Question 1

Which of the following statements about a firm in a perfectly competitive industry is true?

Accepted Answer

The answer of Which of the following statements about a...

Question 2

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry.
  FIGURE 9-2
-Refer to Figure 9-2.If the market price is $2,the firm will

Accepted Answer

At a market price of $2, the firm's marginal revenue (MR) is also $2 since it is a price taker. The firm will produce where MR=MC. This occurs at an output of 200 units, where MC=$2 and AVC=$1.50. However, at a price of $2, the firm is not able to cover its total cost (TC) of production, which is $500 + $300 + $200= $1,000. Therefore, the firm will continue operating in the short run and suffer a loss that is less than its fixed cost ($500). The loss per unit would be ($2 - $1.50) = $0.50, and the total loss would be 200 x $0.50 = $100, which is less than its fixed cost of $500, so it is better to continue operating.

Question 3

Suppose a perfectly competitive firm is producing a level of output for which price equals average total cost,and average total cost is less than marginal cost.In order to maximize its profits,the firm should

Accepted Answer

When price equals average total cost, the firm is breaking even, making zero economic profit. If marginal cost is higher than average total cost, producing one more unit would increase total cost more than total revenue, thus reducing profit. Therefore, reducing output would lower costs and increase profits.

Question 4

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry.
  FIGURE 9-2
-Refer to Figure 9-2.If the current market price is $6,the profit-maximizing output for this firm is

Accepted Answer

The answer of Consider the following short-run cost curves for...

Question 5

A perfectly competitive firm facing a price of $4.00 is currently producing an output level where average variable cost is $2.00,average total cost is $4.00,and marginal cost is $3.00.In order to maximize profits,this firm should

Accepted Answer

The firm should increase output because its marginal cost is less than the price it faces, which means that producing more units will increase its profits. The fact that the average total cost is equal to the price also indicates that the firm is operating at the efficient scale and does not need to increase or decrease its overall level of production. Shutting down or decreasing output would result in even lower profits or losses. Increasing the market price is not a feasible option for the individual firm in a perfectly competitive market structure, as it has no control over the market price.

Question 6

Suppose that in a perfectly competitive industry,the market price of the product is $12.Firm A is producing the output level at which average total cost equals marginal cost,both of which are $10.To maximize its profits,Firm A should

Accepted Answer

The answer of Suppose that in a perfectly competitive industry,the...

Question 7

Consider the following cost curves for two perfectly competitive firms,A and B.
  FIGURE 9-3
-Refer to Figure 9-3.Firms A and B are in the same industry.Choose the statement that best describes the situation facing the two firms.

Accepted Answer

Firm A is covering its variable costs but not its total costs, indicating it is making losses but will continue to produce to cover some of its fixed costs. Firm B, with lower costs, is able to cover both its variable and fixed costs and thus is earning economic profits.

Question 8

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry.
  FIGURE 9-2
-Refer to Figure 9-2.If the price is $6 and the firm is producing at its profit-maximizing output,then total costs for the firm are

Accepted Answer

At the profit-maximizing output, the firm chooses the quantity where marginal cost (MC) equals marginal revenue (MR), which corresponds to the price level given. The area representing total costs at this output level is the area under the MC curve up to that quantity. Without the specific figure (Figure 9-2) to reference, we typically infer that total costs would include both variable and fixed costs at the profit-maximizing quantity. Given the options and the typical structure of such questions, the correct answer is inferred based on common outcomes in economic models, where total costs are a function of the quantity produced and the cost structure of the firm.

Question 9

Consider a perfectly competitive firm in the following position: output = 4000 units,market price = $1,fixed costs = $2000,variable costs = $1000,and marginal cost = $1.10.To maximize profits the firm should

Accepted Answer

The firm's marginal cost of producing an additional unit is $1.10, which is greater than the market price of $1. Therefore, the firm is incurring a loss of $0.10 per unit produced. To maximize profits, the firm should reduce its output to the point where marginal cost equals marginal revenue (in this case, the market price of $1). This would result in a lower total cost and increase profits.

Question 10

Suppose that in a perfectly competitive industry,the market price of the product is $27.A firm is producing the output level at which average total cost equals marginal cost,both of which are $25.Average variable cost is $23.To maximize profits in the short run,the firm should

Accepted Answer

The answer of Suppose that in a perfectly competitive industry,the...

Question 11

Consider a perfectly competitive firm that is producing a level of output such that price equals average total cost and average total cost is less than marginal cost.In order to maximize its profits,the firm should

Accepted Answer

The answer of Consider a perfectly competitive firm that is...

Question 12

Consider a perfectly competitive firm in the following position: output = 4000,market price = $1,total fixed costs = $2000,total variable costs = $4500,and marginal cost = $1.To maximize profits the firm should

Accepted Answer

The answer of Consider a perfectly competitive firm in the...

Question 13

On a graph showing a firmʹs TC and TR curves,the profit -maximizing level of output is found where

Accepted Answer

The profit-maximizing level of output for a firm is where the difference between Total Revenue (TR) and Total Cost (TC) is the greatest, which means TR lies above TC by the greatest amount. This is because profit is maximized when the gap between revenue and cost is the widest.

Question 14

Suppose that in a perfectly competitive industry,the market price for the product is $130.A firm is producing the output level at which average total cost equals marginal cost,both of which are $138.Average variable cost is $132.To maximize profits in the short run,the firm should

Accepted Answer

In a perfectly competitive market, firms are price takers and cannot change the price of the product, eliminating option E. Since the market price ($130) is below the firm's average total cost ($138) and average variable cost ($132), the firm is making a loss on each unit it produces. However, since the price is below the average variable cost, continuing production would only increase the firm's losses. The best option to minimize losses in the short run is to produce zero output, which is option D.

