Question 1

If a firm with increasing marginal costs is operating in a competitive market, then average revenue will be:

Accepted Answer

A)  increasing in firm output
B)  decreasing in firm output
C)  constant regardless of firm output
D)  we cannot say without more informationE) B) and D)
F) A) and D)

Question 2

Jess, an aspiring small business owner, is looking at starting up a home business growing organic kale, turning it into Kale Chips, and selling it at the local market.The market for Kale Chips is served by many small suppliers, however, she believes the current suppliers may be earning excess profits.She calculates the cost structure of her business, which she believes to be identical to all the other Kale Chip suppliers operating in her area.Unfortunately, her housemate has spilt red wine all over the worksheet and only the following could be recovered:
  
Suppose the current price of Kale Chips is $8.With the information supplied, should Jess enter into the Kale Chip industry? Why or why not? What will be the long-run competitive equilibrium price for Kale Chips? Could Jess earn a profit at this long-run price?

Accepted Answer

The completed table is reproduced below:...

Question 3

When looking at entering the marketplace, a prospective entrant should not consider fixed costs, as these will become sunk.

Accepted Answer

A) True 
 B)False

Question 4

In a competitive market, marginal revenue will only sometimes equal average revenue.

Accepted Answer

A) True 
 B)False

Question 5

It is not possible for the marginal firm in a competitive market to make an economic profit in the long-run.

Accepted Answer

A) True 
 B)False

Question 6

According to the information provided, as a result of the increase in the demand for abalone, we would predict that in the short run:

Accepted Answer

A)  production of abalone would be at efficient scale
B)  the cost for existing wild abalone fishers must rise
C)  the price for abalone would rise
D)  all of the above would occurE) A) and D)
F) B) and D)

Question 7

If a seller is a price taker, they will be able to sell all the quantity they want at the market price.

Accepted Answer

A) True 
 B)False

Question 8

A production cost that has already been committed and cannot be recovered is termed a:

Accepted Answer

A)  development cost
B)  variable cost
C)  sunk cost
D)  mothball costE) None of the above
F) All of the above

Question 9

Profit-maximising producers in a competitive market in general, produce output at a point where:

Accepted Answer

A)  marginal cost is decreasing
B)  total sales are maximised
C)  marginal cost is increasing
D)  price is less than marginal revenueE) A) and B)
F) C) and D)

Question 10

According to the information provided, what would Lee's accounting profits need to be to allow her to reach the zero economic profit equilibrium?

Accepted Answer

A)  $15,000
B)  $35,000
C)  $50,000
D)  $70,000E) A) and D)
F) A) and C)

Question 11

Sarah places a $110 value on seeing the Richmond Tigers play in the Grand Final.She purchases a ticket to the game for $60 but when she arrives at the game she discovers that her ticket is missing.A ticket scalper outside the stadium is selling tickets for $76 dollars.If Sarah purchases a ticket from one of the scalpers for $95, she is best demonstrating the principle that:

Accepted Answer

A)  the assumption of rational behaviour does not easily apply to the purchase of football game tickets
B)  the price of tickets cannot be explained by economic principles
C)  sunk costs are irrelevant to many personal decisions
D)  rational consumers do not always respond to incentives.E) A) and C)
F) C) and D)

Question 12

The costs of investigating new factories can be regarded as a sunk cost.

Accepted Answer

A) True 
 B)False

Question 13

According to the information provided, what are Lee's opportunity costs of operating her new business?

Accepted Answer

A)  $15 000
B)  $35 000
C)  $50 000
D)  $70 000E) A) and C)
F) C) and D)

Question 14

If a firm in a competitive market sells 25 per cent less, then its total revenue will fall by 25 per cent.

Accepted Answer

A) True 
 B)False

Question 15

Prawns Galore, a prawn harvesting business in Southeast Queensland, has a 30-year loan on its prawn trawling boat.The annual loan payment is $25 000 and the boat has a market (salvage)  value that exceeds its outstanding loan balance.Prior to the 2001 prawn harvesting season, Prawns Galore's accountant predicted that at expected market prices for prawns, Prawns Galore would have a net loss of $75 000 dollars after paying all 2001 expenses (including the annual loan payment) .In this case, Prawns Galore should:

Accepted Answer

A)  continue to operate even though it predicts a loss of $75 000
B)  not produce and experience a loss of $25 000
C)  not produce and experience a loss of $75 000
D)  continue to operate because expected profits will rise in the futureE) A) and B)
F) None of the above

Question 16

Graph 14-6  This graph depicts the cost structure of a firm in a competitive market.Use the graph to answer the following question(s) .
-Refer to Graph 14-6.When market price is P₁, a profit-maximising firm's total revenue can be represented by the area:

Accepted Answer

A)  P₃ * Q₂
B)  P₁ * Q₃
C)  P₁ * Q₂
D)  P₂ *Q₂E) A) and B)
F) B) and D)

Question 17

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue:

Accepted Answer

A)  is unchanged
B)  increases
C)  decreases
D)  increases if MR  ATCE) B) and C)
F) C) and D)

Question 18

Table 14-2
The price of each butterfly that David Butterfly, a butterfly farmer in Greytown, sells is:

-Refer to Table 14-2.The price and quantity relationship shows that the market structure most likely facing a butterfly farmer is a:

