve that lies above the average-variable-cost curve. (1. upward—sloping portion of the average-total—cost curve. e. upward-sloping portion of the average-variablecost curve. —l h“: ”e .. "Uh'd N .l. \. LI! 9.. “U“UFU I'D . ’5‘. 13. In the long run, the competitive firm’s supply curve is the a. entire marginal-cost curve. @portion of the marginal-cost curve that lies above the average—total—cost curve. ' c. portion of the marginal—cost curve that lies above the average-variable-cost CUI'V e. d. upward-sloping portion of the average-total-cost curve. e. upward—sloping portion of the average-variable—cost curve. 14. A grocery store should close at night if the a. total costs of staying open are greater than the total revenue clue to staying b. :ggllcosts of staying open are less than the total revenue due to staying ® :Erilable costs of staying open are greater than the total revenue clue to staying d. :flble costs of staying open are less than the total revenue due to staying open. 15. The long—run market supply curve \Q- is always more elastic than the short-run market supply curve. n'. is always less elastic than the short-run market supply curve. c. has the same elasticity as the short-run market supply curve. cl. is always perfectly elastic. 222 PART 5 FIRM BEHAVIOR AND THE ORGANIZATION OF ENDUSTRY 16. In the long run, some firms will exit the market if the price of the good offered for sale is less than a. marginal revenue. b. marginal cost. C. average revenue. . @average total cost. 17. If all firms in a market have identical cost structures and if inputs used in the pro~ duction of the good in that market are readily available, then the long-run market su -ply curve for that good should be perfectly elastic. ._ downward sloping. c. upward sloping. d. perfectly inelastic. 18. If an input necessary for production is in limited supply so that an expansion of the industry raises costs for all existing films in the market, then the long-run market supply curve for a good could be a. perfectly elastic. b. downward sloping. upward sloping. d. perfectly inelastic. 19. If the long-run market supply curve for a good is perfectly elastic, an increase in the demand for that good will, in the long run, cause a. an increase in the price of the good and an increase in the number of firms in the market. b. an increase in the price of the good but no increase in the number of firms in the market. © an increase in the number of firms in the market but no increase in the price of the good. (I. no impact on either the price of the good or the number of firms in the market. 20. In long-run equilibrium in a competitive market, firms are operating at a. the minimum of their average-total—cost curves. b. the intersection of marginal cost and marginal revenue. c. their efficient scale. _ -.. zero economic profit. 9' all of the above. ADVANCED CRITICAL T In some regions of the country, it 1 - 24 hours a day, 365 days a year. 1. You walk into a Wal- .- : . - 'th a friend to buy some VCR tapes. ' ' ' - e stores stay open all night. Only one ' ere can’t be more than ten shoppers in this e for this store to be open all night.” Explain to e true for it to be to the advantage of Wal-Mart ...
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