Firms in Competitive Markets 3511
182.
Refer to Figure 14-5. When market price is P2, a profit-maximizing firm’s losses can be
represented by the area
a. (P4 – P2) × Q2.
b. (P2 – P1) × (Q2-Q1).
c.
At a market price of P2, the firm earns profits, not losses.
d.
At a market price of P2 the firm has losses, but the reference points in the figure don’t
identify the losses.
3512 Firms in Competitive Markets
Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves:
183.
Refer to Figure 14-6. When market price is P3, a profit-maximizing firm‘s total revenue
a.
can be represented by the area P3 × Q3.
b.
can be represented by the area P3 × Q2.
c.
can be represented by the area (P3-P2) × Q3.
d.
is zero.
184.
Refer to Figure 14-6. Firms will be encouraged to enter this market for all prices that exceed
a.
P1.
b.
P2.
c.
P3.
d.
None of the above is correct.
185.
Refer to Figure 14-6. When market price is P3, a profit-maximizing firm’s total costs
a.
can be represented by the area P2 × Q2.
b.
can be represented by the area P3 × Q2.
c.
can be represented by the area (P3-P2) × Q3.
d.
are zero.
186.
Refer to Figure 14-6. Firms will earn positive profits in the short run if the market price
a.
is less than P1.
b.
is greater than P1 but less than P3.
c.
equals P3.
d.
exceeds P3.
187.
Refer to Figure 14-6. When market price is P3, a profit-maximizing firm‘s profit
a.
can be represented by the area P3 × Q3.
b.
can be represented by the area P3 × Q2.
c.
can be represented by the area (P3-P2) × Q3.
d.
is zero.
188.
Refer to Figure 14-6. Firms will be earn losses in the short run but will remain in business if
the market price
a.
exceeds P3.
b.
is less than P1.
c.
is greater than P1 but less than P3.
d.
exceeds P2.
189.
Refer to Figure 14-6. Firms will shut down in the short run if the market price
a.
exceeds P3.
b.
is less than P1.
c.
is greater than P1 but less than P3.
d.
exceeds P2.
Figure 14-7
190.
Refer to Figure 14-7. Let Q represent the quantity of output and suppose the price of the good
is $125. Then
marginal revenue is $125 at
a.
Q = 270.
b.
Q = 322.
c.
Q = 515.
d. All of the above are correct.
191.
Refer to Figure 14-7. Let Q represent the quantity of output and suppose the price of the good
is $125. Then
marginal revenue is
a. $80 at Q = 270.
b. $100 at Q = 322.
c. $175 at Q = 515.
d. None of the above are correct.
192.
Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 515
units of output, its
total revenue is
a. $100,525.
b. $90,125.
c. $84,500.
d. $75,250.
193.
Refer to Figure 14-7. When the price of the good is $175, the firm’s maximum profit is
a. $16,500.
b. $20,375.
c. $25,750.
d. $90,125.
194.
Refer to Figure 14-7. Suppose AVC = $113 when the firm produces 515 units of output.
Then the firm’s fixed cost amounts to
a.
$5,500, and its profit amounts to $20,375.
b.
$5,750, and its profit amounts to $20,375
c.
$5,980, and its profit amounts to $25,750.
d.
$6,180, and its profit amounts to $25,750.
195.
Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 514
units of output, its
profit is approximately
a. $24,995.
b. $25,550.
c. $25,750.
d. $26,025.
196.
Refer to Figure 14-7. The firm will shut down in the short run if the price of the good is
a. $75.
b.
$85.
c.
$95.
d.
All of the above are correct.
197.
Refer to Figure 14-7. In the long run, the firm will exit the market if the price of the good is
a. $75.
b.
$85.
c.
$95.
d.
All of the above are correct.
198.
Refer to Figure 14-7. In the short run, the firm’s maximum profit (or minimum loss) is the
same at which of the following pairs of prices?
a. $65 and $75
b. $75 and $85
c. $80 and $100
d. $125 and $175
199.
Refer to Figure 14-7. At what price is the firm’s maximum profit zero?
a.
$80
b.
$90
c.
$100
d.
$125
3520 Firms in Competitive Markets
Figure 14-8
Suppose a firm operating in a competitive market has the following cost curves:
200.
Refer to Figure 14-8. Which line segment best reflects the short-run supply curve for this
firm?
a.
ABCF
b.
CD
c.
DF
d.
BCD
201.
Refer to Figure 14-8. Which segment of the supply curve represents the firm shutting down?
a.
ABCD
b.
BCD
c.
CD
d.
