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Exam 14: Firms in Competitive Markets

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Question 21

True/False

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​Whenever firms in a perfectly competitive market produce the output level where marginal revenue equals marginal cost, we know that the firm is earning an economic profit.

A) True
B) False

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Question 22

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When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is

A) downward sloping.
B) upward sloping.
C) horizontal.
D) vertical.

E) A) and D)
F) All of the above

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Question 23

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A key characteristic of a competitive market is that

Table 14-3 The table represents a demand curve faced by a firm in a competitive market. ​ $\begin{array} { | c | c | } \hline \begin{array} { c } \text { Quantity Demanded } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Total Revenue } \\\text { (Dollars) }\end{array} \\\hline 13 & 91 \\\hline 15 & 105 \\\hline 17 & 119 \\\hline 19 & 133 \\\hline 21 & 147 \\\hline\end{array}$ -Refer to Table 14-3. For this firm, the average revenue when 17 units are produced and sold is

By comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit-maximizing level of production.

When a certain competitive firm produces and sells 40 units of output, its total revenue is $740. If there is no change in price, then what is the amount of the firm's total revenue if it produces and sells 45 units of output?

When it produces and sells 80 units of output, a competitive firm's average total cost is $25 and its profit is $480. What is the firm's total revenue if it sells 85 units of output?

Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

In a long-run equilibrium where firms have identical costs, it is possible that some firms in a competitive market are making a positive economic profit.

Scenario 14-2 The information below applies to a competitive firm that sells its output for $45 per unit. • When the firm produces and sells 120 units of output, its average total cost is $23.5. • When the firm produces and sells 121 units of output, its average total cost is $23.65. -Refer to Scenario 14-2. Suppose the firm is producing 120 units of output and its fixed cost is $950. Then its variable cost amounts to

If a competitive firm is operating at its efficient scale, then is the firm's profit positive, zero, or negative?

Firms operating in perfectly competitive markets produce an output level where marginal revenue equals marginal cost.

Table 14-1 ​ ​ $\begin{array} { | c | c | } \hline \begin{array} { c } \text { Price } \\\text { (Dollars per unit) }\end{array} & \begin{array} { c } \text { Quantity Demanded } \\\text { (Units) }\end{array} \\\hline 5 & 0 \\\hline 5 & 2 \\\hline 5 & 4 \\\hline 5 & 6 \\\hline 5 & 8 \\\hline 5 & 10 \\\hline 5 & 12 \\\hline 5 & 14 \\\hline 5 & 16 \\\hline 5 & 18 \\\hline\end{array}$ -Refer to Table 14-1. Over which range of output is average revenue equal to price?

In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: ​ -Refer to Figure 14-1. If the market price is $5, the firm will earn

A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run.

If Buddy's Build A Bear Shop sells its product in a competitive market, then

A profit-maximizing competitive firm is earning a profit of $24,000. Its marginal cost is $17 and its average total cost is $13. How many units of output is the firm producing and selling?

​A restaurant, which operates in a perfectly competitive market, is evaluating whether it should serve breakfast on a daily basis. It would choose to do this when its revenues cover its variable costs.

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Explain your answer.