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1、Chapter 14Firms in Competitive MarketsTRUE/FALSE1.For a firm operating in a perfectly competitive industry, total revenue, marginal revenue, and average revenue are all equal.ANS:FDIF:2REF:14-1NAT:AnalyticLOC:Perfect competitionTOP:Average revenue | Marginal revenueMSC:Interpretive2.For a firm opera
2、ting in a perfectly competitive industry, marginal revenue and average revenue are equal.ANS:TDIF:2REF:14-1NAT:AnalyticLOC:Perfect competitionTOP:Average revenue | Marginal revenueMSC:Interpretive3.If a firm notices that its average revenue equals the current market price, that firm must be particip
3、ating in a competitive market.ANS:FDIF:2REF:14-1NAT:AnalyticLOC:Perfect competitionTOP:Average revenueMSC:Interpretive4.A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.ANS:TDIF:2REF:14-1NAT:AnalyticLOC:Perfect competitionTOP:Averag
4、e revenueMSC:Interpretive5.Because there are many buyers and sellers in a perfectly competitive market, no one seller can influence the market price.ANS:TDIF:1REF:14-1NAT:AnalyticLOC:Perfect competitionTOP:Competitive marketsMSC:Definitional6.Firms operating in perfectly competitive markets try to m
5、aximize profits.ANS:TDIF:2REF:14-1NAT:AnalyticLOC:Perfect competitionTOP:Profit maximizationMSC:Applicative7.In competitive markets, firms that raise their prices are typically rewarded with larger profits.ANS:FDIF:2REF:14-1NAT:AnalyticLOC:Perfect competitionTOP:Competitive marketsMSC:Interpretive8.
6、When an individual firm in a competitive market increases its production, it is likely that the market price will fall.ANS:FDIF:2REF:14-1NAT:AnalyticLOC:Perfect competitionTOP:Competitive marketsMSC:Interpretive9.In a competitive market, firms are unable to differentiate their product from that of o
7、ther producers.ANS:TDIF:1REF:14-1NAT:AnalyticLOC:Perfect competitionTOP:Competitive marketsMSC:Interpretive10.Firms in a competitive market are said to be price takers because there are many sellers in the market and the goods offered by the firms are very similar if not identical.ANS:TDIF:2REF:14-1
8、NAT:AnalyticLOC:Perfect competitionTOP:Competitive marketsMSC:Interpretive11.A firms incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin.ANS:TDIF:1REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Profit maximizationMSC:Int
9、erpretive12.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.ANS:TDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Profit maximizationMSC:Interpretive13.Firms operating in perfectly
10、competitive markets produce an output level where marginal revenue equals marginal cost.ANS:TDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Marginal revenue MSC:Applicative14.A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th uni
11、t costs the firm $5. The firm can sell the 100th unit for $4.75. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).ANS:FDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Profit maximizationMSC:Analytical15.A firm is currently producing 100 unit
12、s of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $5. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).ANS:TDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitio
13、nTOP:Profit maximizationMSC:Analytical16.A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the unit for $6. The firm should produce more than 100 units in order to maximize its profits (or mi
14、nimize its losses).ANS:TDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Profit maximizationMSC:Analytical17.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.ANS:FDIF:1REF:14-2NAT:AnalyticLOC:Perfect compet
15、itionTOP:Sunk costsMSC:Interpretive18.Because nothing can be done about sunk costs, they are irrelevant to decisions about business strategy.ANS:TDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Sunk costsMSC:Interpretive19.A miniature golf course is a good example of where fixed costs become rel
16、evant to the decision of when to open and when to close for the season.ANS:FDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Sunk costsMSC:Interpretive20.A popular resort restaurant will maximize profits if it chooses to stay open during the less-crowded “off season” when its total revenues excee
17、d its variable costs.ANS:TDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Sunk costsMSC:Interpretive21.All firms maximize profits by producing an output level where marginal revenue equals marginal cost; for firms operating in perfectly competitive industries, maximizing profits also means produ
18、cing an output level where price equals marginal cost.ANS:TDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Profit maximizationMSC:Interpretive22.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 fi
19、rms average total cost but greater than the firms average variable cost.ANS:TDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Supply curveMSC:Interpretive23.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 t
20、han that firms average variable cost.ANS:FDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Supply curveMSC:Interpretive24.A firm operating in a perfectly competitive industry will shut down in the short run but earn losses if the market price is less than that firms average variable cost.ANS:TDIF
21、:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Supply curveMSC:Interpretive25.In the short run, a firm should exit the industry if its marginal cost exceeds its marginal revenue.ANS:FDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Supply curveMSC:Interpretive26.In making a short-run profit-max
22、imizing production decision, the firm must consider both fixed and variable cost.ANS:FDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Profit maximizationMSC:Interpretive27.A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.ANS:TDIF:2REF:
23、14-2NAT:AnalyticLOC:Perfect competitionTOP:Shut downMSC:Interpretive28.Suppose a firm is considering producing zero units of output. We call this shutting down in the short run and exiting an industry in the long run.ANS:TDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Shut downMSC:Interpretive2