Accepted Answer

A)  trade market
B)  competitive market
C)  developing market
D)  resource marketE) All of the above
F) A) and C)

Question 19

In the long run, a competitive market with 1000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

Accepted Answer

A) True 
 B)False

Question 20

Graph 14-1 2, a firm producing output level Q₁ would experience: A) profits equal to (MC2 - MC1)  * Q₁ B) zero profits C) losses equal to (MC2 - MC1)  * Q₁ D) losses because P  
This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s) .
-Refer to Graph 14-1.When market price is at MC2, a firm producing output level Q₁ would experience:

Accepted Answer

A)  profits equal to (MC2 - MC1)  * Q₁
B)  zero profits
C)  losses equal to (MC2 - MC1)  * Q₁
D)  losses because P < ATCE) All of the above
F) A) and D)

Exam 14: Firms in Competitive Markets

In a competitive market, marginal revenue will only sometimes equal average revenue.

Correct Answer
verified

A production cost that has already been committed and cannot be recovered is termed a:

Correct Answer
verified

Correct Answer
verified
The completed table is reproduced below:...
View Answer

Correct Answer
verified

According to the information provided, as a result of the increase in the demand for abalone, we would predict that in the short run:

Correct Answer
verified

Table 14-2 The price of each butterfly that David Butterfly, a butterfly farmer in Greytown, sells is: -Refer to Table 14-2.The price and quantity relationship shows that the market structure most likely facing a butterfly farmer is a:

Correct Answer
verified

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue:

Correct Answer
verified

It is not possible for the marginal firm in a competitive market to make an economic profit in the long-run.

Correct Answer
verified

If a seller is a price taker, they will be able to sell all the quantity they want at the market price.

Correct Answer
verified

When looking at entering the marketplace, a prospective entrant should not consider fixed costs, as these will become sunk.

Correct Answer
verified

According to the information provided, what are Lee's opportunity costs of operating her new business?

Correct Answer
verified

In the long run, a competitive market with 1000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

Correct Answer
verified

According to the information provided, what would Lee's accounting profits need to be to allow her to reach the zero economic profit equilibrium?

Correct Answer
verified

Profit-maximising producers in a competitive market in general, produce output at a point where:

Correct Answer
verified

Graph 14-6 This graph depicts the cost structure of a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-6.When market price is P₁, a profit-maximising firm's total revenue can be represented by the area:

Correct Answer
verified

The costs of investigating new factories can be regarded as a sunk cost.

Correct Answer
verified

If a firm in a competitive market sells 25 per cent less, then its total revenue will fall by 25 per cent.

Correct Answer
verified

If a firm with increasing marginal costs is operating in a competitive market, then average revenue will be:

Correct Answer
verified

Correct Answer
verified

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-1.When market price is at MC₂, a firm producing output level Q₁ would experience:

Correct Answer
verified

Exam 14: Firms in Competitive Markets

In a competitive market, marginal revenue will only sometimes equal average revenue.

Correct AnswerverifiedShow Answer

A production cost that has already been committed and cannot be recovered is termed a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe completed table is reproduced below:...View AnswerShow Answer

Correct AnswerverifiedShow Answer

According to the information provided, as a result of the increase in the demand for abalone, we would predict that in the short run:

Correct AnswerverifiedShow Answer

Table 14-2 The price of each butterfly that David Butterfly, a butterfly farmer in Greytown, sells is: -Refer to Table 14-2.The price and quantity relationship shows that the market structure most likely facing a butterfly farmer is a:

Correct AnswerverifiedShow Answer

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue:

Correct AnswerverifiedShow Answer

It is not possible for the marginal firm in a competitive market to make an economic profit in the long-run.

Correct AnswerverifiedShow Answer

If a seller is a price taker, they will be able to sell all the quantity they want at the market price.

Correct AnswerverifiedShow Answer

When looking at entering the marketplace, a prospective entrant should not consider fixed costs, as these will become sunk.

Correct AnswerverifiedShow Answer

According to the information provided, what are Lee's opportunity costs of operating her new business?

Correct AnswerverifiedShow Answer

In the long run, a competitive market with 1000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

Correct AnswerverifiedShow Answer

According to the information provided, what would Lee's accounting profits need to be to allow her to reach the zero economic profit equilibrium?

Correct AnswerverifiedShow Answer

Profit-maximising producers in a competitive market in general, produce output at a point where:

Correct AnswerverifiedShow Answer

Graph 14-6 This graph depicts the cost structure of a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-6.When market price is P₁, a profit-maximising firm's total revenue can be represented by the area:

Correct AnswerverifiedShow Answer

The costs of investigating new factories can be regarded as a sunk cost.

Correct AnswerverifiedShow Answer

If a firm in a competitive market sells 25 per cent less, then its total revenue will fall by 25 per cent.

Correct AnswerverifiedShow Answer

If a firm with increasing marginal costs is operating in a competitive market, then average revenue will be:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-1.When market price is at MC2, a firm producing output level Q₁ would experience:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified
The completed table is reproduced below:...
View Answer

Correct Answer
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Correct Answer
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Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-1.When market price is at MC₂, a firm producing output level Q₁ would experience:

Correct Answer
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