Question 1

If the market price is $5 and a perfectly competitive firm is producing 1,200 units and the marginal cost to produce the 1,200th unit is $4.53, which of the following is true?

Accepted Answer

In a perfectly competitive market, the market price equals marginal revenue (MR). Since the market price is $5 and the marginal cost (MC) is $4.53, MR - MC = $5 - $4.53 = $0.47, which is positive.

Question 2

If a perfectly competitive firm is producing 3,000 units and, at the 3,000th unit, the difference between marginal revenue and marginal cost (MR - MC)is zero, which of the following is true?

Accepted Answer

At the point where MR=MC, the firm is maximizing its profit as it is producing the exact number of units where the marginal cost is equal to the marginal revenue. Any increase or decrease in production would lead to a decline in profits. Hence, the correct answer is B.

Question 3

In the short run, a decrease in the market demand will cause a(n)______in the market equilibrium price and a perfectly competitive firm's demand and marginal revenue curve to shift____________ .

Accepted Answer

If the market demand decreases, the equilibrium price will decrease as well. For a perfectly competitive firm, a decrease in market demand means there are fewer customers looking to buy the product, leading to a decrease in the demand curve and a leftward shift of the marginal revenue curve. This ultimately leads to a decrease in the equilibrium quantity of output and a decrease in the firm's profit.

Question 4

If a perfectly competitive firm is producing 200 units and, at the 200th unit, the difference between marginal revenue and marginal cost (MR - MC)is positive, which of the following is true?

Accepted Answer

If the difference between MR and MC is positive, it means that the firm can still earn more revenue by producing an additional unit than the cost of producing that unit. Therefore, the firm should increase production to maximize profit. Option A is incorrect because decreasing production would result in even less revenue. Option C is incorrect because if the 200th unit costs more to produce than the firm earns in revenue, the firm would not have reached the point of MR=MC yet. Option D is incorrect because if the MR-MC is positive and the firm has not reached the point of MR=MC yet, it means that the firm can still earn more profit by increasing production.

Question 5

If the market price is $4 and a perfectly competitive firm is producing 3,200 units and the marginal cost to produce the 3,200th unit is $3.88, which of the following is true?

Accepted Answer

In a perfectly competitive market, a firm maximizes profit by producing where marginal cost (MC) equals marginal revenue (MR), which is the market price. Since the MC of $3.88 is less than the MR of $4, the firm should increase production to maximize profit.

Question 6

In the short run, managers are limited because at least one input is fixed.

Accepted Answer

In the short run, at least one input is fixed, which limits the ability of managers to adjust production levels in response to changes in demand or other market conditions. This is a basic principle of microeconomics.

Question 7

In a perfectly competitive market, a decrease in the market demand will ultimately lead to firms ______in the market and a _______ market equilibrium quantity.

Accepted Answer

In a perfectly competitive market, firms are price takers and cannot influence the market price. A decrease in market demand means consumers are willing to purchase less of the good at any given price. As a result, firms will experience a decrease in sales and revenue, leading to losses. In the long run, this will lead to some firms exiting the market as they are unable to cover their costs, resulting in fewer firms in the market. Moreover, with fewer firms, the market supply decreases, which will cause the price to rise. The higher price will reduce the quantity demanded further, but the market equilibrium quantity will be lower than before the decrease in demand.

Question 8

At its current production level, a perfectly competitive firm's marginal revenue and long- run marginal cost are equal to $4 and its long- run average cost is $3, it should expect the market price of its product to fall.

Accepted Answer

If the market price is equal to the firm's long-run average cost ($3), the firm is just breaking even and not making any profit. However, if the market price falls below the firm's long-run average cost, it will start operating at a loss. Since the firm's marginal revenue is equal to $4 and its long-run marginal cost is also $4, any price below $4 would not be profitable for the firm. Therefore, if the market price falls below $4, the firm should expect a decrease in profits and a potentially unsustainable business model.

Question 9

If the market price is $3 and a perfectly competitive firm is producing 2,200 units and the marginal cost to produce the 2,200th unit is $2.85, which of the following is true?

Accepted Answer

In a perfectly competitive market, firms maximize profit where marginal cost (MC) equals marginal revenue (MR), which is the market price. Since the MC of $2.85 is less than the MR of $3, the firm should increase production to maximize profit.

Question 10

If a perfectly competitive firm is producing 2,500 units and, at the 2,500th unit, the difference between marginal revenue and marginal cost (MR - MC)is positive, which of the following is true?

Accepted Answer

If MR - MC is positive at the current level of production, it means that the firm can increase its profits by producing more units. Therefore, the firm should increase its production to maximize profit.

Question 11

If a perfectly competitive firm is producing 2,000 units and, at the 2,000th unit, the difference between marginal revenue and marginal cost (MR - MC)is zero, which of the following is true?

Accepted Answer

At MR=MC, the firm is maximizing profit since it has found the quantity at which producing one more unit would result in a decrease in profit due to higher marginal cost. The firm should continue producing 2,000 units to maximize profit. Any changes in production beyond 2,000 units would result in lower profit.

