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Exam 14: Firms in Competitive Markets

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Question 161

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Scenario 14-4 A study sponsored by the Food Consumer Safety Board found that consumption of irradiated tomatoes increased the health of laboratory rats.As a result of national press coverage of the report,the demand for irradiated tomatoes increased dramatically.Organic farmers were able to switch from organic production of tomatoes to irradiated production with no additional cost.Assume that the tomato market satisfies all of the assumptions of perfect competition. -Refer to Scenario 14-4.As a result of the increase in the demand for tomatoes,we would predict that in the short run that the

A) production of tomatoes would be at efficient scale.
B) price of tomatoes would rise.
C) total cost for existing irradiated tomato producers must rise.
D) number of firms in the market would fall as prices fall and firms exit the market.

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

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Question 162

Multiple Choice

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When a competitive market experiences an increase in demand that increases production costs for existing firms and potential new entrants,which of the following is most likely to arise?

A) The long-run market supply curve will be upward sloping.
B) The condition of free entry into the market will be violated.
C) Producer profits will fall in the long run.
D) The long-run market supply curve will be horizontal as new firms enter and drive the price downward.

E) A) and B)
F) None of the above

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Question 163

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A competitive market will typically experience entry and exit until accounting profits are zero.

Suppose that in a competitive market the equilibrium price is $2.50.What is marginal revenue for the last unit sold by the typical firm in this market?

Table 14-7 -Refer to Table 14-7.If the firm is currently producing 14 units,what would you advise the owners?

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.

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.

Table 14-5 -Refer to Table 14-5.The maximum profit available to this firm is

Laura is a gourmet chef who runs a small catering business in a competitive industry.Laura specializes in making wedding cakes.Laura sells 20 wedding cakes per month.Her monthly total revenue is $5,000.The marginal cost of making a wedding cake is $300.In order to maximize profits,Laura should

When a profit-maximizing firm in a competitive market experiences rising prices,it will respond with an increase in production.

Table 14-5 -Refer to Table 14-5.In order to maximize profit,the firm will produce a level of output where marginal revenue is equal to

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

Why does a firm in a competitive industry charge the market price?

Table 14-2 -Refer to Table 14-2.The price and quantity relationship in the table is most likely that faced by a firm in a

Firms operating in competitive markets produce output levels where marginal revenue equals

When economists refer to a production cost that has already been committed and cannot be recovered,they use the term

Figure 14-6 -Refer to Figure 14-6.Which line segment best reflects the short-run supply curve for this firm?

Table 14-8 The following table presents cost and revenue information for Soper's Port Vineyard. -Refer to Table 14-8.What is the marginal cost of the 8th unit?

Figure 14-7 -Refer to Figure 14-7.Which line segment best reflects the long-run supply curve for this firm?

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.