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Exam 14: Firms in Competitive Markets

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Question 31

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When a competitive market experiences an increase in demand that induces an increase in producer costs, which of the following is most likely to occur?

A) producer profits must fall in the long run
B) the long-run market supply curve will be upward sloping
C) the condition of free entry into the market will be violated
D) all of the above are likely to occur

E) A) and D)
F) C) and D)

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Question 32

Multiple Choice

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Graph 14-9 -Refer to Graph 14-9. Assume that the market starts in equilibrium at point A in panel (b) . An increase in demand from Demand₀ to Demand₁ will result in:

A) a new market equilibrium at point D
B) rising prices and falling profits for existing firms in the market
C) falling prices and falling profits for existing firms in the market
D) an eventual increase in the number of firms in the market and a new long-run equilibrium at point C

E) All of the above
F) A) and C)

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Question 33

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The average total cost becomes downward sloping when it is crossed by the marginal cost curve.

To answer the question 'How much revenue does the farm receive for the typical gallon of milk'?, a dairy farmer must be able to calculate sunk cost.

In a market that allows free entry and exit, the process of entry and exit ends when:

By comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit-maximising level of production.

Sunk costs are relevant to decisions about business strategy, as huge amounts of time have been invested in ensuring that the business is set up for success.

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:

By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that:

When price is below average variable cost, a firm in a competitive market will:

When new firms have an incentive to enter a competitive market, their entry will:

In the long-run, a profit-maximising firm will choose to exit a market when:

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1. If the farmer chooses to maximise profit, the appropriate output level is where marginal cost is equal to:

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

NARRBEGIN 14-2 Graph 14-2 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 14-2. When price rises from P₂ to P₃, the firm finds that:

The entry and exit decisions of firms in a competitive market are signalled by:

Suppose a firm in a competitive market receives $1200 in total revenue, it has a marginal revenue of $30. What is the average revenue, and how many units were sold?

The Wheeler Wheat Farm has a long-term lease on 5000 acres of land in New South Wales. The annual lease payment is $250,000. Prior to planting in the spring of 2001, the Wheeler Farm accountant predicted that the Farm would have $135 000 left after paying all of its costs except the annual lease payment. In this case, the Wheeler Wheat Farm should:

Suppose a profit-maximising firm is actually ends up minimising losses. This task is accomplished by producing the quantity at which price is equal to the:

When individual firms in competitive markets increase their production, it is likely that market price will fall.