Question 12

If the market price is $3 and a perfectly competitive firm is producing 1,200 units and the marginal cost to produce the 1,200th unit is $4.53, which of the following is true?

Accepted Answer

In a perfectly competitive market, the firm will maximize profit where marginal revenue (MR) equals marginal cost (MC). Since the marginal cost of producing the 1,200th unit is $4.53, which is greater than the market price of $3, producing this unit would result in a loss. Therefore, the difference between marginal revenue and marginal cost (MR- MC) for the 1,200th unit is negative, which means the firm is not maximizing profit at this level of production. The firm should reduce production to increase profit.

Question 13

In response to a decrease in the market demand, to maximize short- run profits, managers of perfectly competitive firms will decrease production by employing fewer fixed inputs.

Accepted Answer

In the short run, perfectly competitive firms cannot adjust their fixed inputs, only their variable inputs, to respond to changes in market demand. Fixed inputs are by definition unchangeable in the short run.

Question 14

If a perfectly competitive firm is producing 1,500 units and, at the 1,500th unit, the difference between marginal revenue and marginal cost (MR - MC)is negative, which of the following is true?

Accepted Answer

If the MR - MC is negative, the firm is producing beyond its profit-maximizing level of output. To maximize profit, the firm should reduce production until MR = MC.

Question 15

If a perfectly competitive firm adopts a new technology, greater economic profit is possible in the _______, but a competitive return will be earned in the _______ as the market supply will______

Accepted Answer

In the short run, a firm that adopts new technology can achieve greater economic profit due to increased efficiency and possibly lower costs. However, in the long run, as other firms adopt the same or similar technologies, the market supply will increase, leading to a decrease in the price until only a competitive return is earned.

Question 16

Perfectly competitive firms are earning economic profits at a market price of $12 and an average total cost of $10. If new firms enter and do not affect the cost for all firms, the market price will ______until it reaches ______.

Accepted Answer

When new firms enter the market, the supply increases, causing the market price to decrease until it reaches the minimum point of the average total cost curve, which in this case is $10. Therefore, the market price will decrease until it reaches $10. Choice D is the correct choice because it is the only one that indicates a decrease in price and includes the correct price.

Question 17

If a perfectly competitive firm is producing 500 units and, at the 500th unit, the difference between marginal revenue and marginal cost (MR - MC)is negative, which of the following is true?

Accepted Answer

When the difference between marginal revenue and marginal cost (MR - MC) is negative, the firm is producing units that are costing more to produce than they are generating in revenue. Therefore, in order to maximize profit, the firm should decrease production. If the firm were to increase production, it would only lead to further losses. The correct choice is C.

Question 18

The long- run marginal cost curve intersects the minimum point on the long- run average cost curve.

Accepted Answer

This statement is true and is a fundamental concept in microeconomics. The long-run average cost (LRAC) curve represents the lowest average cost of producing a particular output level over the long run, while the long-run marginal cost (LRMC) curve represents the additional cost incurred by producing one more unit of output in the long run. The LRMC curve intersects the LRAC curve at the point where the LRAC curve is at its minimum, indicating that the firm is producing at the most efficient scale of production.

Question 19

The long- run profit- maximizing quantity is found by setting the long- run marginal cost equal to the long- run average cost.

Accepted Answer

In the long run, profit maximization occurs where long-run marginal cost (LRMC) equals long-run marginal revenue (LRMR), not where LRMC equals long-run average cost (LRAC).

Question 20

In the short run, a decrease in the market demand will cause a perfectly competitive firm to production ______and _______ .

Accepted Answer

In a perfectly competitive market, a decrease in demand will result in a surplus of goods, and therefore a decrease in the market price. The firm, being a price taker, will have to lower its price to sell its output, resulting in a decrease in the firm's revenue. If the decrease in demand is significant enough, the firm's revenue may not cover its variable costs, resulting in economic losses. Thus, a decrease in market demand will cause a perfectly competitive firm to decrease production and incur economic losses.

Quiz 5: Perfect Competition

If the market price is $5 and a perfectly competitive firm is producing 1,200 units and the marginal cost to produce the 1,200th unit is $4.53, which of the following is true?

If a perfectly competitive firm is producing 3,000 units and, at the 3,000th unit, the difference between marginal revenue and marginal cost (MR - MC) is zero, which of the following is true?

In the short run, a decrease in the market demand will cause a(n) in the market equilibrium price and a perfectly competitive firm's demand and marginal revenue curve to shift______ .

If a perfectly competitive firm is producing 200 units and, at the 200th unit, the difference between marginal revenue and marginal cost (MR - MC) is positive, which of the following is true?

If the market price is $4 and a perfectly competitive firm is producing 3,200 units and the marginal cost to produce the 3,200th unit is $3.88, which of the following is true?

In the short run, managers are limited because at least one input is fixed.

In a perfectly competitive market, a decrease in the market demand will ultimately lead to firms in the market and a _ market equilibrium quantity.

At its current production level, a perfectly competitive firm's marginal revenue and long- run marginal cost are equal to $4 and its long- run average cost is $3, it should expect the market price of its product to fall.

