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Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price,what effect would this have on the market?

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The firm could not sell any more of its ...

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A competitive firm's short-run supply curve is part of which of the following curves?


A) marginal revenue
B) average variable cost
C) average total cost
D) marginal cost

E) B) and C)
F) A) and B)

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A firm in a competitive market has the following cost structure: A firm in a competitive market has the following cost structure: If the market price is $16,this firm will A) produce 4 units of output in the short run and exit in the long run. B) produce 5 units of output in the short run and exit in the long run. C) produce 5 units of output in the short run and face competition from new market entrants in the long run. D) shut down in the short run and exit in the long run. If the market price is $16,this firm will


A) produce 4 units of output in the short run and exit in the long run.
B) produce 5 units of output in the short run and exit in the long run.
C) produce 5 units of output in the short run and face competition from new market entrants in the long run.
D) shut down in the short run and exit in the long run.

E) All of the above
F) None of the above

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When a resource used in the production of a good sold in a competitive market is available in only limited quantities,the long-run supply curve is likely to be upward sloping.

A) True
B) False

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The firm will make the most profits if it produces the quantity of output at which


A) marginal cost equals average cost.
B) profit per unit is greatest.
C) marginal revenue equals total revenue.
D) marginal revenue equals marginal cost.

E) A) and D)
F) A) and C)

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Which of the following statements best expresses a firm's profit-maximizing decision rule?


A) If marginal revenue is greater than marginal cost, the firm should increase its output.
B) If marginal revenue is less than marginal cost, the firm should decrease its output.
C) If marginal revenue equals marginal cost, the firm should continue producing its current level of output.
D) All of the above are correct.

E) B) and C)
F) A) and B)

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Table 14-12 Bill's Birdhouses Table 14-12 Bill's Birdhouses -Refer to Table 14-12.What is the marginal revenue from selling the 1st unit? A) $30 B) $50 C) $80 D) $160 -Refer to Table 14-12.What is the marginal revenue from selling the 1st unit?


A) $30
B) $50
C) $80
D) $160

E) A) and B)
F) A) and C)

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A firm operating in a perfectly competitive industry will shut down in the short run if its economic profits fall to zero because it is likely to be earning negative accounting profits.

A) True
B) False

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The analysis of competitive firms sheds light on the decisions that lie behind the


A) demand curve.
B) supply curve.
C) way firms make pricing decisions in the not-for-profit sector of the economy.
D) way financial markets set interest rates.

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

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Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2.If the market price is P2,in the short run the firm will earn A) positive economic profits. B) negative economic profits but will try to remain open. C) negative economic profits and will shut down. D) zero economic profits. -Refer to Figure 14-2.If the market price is P2,in the short run the firm will earn


A) positive economic profits.
B) negative economic profits but will try to remain open.
C) negative economic profits and will shut down.
D) zero economic profits.

E) A) and B)
F) B) and C)

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Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2.If the market price is P1,in the short run the firm will earn A) positive economic profits. B) negative economic profits but will try to remain open. C) negative economic profits and will shut down. D) zero economic profits. -Refer to Figure 14-2.If the market price is P1,in the short run the firm will earn


A) positive economic profits.
B) negative economic profits but will try to remain open.
C) negative economic profits and will shut down.
D) zero economic profits.

E) B) and D)
F) B) and C)

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Figure 14-14 Figure 14-14 -Refer to Figure 14-14.Assume that the market starts in equilibrium at point A in panel (b) .An increase in demand from D0 to D1 will result in A) a new market equilibrium at point D. B) an eventual increase in the number of firms in the market and a new long-run equilibrium at point C. C) rising prices and falling profits for existing firms in the market. D) falling prices and falling profits for existing firms in the market. Figure 14-14 -Refer to Figure 14-14.Assume that the market starts in equilibrium at point A in panel (b) .An increase in demand from D0 to D1 will result in A) a new market equilibrium at point D. B) an eventual increase in the number of firms in the market and a new long-run equilibrium at point C. C) rising prices and falling profits for existing firms in the market. D) falling prices and falling profits for existing firms in the market. -Refer to Figure 14-14.Assume that the market starts in equilibrium at point A in panel (b) .An increase in demand from D0 to D1 will result in


A) a new market equilibrium at point D.
B) an eventual increase in the number of firms in the market and a new long-run equilibrium at point C.
C) rising prices and falling profits for existing firms in the market.
D) falling prices and falling profits for existing firms in the market.

