Chapter 14/Firms in Competitive Markets ? 933
25. In the short run, a firm should exit the industry if its marginal cost ex-ceeds its marginal revenue. ANS: F
DIF: 2
REF: 14-2 NAT: Analytic
TOP: Supply curve
LOC: Perfect competition MSC: Interpretive
26. In making a short-run profit-maximizing production decision, the firm must consider both fixed and variable cost.
ANS: F DIF: 2 REF: 14-2 NAT: Analytic LOC: Perfect competition TOP: Profit maximization MSC: Interpretive
27. A firm will shut down in the short run if revenue is not sufficient to cov-er its variable costs of production. ANS: T
DIF: 2
REF: 14-2 NAT: Analytic
TOP: Shut down MSC: Interpretive
LOC: Perfect competition
28. Suppose a firm is considering producing zero units of output. We call this shutting down in the short run and exiting an industry in the long run. ANS: T
DIF: 2
REF: 14-2 NAT: Analytic
TOP: Shut down MSC: Interpretive
LOC: Perfect competition
29. Suppose a firm is considering producing zero units of output. We call
this exiting an industry in the short run and shutting down in the long run. ANS: F DIF: 2 REF: 14-2 NAT: Analytic LOC: Perfect competition
TOP: Shut down MSC: Interpretive
30. A firm will shut down in the short run if revenue is not sufficient to cov-er all of its fixed costs of production. ANS: F
DIF: 2
REF: 14-2 NAT: Analytic
TOP: Shut down MSC: Interpretive
LOC: Perfect competition
31. The supply curve of a firm in a competitive market is the average va-riable cost curve above the minimum of marginal cost. ANS: F
DIF: 2
REF: 14-2 NAT: Analytic
TOP: Supply curve
LOC: Perfect competition MSC: Interpretive
32. When a profit-maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production. ANS: T
DIF: 2
REF: 14-2 NAT: Analytic
LOC: Perfect competition MSC: Interpretive
TOP: Profit maximization
33. The marginal firm in a competitive market will earn zero economic profit in the long run. ANS: T
DIF: 2
REF: 14-2 NAT: Analytic
TOP: Economic profit
LOC: Perfect competition MSC: Interpretive
34. A profit-maximizing firm in a competitive market will earn zero ac-counting profits in the long run. ANS: F
DIF: 2
REF: 14-2 NAT: Analytic
TOP: Accounting profit
LOC: Perfect competition MSC: Interpretive
35. In the long run, when price is less than average total cost for all possi-ble levels of production, a firm in a competitive market will choose to exit (or not enter) the market. ANS: T
DIF: 2
REF: 14-2 NAT: Analytic
TOP: Profit maximization
LOC: Perfect competition MSC: Interpretive
36. In the long run, when price is greater than average total cost, some firms in a competitive market will choose to enter the market. ANS: T DIF: 2 REF: 14-2 NAT: Analytic LOC: Perfect competition MSC: Interpretive
37. In the long run, a firm should exit the industry if its total costs exceed its total revenues. ANS: T
DIF: 2
REF: 14-2 NAT: Analytic
TOP: Profit maximization
LOC: Perfect competition MSC: Interpretive
38. When a resource used in the production of a good sold in a competi-tive market is available in only limited quantities, the long-run supply curve is likely to be upward sloping.
ANS: T DIF: 2 REF: 14-3 NAT: Analytic LOC: Perfect competition TOP: Supply curve MSC: Interpretive
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TOP: Profit maximization
Chapter 14/Firms in Competitive Markets ? 935
39. A firm operating in a perfectly competitive industry will continue to op-erate if it earns zero economic profits because it is likely to be earning posi-tive accounting profits. ANS: T
DIF: 2
REF: 14-3 NAT: Analytic
TOP: Competitive markets
LOC: Perfect competition MSC: Interpretive
40. A firm operating in a perfectly competitive industry will shut down in the short run if its economic profits fall to zero because it is likely to be earn-ing negative accounting profits. ANS: F
DIF: 2
REF: 14-3 NAT: Analytic
TOP: Competitive markets
LOC: Perfect competition MSC: Interpretive
41. A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the long run. ANS: F DIF: 2 REF: 14-3 NAT: Analytic LOC: Perfect competition MSC: Interpretive
42. A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the short run. ANS: T
DIF: 2
REF: 14-3 NAT: Analytic
TOP: Long-run supply curve
LOC: Perfect competition MSC: Interpretive
43. A firm operating in a perfectly competitive market earns zero economic profit in the long run but remains in business because the firm’s revenues cover the business owners’ opportunity costs.
ANS: T DIF: 2 REF: 14-3 NAT: Analytic LOC: Perfect competition TOP: Zero-profit condition MSC: Interpretive
44. A competitive market will typically experience entry and exit until ac-counting profits are zero. ANS: F
DIF: 2
REF: 14-3 NAT: Analytic
TOP: Zero-profit condition
LOC: Perfect competition MSC: Interpretive
TOP: Long-run supply curve
45. The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at effi-cient scale. ANS: T
DIF: 2
REF: 14-3 NAT: Analytic
TOP: Zero-profit condition
LOC: Perfect competition MSC: Interpretive
46. In the long run, a competitive market with 1,000 identical firms will ex-perience an equilibrium price equal to the minimum of each firm's average total cost. ANS: T
DIF: 2
REF: 14-3 NAT: Analytic
TOP: Zero-profit condition
LOC: Perfect competition MSC: Interpretive
47. In a long-run equilibrium where firms have identical costs, it is possible that some firms in a competitive market are making a positive economic prof-it.
ANS: F DIF: 2 REF: 14-3 NAT: Analytic LOC: Perfect competition TOP: Zero-profit condition MSC: Interpretive
48. When economic profits are zero in equilibrium, the firm's revenue must be sufficient to cover all opportunity costs. ANS: T
DIF: 2
REF: 14-3 NAT: Analytic
TOP: Zero-profit condition
LOC: Perfect competition MSC: Interpretive
49. The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.
ANS: F DIF: 2 REF: 14-3 NAT: Analytic LOC: Perfect competition TOP: Supply curve MSC: Interpretive
50. The long-run supply curve in a competitive market is more elastic than the short-run supply curve. ANS: T
DIF: 2
REF: 14-3 NAT: Analytic
TOP: Supply curve
LOC: Perfect competition MSC: Interpretive SHORT ANSWER
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