24、9.Suppose a firm is considering producing zero units of output. We call this exiting an industry in the short run and shutting down in the long run.ANS:FDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Shut downMSC:Interpretive30.A firm will shut down in the short run if revenue is not sufficient
25、 to cover all of its fixed costs of production.ANS:FDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Shut downMSC:Interpretive31.The supply curve of a firm in a competitive market is the average variable cost curve above the minimum of marginal cost.ANS:FDIF:2REF:14-2NAT:AnalyticLOC:Perfect compe
26、titionTOP:Supply curveMSC:Interpretive32.When a profit-maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production.ANS:TDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Profit maximizationMSC:Interpretive33.The marginal firm in a competitive m
27、arket will earn zero economic profit in the long run.ANS:TDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Economic profitMSC:Interpretive34.A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run.ANS:FDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:
28、Accounting profitMSC:Interpretive35.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.ANS:TDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Profit maximizationMSC:Interpre
29、tive36.In the long run, when price is greater than average total cost, some firms in a competitive market will choose to enter the market.ANS:TDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Profit maximizationMSC:Interpretive37.In the long run, a firm should exit the industry if its total costs
30、 exceed its total revenues.ANS:TDIF:2REF:14-2NAT:AnalyticLOC:Perfect competitionTOP:Profit maximizationMSC:Interpretive38.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.AN
31、S:TDIF:2REF:14-3NAT:AnalyticLOC:Perfect competitionTOP:Supply curveMSC:Interpretive39.A firm operating in a perfectly competitive industry will continue to operate if it earns zero economic profits because it is likely to be earning positive accounting profits.ANS:TDIF:2REF:14-3NAT:AnalyticLOC:Perfe
32、ct competitionTOP:Competitive marketsMSC:Interpretive40.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.ANS:FDIF:2REF:14-3NAT:AnalyticLOC:Perfect competitionTOP:Co
33、mpetitive marketsMSC:Interpretive41.A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the long run.ANS:FDIF:2REF:14-3NAT:AnalyticLOC:Perfect competitionTOP:Long-run supply curveMSC:Interpretive42.A firm operating in a perfectly competitive mar
34、ket may earn positive, negative, or zero economic profit in the short run.ANS:TDIF:2REF:14-3NAT:AnalyticLOC:Perfect competitionTOP:Long-run supply curveMSC:Interpretive43.A firm operating in a perfectly competitive market earns zero economic profit in the long run but remains in business because the
35、 firms revenues cover the business owners opportunity costs.ANS:TDIF:2REF:14-3NAT:AnalyticLOC:Perfect competitionTOP:Zero-profit conditionMSC:Interpretive44.A competitive market will typically experience entry and exit until accounting profits are zero.ANS:FDIF:2REF:14-3NAT:AnalyticLOC:Perfect compe
36、titionTOP:Zero-profit conditionMSC:Interpretive45.The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.ANS:TDIF:2REF:14-3NAT:AnalyticLOC:Perfect competitionTOP:Zero-profit conditionMSC:Interpreti
37、ve46.In the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firms average total cost.ANS:TDIF:2REF:14-3NAT:AnalyticLOC:Perfect competitionTOP:Zero-profit conditionMSC:Interpretive47.In a long-run equilibrium where firms have
38、 identical costs, it is possible that some firms in a competitive market are making a positive economic profit.ANS:FDIF:2REF:14-3NAT:AnalyticLOC:Perfect competitionTOP:Zero-profit conditionMSC:Interpretive48.When economic profits are zero in equilibrium, the firms revenue must be sufficient to cover
39、 all opportunity costs.ANS:TDIF:2REF:14-3NAT:AnalyticLOC:Perfect competitionTOP:Zero-profit conditionMSC:Interpretive49.The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.ANS:FDIF:2REF:14-3NAT:AnalyticLOC:Perfect competitionTOP:Supply curveMSC:Inte
40、rpretive50.The long-run supply curve in a competitive market is more elastic than the short-run supply curve.ANS:TDIF:2REF:14-3NAT:AnalyticLOC:Perfect competitionTOP:Supply curveMSC:InterpretiveSHORT ANSWER1.Describe the difference between average revenue and marginal revenue. Why are both of these
41、revenue measures important to a profit-maximizing firm?ANS:Average revenue is total revenue divided by the quantity of output. Marginal revenue is the change in total revenue from the sale of each additional unit of output. Marginal revenue is used to determine the profit-maximizing level of product
42、ion, and average revenue is used to help determine the level of profits. Note that for all firms, price equals average revenue because AR=(PxQ)/Q=P. But only for a firm operating in a perfectly competitive industry does price also equal marginal revenue.DIF:2REF:14-1NAT:AnalyticLOC:Perfect competiti
43、onTOP:PriceMSC:Definitional2.List and describe the characteristics of a perfectly competitive market.ANS:There are many buyers and sellers in the market. The goods offered by the various sellers are largely the same. Firms can freely enter or exit the market.DIF:2REF:14-1NAT:AnalyticLOC:Perfect comp
44、etitionTOP:Competitive marketsMSC:Definitional3.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?ANS:The firm could not sell any more
45、of its product at a lower price than it could sell at the market price. As a result, it would needlessly forgo revenue if it set a price below the market price. If the firm set a higher price, it would not sell anything at all because a competitive market has many sellers who would supply the produc
46、t at the market price.DIF:2REF:14-1NAT:AnalyticLOC:Perfect competitionTOP:Profit maximizationMSC:Analytical4.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.A