E) All of the above
F) None of the above

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Firms operating in competitive markets produce output levels where marginal revenue equals


A) price.
B) average revenue.
C) total revenue divided by output.
D) All of the above are correct.

E) C) and D)
F) None of the above

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Table 14-1 Table 14-1 -Refer to Table 14-1.If the firm doubles its output from 3 to 6 units,total revenue will A) increase by less than $15. B) increase by exactly $15. C) increase by more than $15. D) Total revenue cannot be determined from the information provided. -Refer to Table 14-1.If the firm doubles its output from 3 to 6 units,total revenue will


A) increase by less than $15.
B) increase by exactly $15.
C) increase by more than $15.
D) Total revenue cannot be determined from the information provided.

E) A) and C)
F) B) and C)

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Which of the following statements regarding a competitive firm is correct?


A) Because 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 selling 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.

E) A) and B)
F) B) and D)

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Figure 14-9 In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. Figure 14-9 In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. -Refer to Figure 14-9.If at a market price of $1.75,52,500 units of output are supplied to this market,how many identical firms are participating in this market? A) 75 B) 100 C) 250 D) 300 Figure 14-9 In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. -Refer to Figure 14-9.If at a market price of $1.75,52,500 units of output are supplied to this market,how many identical firms are participating in this market? A) 75 B) 100 C) 250 D) 300 -Refer to Figure 14-9.If at a market price of $1.75,52,500 units of output are supplied to this market,how many identical firms are participating in this market?


A) 75
B) 100
C) 250
D) 300

E) B) and C)
F) A) and C)

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A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost but greater than the firm's average fixed cost.

A) True
B) False

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When firms are said to be price takers,it implies that if a firm raises its price,


A) buyers will go elsewhere.
B) buyers will pay the higher price in the short run.
C) competitors will also raise their prices.
D) firms in the industry will exercise market power.

E) A) and D)
F) None of the above

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Figure 14-14 Figure 14-14 -Refer to Figure 14-14.Assume that the market starts in equilibrium at point A in panel (b) and that panel (a) illustrates the cost curves facing individual firms.Suppose that demand increases from D0 to D1.Which of the following statements is not correct? A) Point A is a long-run equilibrium point. B) Points A, B, and C are short-run equilibria points. C) Point B is a long-run equilibrium point. D) Point C is a long-run equilibrium point. Figure 14-14 -Refer to Figure 14-14.Assume that the market starts in equilibrium at point A in panel (b) and that panel (a) illustrates the cost curves facing individual firms.Suppose that demand increases from D0 to D1.Which of the following statements is not correct? A) Point A is a long-run equilibrium point. B) Points A, B, and C are short-run equilibria points. C) Point B is a long-run equilibrium point. D) Point C is a long-run equilibrium point. -Refer to Figure 14-14.Assume that the market starts in equilibrium at point A in panel (b) and that panel (a) illustrates the cost curves facing individual firms.Suppose that demand increases from D0 to D1.Which of the following statements is not correct?


A) Point A is a long-run equilibrium point.
B) Points A, B, and C are short-run equilibria points.
C) Point B is a long-run equilibrium point.
D) Point C is a long-run equilibrium point.

E) B) and C)
F) A) and D)

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Scenario 14-3 Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. -Refer to Scenario 14-3.At Q=499,the firm's profits equal


A) $3,980.
B) $3,992.
C) $3,997.
D) $4,017.

E) A) and B)
F) A) and D)

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