Chap14 - notes PDF

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Chapter 14 Quiz Multiple Choice Identify the choice that best completes the statement or answers the question. ____

1. A firm in a competitive market has the following cost structure: Output 0 1 2 3 4 5

Total Cost $5 $10 $12 $15 $24 $40

If the market price is $16, this firm will a. produce 4 units of output in the short run and exit in the long run. b. produce 5 units of output in the short run and exit in the long run. c. produce 5 units of output in the short run and face competition from new market entrants in the long run. d. shut down in the short run and exit in the long run. ____

2. Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At her profitmaximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should a. shut down her business in the short run but continue to operate in the long run. b. continue to operate in the short run but shut down in the long run. c. continue to operate in both the short run and long run. d. shut down in both the short run and long run. Figure 14-1 Suppose that a firm in a competitive market has the following cost curves:

Price 13 12 11

MC

10 9

AT C

8

AVC

7

6.3 4.5

6 5 4 3 2 1 1

2

3

4

5

6

7

8

9

10

11

Qua ntity

____ ____

3. Refer to Figure 14-1. If the market price falls below $4.50, the firm will earn a. positive economic profits in the short run. b. negative economic profits in the short run but remain in business. c. negative economic profits in the short run and shut down. d. zero economic profits in the short run.

____

4. Refer to Figure 14-1. The firm will earn a negative economic profit but remain in business in the short run if the market price is a. above $6.30 but less than $8. b. above $6.30. c. less than $6.30 but more than $4.50. d. less than $4.50.

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5. Refer to Figure 14-1. If the market price rises above $6.30, the firm will earn a. positive economic profits in the short run. b. negative economic profits in the short run but remain in business. c. negative economic profits and shut down. d. zero economic profits in the short run.

____

6. Refer to Figure 14-1. If the market price is $5.00, the firm will earn a. positive economic profits in the short run. b. negative economic profits in the short run but remain in business. c. negative economic profits and shut down. d. zero economic profits in the short run.

____

7. Refer to Figure 14-1. If the market price is $4.00, the firm will earn a. positive economic profits in the short run. b. negative economic profits in the short run but remain in business. c. negative economic profits and shut down. d. zero economic profits in the short run.

Figure 14-14 Price

(a)

Price

MC

(b)

S0

S1

ATC B P2

P2

P1

P1

P0

P0

A

C D

D1 D0 Q1

Q2

Quanti ty

QA QBQ D QC

Quant ity

____

8. Refer to Figure 14-14. Assume that the market starts in equilibrium at point A in panel (b). An increase in demand from D0 to D1 will result in a. a new market equilibrium at point D. b. an eventual increase in the number of firms in the market and a new long-run equilibrium at point C. c. rising prices and falling profits for existing firms in the market. d. falling prices and falling profits for existing firms in the market.

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9. Refer to Figure 14-14. Assume that the market starts in equilibrium at point A in panel (b) and that panel (a) illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is correct? a. Points A, B, and C represent both short-run and long-run equilibria. b. Points A, B, C, and D represent short-run equilibria. c. Points A and B represent long-run equilibria. d. Points A and C represent long-run equilibria.

____ 10. Refer to Figure 14-14. If the market starts in equilibrium at point C in panel (b), a decrease in demand will ultimately lead to a. more firms in the industry but lower levels of output for each firm. b. fewer firms in the market. c. a new long-run equilibrium at point D in panel (b). d. lower prices once the new long-run equilibrium is reached....