Question 15

Suppose a perfectly competitive firm is producing a level of output such that its average revenue is less than its lowest average variable cost.The firm should

Accepted Answer

In a perfectly competitive market, firms are price takers and cannot influence the market price. If a firm's average revenue is less than its lowest average variable cost, continuing production would mean incurring losses on every unit produced. The best course of action to minimize losses is to produce zero output, as fixed costs are sunk costs and cannot be recovered by producing more or less.

Question 16

A price-taking firm in the short run should not produce any level of output unless

Accepted Answer

In the short run, a price-taking firm should not produce any level of output unless it can cover its variable costs. This means that average revenue needs to equal or exceed average variable cost. If the firm produces output when its average revenue is below its average variable cost, it would lose more money by producing than by shutting down. If the firm produces output when its marginal revenue is less than its marginal cost, it would also lose money on every additional unit of output it produces. Therefore, the correct answer is C.

Question 17

A perfectly competitive firm is currently producing an output level where price is $10.00,average variable cost is $6.00,average total cost is $10.00,and marginal cost is $8.00.In order to maximize profits,this firm should

Accepted Answer

The firm should increase its output because its current marginal cost of $8.00 is less than its current price of $10.00. By producing and selling additional units, the firm can earn a profit of $2.00 per unit sold. Since the firm is in a perfectly competitive market, it cannot increase the market price, so the only way to increase its profits is by increasing its output.

Question 18

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry.
  FIGURE 9-2
-Refer to Figure 9-2. If the market price is $1, the firm will produce ________ units of output in the short run.

Accepted Answer

The answer of Consider the following short-run cost curves for...

Question 19

Suppose that in a perfectly competitive industry,the market price of the product is $6.A firm is producing the output level at which average total cost equals marginal cost,both of which are $8.Average variable cost is $4.To maximize its profits in the short run,the firm should

Accepted Answer

The answer of Suppose that in a perfectly competitive industry,the...

Question 20

Consider a perfectly competitive firm in the following position: output = 4000 units,market price = $1,total fixed costs = $2000,total variable costs = $2000,and marginal cost = $1.To maximize profits the firm should

Accepted Answer

The firm is currently producing at the point where P = MC and covering all its variable costs. However, it is also covering its fixed costs, which means it is making a profit. If the firm were to reduce its output or produce zero output, it would not be able to cover its fixed costs and would incur a larger loss. If the firm were to expand its output, it would incur higher variable costs and therefore reduce its profits. Therefore, the best choice is for the firm to not change its output.

Quiz 9: Competitive Markets

Which of the following statements about a firm in a perfectly competitive industry is true?

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry. FIGURE 9-2 -Refer to Figure 9-2.If the market price is $2,the firm will

Suppose a perfectly competitive firm is producing a level of output for which price equals average total cost,and average total cost is less than marginal cost.In order to maximize its profits,the firm should

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry. FIGURE 9-2 -Refer to Figure 9-2.If the current market price is $6,the profit-maximizing output for this firm is

A perfectly competitive firm facing a price of $4.00 is currently producing an output level where average variable cost is $2.00,average total cost is $4.00,and marginal cost is $3.00.In order to maximize profits,this firm should

Suppose that in a perfectly competitive industry,the market price of the product is $12.Firm A is producing the output level at which average total cost equals marginal cost,both of which are $10.To maximize its profits,Firm A should

Consider the following cost curves for two perfectly competitive firms,A and B. FIGURE 9-3 -Refer to Figure 9-3.Firms A and B are in the same industry.Choose the statement that best describes the situation facing the two firms.

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry. FIGURE 9-2 -Refer to Figure 9-2.If the price is $6 and the firm is producing at its profit-maximizing output,then total costs for the firm are

Consider a perfectly competitive firm in the following position: output = 4000 units,market price = $1,fixed costs = $2000,variable costs = $1000,and marginal cost = $1.10.To maximize profits the firm should

Suppose that in a perfectly competitive industry,the market price of the product is $27.A firm is producing the output level at which average total cost equals marginal cost,both of which are $25.Average variable cost is $23.To maximize profits in the short run,the firm should

Consider a perfectly competitive firm that is producing a level of output such that price equals average total cost and average total cost is less than marginal cost.In order to maximize its profits,the firm should

Consider a perfectly competitive firm in the following position: output = 4000,market price = $1,total fixed costs = $2000,total variable costs = $4500,and marginal cost = $1.To maximize profits the firm should

On a graph showing a firmʹs TC and TR curves,the profit -maximizing level of output is found where

Suppose that in a perfectly competitive industry,the market price for the product is $130.A firm is producing the output level at which average total cost equals marginal cost,both of which are $138.Average variable cost is $132.To maximize profits in the short run,the firm should

Suppose a perfectly competitive firm is producing a level of output such that its average revenue is less than its lowest average variable cost.The firm should

A price-taking firm in the short run should not produce any level of output unless

A perfectly competitive firm is currently producing an output level where price is $10.00,average variable cost is $6.00,average total cost is $10.00,and marginal cost is $8.00.In order to maximize profits,this firm should

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry. FIGURE 9-2 -Refer to Figure 9-2. If the market price is $1, the firm will produce ________ units of output in the short run.

Suppose that in a perfectly competitive industry,the market price of the product is $6.A firm is producing the output level at which average total cost equals marginal cost,both of which are $8.Average variable cost is $4.To maximize its profits in the short run,the firm should

Consider a perfectly competitive firm in the following position: output = 4000 units,market price = $1,total fixed costs = $2000,total variable costs = $2000,and marginal cost = $1.To maximize profits the firm should