Question 1

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

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

Question 2

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

In a perfectly competitive market, firms maximize profits by setting output where marginal cost equals the market price. In this case, the marginal cost is equal to the market price, so the firm is already producing the profit-maximizing level of output. Any change in output would decrease profits. Therefore, they should not change their output (choice E).

Question 3

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 is currently operating where MC>MR ($1.10 > $1), indicating that producing one more unit of output would result in a loss. The firm should reduce its output until it reaches the point where MC=MR to maximize profits.

Question 4

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

Accepted Answer

The answer of On a graph showing a firmʹs TC...

Question 5

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

If the firm's average revenue is less than its lowest average variable cost, it means that the firm is not even covering its variable costs. Therefore, the firm is better off shutting down and producing zero output rather than continuing to produce at a loss.

Question 6

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

The answer of Suppose a perfectly competitive firm is producing...

Question 7

A perfectly competitive firm maximizes its profits by

Accepted Answer

A perfectly competitive firm will always choose the level of output at which marginal cost equals marginal revenue, as this will allow the firm to maximize profits. Maximizing total revenue or sales will not necessarily lead to the highest profits, as this may involve selling at a lower price or producing a higher quantity than is optimal for profit maximization. Pricing slightly under competitors may also not lead to the highest profits, as this may involve sacrificing too much price for a small increase in quantity sold.

Question 8

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 its average revenue (AR) equals or exceeds its average variable cost (AVC). This is because, in the short run, the fixed costs are sunk and cannot be recovered. Therefore, if the firm produces an output level where AR < AVC, it will not be able to cover its variable costs, let alone its fixed costs, and will end up incurring losses. Thus, the firm should only produce when AR >= AVC.

Question 9

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 10

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 11

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

Since the market price is $12 and the firm's average total cost and marginal cost are both $10, the firm is currently earning a profit of $2 per unit produced. To maximize its profits, the firm should produce more units of output as long as the marginal revenue from each additional unit is greater than its marginal cost. Since the market price is greater than the firm's marginal cost of production, producing additional units will increase the firm's profits. Therefore, the firm should expand its output.

Question 12

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,...

Question 13

If a perfectly competitive firm in the short run is producing where P = ATC = MC, this firm is

Accepted Answer

If the firm is producing where P = ATC = MC, it is operating at a level where its total revenue covers its total costs, including both fixed and variable costs. This means it is earning normal profits but not economic profits. At this output level, the firm is maximizing its profits, as any increase or decrease in output would result in decreasing profits. Therefore, the best choice is A - at its profit-maximizing output level.

Question 14

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,...

Question 15

FIGURE 9-1
-Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. The price at which the firm earns zero economic profits is

Accepted Answer

At price P3, the firm is producing output where the marginal cost equals the marginal revenue. This is the profit-maximizing level of output for the firm in a perfectly competitive market. At this level of output, the firm is earning zero economic profits, as the total revenue is equal to the total cost. Prices below P3 will result in negative economic profits, while prices above P3 will result in positive economic profits.

Question 16

FIGURE 9-1
-Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P 4 and the firm is producing output level F, this firm should

Accepted Answer

The answer of  FIGURE 9-1
-Refer to Figure 9-1. The...

Question 17

FIGURE 9-1
-Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. The firm would incur economic profit at all market prices above

Accepted Answer

Economic profit occurs when the market price is above the average total cost (ATC). In the diagram, P3 is the price level where the firm covers its ATC, so any price above P3 would result in economic profit.

Question 18

If a perfectly competitive firm is faced with average revenue below average variable cost it will produce zero output so as to reduce its

Accepted Answer

The answer of If a perfectly competitive firm is faced...

Question 19

If a perfectly competitive firm produces at an output level where marginal cost equals marginal revenue, then

Accepted Answer

When a perfectly competitive firm produces at an output level where marginal cost equals marginal revenue, it is producing the optimal level of output. At this level, the last unit produced adds the same amount to costs as it does to revenue, so there is no reason to reduce or expand output. However, this does not mean that the firm is maximizing its revenue, as the price it receives for each unit is not necessarily the highest possible. Also, the difference between TR and TC may not be zero, as fixed costs still need to be covered. Lastly, the firm should not shut down as long as it is covering its variable costs.

Question 20

Suppose your trucking firm in a perfectly competitive industry is making zero economic profits in the short run. The federal government imposes a new safety regulation that affects all firms, thus shifting the marginal cost curve upward. As a result your firmʹs profit maximizing short-run output will

Accepted Answer

The new safety regulation increases the marginal cost for all firms, causing the MC curve to shift upwards. This means that the intersection point between the MC and the demand curve will occur at a lower rate of output, leading to a decrease in the profit-maximizing short-run output for the firm. Passing on the extra costs to consumers may not be possible if the industry is perfectly competitive, as all firms will face the same increase in costs and will be forced to raise prices, leading to potential loss of market share. The new regulation does not affect ATC directly, so choice (C) is not correct. Choice (D) is also unlikely, as firms leaving the industry will lower supply and drive up the market price, leading to higher profits for the firms that remain in the industry, but not necessarily increasing output. Finally, (E) refers to the long run, but the question only asks about the short run.

Quiz 9: Competitive Markets

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

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

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

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

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

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

A perfectly competitive firm maximizes its profits by

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

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

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

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

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

If a perfectly competitive firm in the short run is producing where P = ATC = MC, this firm is

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

FIGURE 9-1 -Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. The price at which the firm earns zero economic profits is

FIGURE 9-1 -Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P 4 and the firm is producing output level F, this firm should

FIGURE 9-1 -Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. The firm would incur economic profit at all market prices above

If a perfectly competitive firm is faced with average revenue below average variable cost it will produce zero output so as to reduce its

If a perfectly competitive firm produces at an output level where marginal cost equals marginal revenue, then