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Exam 14: Firms in Competitive Markets

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Question 91

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In the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

A) True
B) False

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Question 92

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The accountants hired by Forever Fitness have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, Forever Fitness should

A) shut down because staying open would be more expensive.
B) lower their prices to increase their profits.
C) stay open because shutting down would be more expensive.
D) stay open because the firm is making an economic profit.

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

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Question 93

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Because nothing can be done about sunk costs, they are irrelevant to decisions about business strategy.

A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the long run.

​All firms operating in a perfectly competitive market produce unique goods.

The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.

Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is

When profit-maximizing firms in competitive markets are earning profits,

The short-run supply curve for a firm in a perfectly competitive market is

Scenario 14-3 Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year. -Refer to Scenario 14-3. What is Victor's opportunity costs of operating his new business?

In the long run, a firm should exit the industry if its total costs exceed its total revenues.

Table 14-7 A firm in a competitive market has the following cost structure: ​ ​ $\begin{array} { | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { (Dollars) }\end{array} \\\hline 0 & 5 \\\hline 1 & 10 \\\hline 2 & 12 \\\hline 3 & 15 \\\hline 4 & 24 \\\hline 5 & 40 \\\hline\end{array}$ -Refer to Table 14-7. If the market price is $16, this firm will

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. When the firm increases its output from 120 units to 121 units, its profit

A competitive firm sells its output for $30 per unit. Is the firm's marginal revenue less than, equal to, or greater than $30?

Figure 14-7 ​ -Refer to Figure 14-7. Assume that the market starts in equilibrium at point W in graph (b) . An increase in demand from D₀ to D₁ will result in

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 minimize its losses).

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.

When economic profits are zero in equilibrium, the firm's revenue must be sufficient to cover all opportunity costs.

In the short run, a firm should exit the industry if its marginal cost exceeds its marginal revenue.

If a firm notices that its average revenue equals the current market price, that firm must be participating in a competitive market.