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Chap14 Micro

A competitive firm: 1. Takes the market price as given and produces where marginal cost equals price. 2. In long-run equilibrium, price equals average total cost and marginal cost. 3. If the cost of production increases, in the short-run the firm's profits will decrease and in the long-run the number of firms will decrease as less profitable firms exit the market.

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56 views

Chap14 Micro

A competitive firm: 1. Takes the market price as given and produces where marginal cost equals price. 2. In long-run equilibrium, price equals average total cost and marginal cost. 3. If the cost of production increases, in the short-run the firm's profits will decrease and in the long-run the number of firms will decrease as less profitable firms exit the market.

Uploaded by

chauanhkhoa.rennes2
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 14.

FIRMS IN COMPETITIVE MARKETS

1. A perfectly competitive firm

a. chooses its price to maximize profits.

b. sets its price to undercut other firms selling similar products.

c. takes its price as given by market conditions.

d. picks the price that yields the largest market share.

2. When a perfectly competitive firm increases the quantity it produces and sells by 10 percent,
its marginal revenue _________ and its total revenue rises by _________.

a. falls; less than 10 percent

b. falls; exactly 10 percent

c. stays the same; less than 10 percent

d. stays the same; exactly 10 percent

3. A competitive firm maximizes profit by choosing the quantity at which

a. average total cost is at its minimum.

b. marginal cost equals the price.

c. average total cost equals the price.

d. marginal cost equals average total cost.


4. A competitive firm’s LONG-run supply curve is its _________ cost curve above its
_________ cost curve.

a. average-total-; marginal

b. average-variable-; marginal

c. marginal-; average-total

d. marginal-; average-variable-

5. if a profit-maximizing, competitive firm is producing a quantity at which marginal cost is


between average variable cost and average total cost, it will

a. keep producing in the short run but exit the market in the long run.

b. shut down in the short run but return to production in the long run.

c. shut down in the short run and exit the market in the long run.

d. keep producing both in the short run and in the long run.

6. in the long-run equilibrium of a competitive market with identical firms, what are the
relationships among price P, marginal cost MC, and average total cost ATC?

a. P > MC and P > ATC.

b. P > MC and P = ATC.

c. P = MC and P > ATC.

d. P = MC and P = ATC.
7. in the short-run equilibrium of a competitive market with identical firms, if new firms are
getting ready to enter, what are the relationships among price P, marginal cost MC, and average
total cost ATC?

a. P > MC and P > ATC.

b. P > MC and P = ATC.

c. P = MC and P > ATC.

d. P = MC and P = ATC.

8. Suppose pretzel stands in new york city are a perfectly competitive market in long-run
equilibrium. one day, the city starts imposing a $100 per month tax on each stand. how does this
policy affect the number of pretzels consumed in the short run and the long run?

a. down in the short run, no change in the long run

b. up in the short run, no change in the long run

c. no change in the short run, down in the long run

d. no change in the short run, up in the long run

9. Back to Q8, who out and what does it say about the long-run market supply curve?

9. Many small boats are made of fiberglass and a resin derived from crude oil, and small boats
are a perfectly competitive market in long-run equilibrium. Suppose that the price of oil rises.

a. Using diagrams, show what happens to the cost curves of an individual boat-making firm and
to the market supply curve.
b. What happens to the profits of boat makers in the short run? What happens to the number of
boat makers in the long run?

10. Consider total cost and total revenue given in the following table:

Quantity 0 1 2 3 4 5 6 7

Total cost $8 9 10 11 13 19 27 37

Total revenue $0 8 16 24 32 40 48 56

a. Calculate profit for each quantity. How much should the firm produce to maximize profit?

b. Calculate marginal revenue and marginal cost for each quantity. At what quantity do these
curves cross? How does this relate to your answer to part (a)?

c. Can you tell whether this firm is in a competitive industry? If so, can you tell whether the
industry is in a long-run equilibrium?

11. Suppose the book-printing industry is competitive and begins in a long-run equilibrium.

a. Draw a diagram showing the average total cost, marginal cost, marginal revenue, and supply
curve of the typical firm in the industry.

b. Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing
books. What happens to Hi-Tech’s profits and to the price of books in the short run when Hi-
Tech’s patent prevents other firms from using the new technology?

c. What happens in the long run when the patent expires and other firms are free to use the
technology?1 π + 8 π =¿
12. A firm in a competitive market receives $500 in total revenue and has marginal revenue of
$10. What is the average revenue, and how many units were sold?

13. Will a firm in a competitive market produce at a quantity at which MC is decreasing?

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