AB
3522 Firms in Competitive Markets
Figure 14-9
Suppose a firm operating in a competitive market has the following cost curves:
202.
Refer to Figure 14-9. Which line segment best reflects the long-run supply curve for this firm?
a.
ABCD
b.
BC
c.
ABC
d.
None of the above is correct. We must know the firm’s average variable cost.
203.
Refer to Figure 14-9. The firm will exit the market for any price on the line segment
a.
ABCD.
b.
AB.
c.
CD.
d.
None of the above is correct.
204.
If a firm operating in a competitive industry shuts down in the short run, it can avoid paying
a.
fixed costs.
b.
variable costs.
c.
total costs.
d.
The firm must pay all its costs, even if it shuts down.
205.
Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1,000
per month on the
loan that he took out to buy them. He rents each boat for $200 per month. The
variable cost for each boat rental is $50. In the off season, Bill should
a.
operate his business as long as he rents at least 7 boats per month.
b.
operate his business as long as he rents at least 1 boat per month.
c.
operate his business as long as he rents all 10 boats each month.
d.
raise the price he charges per boat rental.
206.
When a perfectly competitive firm decides to shut down, it is most likely that
a.
marginal cost is above average variable cost.
b.
marginal cost is above average total cost.
c.
price is below the firm’s average variable cost.
d.
fixed costs exceed variable costs.
207.
When total revenue is less than variable costs, a firm in a competitive market will
a.
continue to operate as long as average revenue exceeds marginal cost.
b.
continue to operate as long as average revenue exceeds average fixed cost.
c.
shut down.
d.
raise its price.
208.
When price is below average variable cost, a firm in a competitive market will
a.
shut down and incur fixed costs.
b.
shut down and incur both variable and fixed costs.
c.
continue to operate as long as average revenue exceeds marginal cost.
d.
continue to operate as long as average revenue exceeds average fixed cost.
209.
Which of the following statements best reflects the production decision of a profit-maximizing
firm in a competitive
market when price falls below the minimum of average variable cost?
a.
The firm will continue to produce to attempt to pay fixed costs.
b.
The firm will immediately stop production to minimize its losses.
c.
The firm will stop production as soon as it is able to pay its sunk costs.
d.
The firm will continue to produce in the short run but will likely exit the market in the long run.
210.
A profit-maximizing firm will shut down in the short run when
a.
price is less than average variable cost.
b.
price is less than average total cost.
c.
average revenue is greater than marginal cost.
d.
average revenue is greater than average fixed cost.
211.
In the long run, all of a firm’s costs are variable. In this case the exit criterion for a profit-
maximizing firm is to shut
down if
a.
price is less than average total cost.
b.
price is greater than average total cost.
c.
average revenue is greater than average fixed cost.
d.
average revenue is greater than marginal cost.
212.
Which of the following statements is correct regarding a firm‘s decision-making?
a.
The decision to shut down and the decision to exit are both short-run decisions.
b.
The decision to shut down and the decision to exit are both long–run decisions.
c.
The decision to shut down is a short-run decision, whereas the decision to exit is a long–run
decision.
d.
The decision to exit is a short-run decision, whereas the decision to shut down is a long-run
decision.
213.
A firm that shuts down temporarily has to pay
a.
its variable costs but not its fixed costs.
b.
its fixed costs but not its variable costs.
c.
both its variable costs and its fixed costs.
d.
neither its variable costs nor its fixed costs.
214.
A firm will shut down in the short run if the total revenue that it would get from producing and
selling its output is
less than its
a.
opportunity costs.
b.
fixed costs.
c.
variable costs.
d.
total costs.
215.
A firm will shut down in the short run if, for all positive levels of output,
a.
its losses exceed its fixed costs.
b.
its total revenue is less than its variable costs.
c.
the price of its product is less than its average variable cost.
d.
All of the above are correct.
216.
A firm’s marginal cost has a minimum value of $4, its average variable cost has a minimum
value of $6, and its
average total cost has a minimum value of $7. Then the firm will shut down
in the short run once the price of its
product falls below
a.
$7.
b.
$6.
c.
$4.
d.
We do not have enough information to answer the question.
217.
A firm’s marginal cost has a minimum value of $80, its average variable cost has a minimum
value of $90, and its
average total cost has a minimum value of $100. Then the firm will shut
down in the short run once the price of its
product falls below
a. $100.
b.
$90.
c.
$80.
d.
$40.
218.
Which of the following represents the firm’s short-run condition for shutting down?
a.
shut down if TR < TC
b.
shut down if TR < FC
c.
shut down if P < ATC
d.
shut down if TR < VC