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Exam 14: Firms in Competitive Markets

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Question 1

True/False

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​For firms operating in a perfectly competitive market, price must always be greater than marginal revenue.

A) True
B) False

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False

Question 2

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Figure 14-7 ​ -Refer to Figure 14-7. When the market is in long-run equilibrium at point W in graph (b) , the firm represented in graph (a) will

A) have a zero economic profit.
B) have a negative accounting profit.
C) exit the market.
D) choose to increase production to increase profit.

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

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Question 3

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In a competitive market, is the long-run supply curve typically more elastic than the short-run supply curve, or is it less elastic than the short-run supply curve?

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 exactly $13, the firm will earn

What name do economists have for a cost that has already been committed and cannot be recovered?

Because there are many buyers and sellers in a perfectly competitive market, no one seller can influence the market price.

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: ​ -Refer to Figure 14-1. The firm will earn a negative economic profit but remain in business in the short run if the market price is

Table 14-2 The table represents a demand curve faced by a firm in a competitive market. ​ ​ $\begin{array} { | c | c | } \hline \begin{array} { c } \text { Price } \\\text { (Dollarsper unit) }\end{array} & \begin{array} { c } \text { Quantity Demanded } \\\text { (Units) }\end{array} \\\hline 5 & 0 \\\hline 5 & 1 \\\hline 5 & 2 \\\hline 5 & 3 \\\hline 5 & 4 \\\hline 5 & 5 \\\hline\end{array}$ -Refer to Table 14-2. For this firm, the marginal revenue from selling the next unit is

A golf course in Fargo, North Dakota - where it is very cold in the winter - is closed between November 1 and April 1. If the owner of the golf course is rational, what criterion does he or she use in deciding to close the course for this extended period of time?

A firm will shut down in the short run if revenue is not sufficient to cover all of its fixed costs of production.

Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?

Table 14-5 Suppose that a firm in a competitive market faces the following revenues and costs: ​ $\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Marginal Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Marginal Revenue } \\\text { (Dollars) }\end{array} \\\hline 12 & 5 & 7 \\\hline 13 & 6 & 7 \\\hline 14 & 7 & 7 \\\hline 15 & 8 & 7 \\\hline 16 & 9 & 7 \\\hline 17 & 10 & 7 \\\hline\end{array}$ -Refer to Table 14-5. If the firm is maximizing profit, how much profit is it earning?

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

Profit-maximizing firms enter a competitive market when existing firms in that market have

Because there are many sellers in a competitive market, individual firms are unable to maximize profits.

"The water that comes out of your faucets at home is not supplied by a competitive firm." Explain why this statement is correct.

A dairy farmer must be able to calculate sunk costs in order to determine how much revenue the farm receives for the typical gallon of milk.

For any competitive market, the supply curve is closely related to the

For a firm operating in a perfectly competitive industry, total revenue, marginal revenue, and average revenue are all equal.

News reports from the western United States occasionally report incidents of cattle ranchers slaughtering a large number of newborn calves and burying them in mass graves rather than transporting them to markets. Assuming that this is rational behavior by profit-maximizing "firms," explain what economic factors may influence such behavior.