If the market price is $3 and a perfectly competitive firm is producing 2,200 units and the marginal cost to produce the 2,200th unit is $2.85, which of the following is true?

If a perfectly competitive firm is producing 2,500 units and, at the 2,500th unit, the difference between marginal revenue and marginal cost (MR - MC) is positive, which of the following is true?

If a perfectly competitive firm is producing 2,000 units and, at the 2,000th unit, the difference between marginal revenue and marginal cost (MR - MC) is zero, which of the following is true?

If the market price is $3 and a perfectly competitive firm is producing 1,200 units and the marginal cost to produce the 1,200th unit is $4.53, which of the following is true?

In response to a decrease in the market demand, to maximize short- run profits, managers of perfectly competitive firms will decrease production by employing fewer fixed inputs.

If a perfectly competitive firm is producing 1,500 units and, at the 1,500th unit, the difference between marginal revenue and marginal cost (MR - MC) is negative, which of the following is true?

If a perfectly competitive firm adopts a new technology, greater economic profit is possible in the ___, but a competitive return will be earned in the _ as the market supply will____

Perfectly competitive firms are earning economic profits at a market price of $12 and an average total cost of $10. If new firms enter and do not affect the cost for all firms, the market price will until it reaches .

If a perfectly competitive firm is producing 500 units and, at the 500th unit, the difference between marginal revenue and marginal cost (MR - MC) is negative, which of the following is true?

The long- run marginal cost curve intersects the minimum point on the long- run average cost curve.

The long- run profit- maximizing quantity is found by setting the long- run marginal cost equal to the long- run average cost.

In the short run, a decrease in the market demand will cause a perfectly competitive firm to production and _ .

Quiz 5: Perfect Competition

If the market price is $5 and a perfectly competitive firm is producing 1,200 units and the marginal cost to produce the 1,200th unit is $4.53, which of the following is true?

If a perfectly competitive firm is producing 3,000 units and, at the 3,000th unit, the difference between marginal revenue and marginal cost (MR - MC) is zero, which of the following is true?

In the short run, a decrease in the market demand will cause a(n) ______in the market equilibrium price and a perfectly competitive firm's demand and marginal revenue curve to shift____________ .

If a perfectly competitive firm is producing 200 units and, at the 200th unit, the difference between marginal revenue and marginal cost (MR - MC) is positive, which of the following is true?

If the market price is $4 and a perfectly competitive firm is producing 3,200 units and the marginal cost to produce the 3,200th unit is $3.88, which of the following is true?

In the short run, managers are limited because at least one input is fixed.

In a perfectly competitive market, a decrease in the market demand will ultimately lead to firms ______in the market and a _______ market equilibrium quantity.

At its current production level, a perfectly competitive firm's marginal revenue and long- run marginal cost are equal to $4 and its long- run average cost is $3, it should expect the market price of its product to fall.

If the market price is $3 and a perfectly competitive firm is producing 2,200 units and the marginal cost to produce the 2,200th unit is $2.85, which of the following is true?

If a perfectly competitive firm is producing 2,500 units and, at the 2,500th unit, the difference between marginal revenue and marginal cost (MR - MC) is positive, which of the following is true?

If a perfectly competitive firm is producing 2,000 units and, at the 2,000th unit, the difference between marginal revenue and marginal cost (MR - MC) is zero, which of the following is true?

If the market price is $3 and a perfectly competitive firm is producing 1,200 units and the marginal cost to produce the 1,200th unit is $4.53, which of the following is true?

In response to a decrease in the market demand, to maximize short- run profits, managers of perfectly competitive firms will decrease production by employing fewer fixed inputs.

If a perfectly competitive firm is producing 1,500 units and, at the 1,500th unit, the difference between marginal revenue and marginal cost (MR - MC) is negative, which of the following is true?

If a perfectly competitive firm adopts a new technology, greater economic profit is possible in the _______, but a competitive return will be earned in the _______ as the market supply will______

Perfectly competitive firms are earning economic profits at a market price of $12 and an average total cost of $10. If new firms enter and do not affect the cost for all firms, the market price will ______until it reaches ______.

If a perfectly competitive firm is producing 500 units and, at the 500th unit, the difference between marginal revenue and marginal cost (MR - MC) is negative, which of the following is true?

The long- run marginal cost curve intersects the minimum point on the long- run average cost curve.

The long- run profit- maximizing quantity is found by setting the long- run marginal cost equal to the long- run average cost.

In the short run, a decrease in the market demand will cause a perfectly competitive firm to production ______and _______ .

In the short run, a decrease in the market demand will cause a(n) in the market equilibrium price and a perfectly competitive firm's demand and marginal revenue curve to shift______ .

In a perfectly competitive market, a decrease in the market demand will ultimately lead to firms in the market and a _ market equilibrium quantity.

If a perfectly competitive firm adopts a new technology, greater economic profit is possible in the ___, but a competitive return will be earned in the _ as the market supply will____

Perfectly competitive firms are earning economic profits at a market price of $12 and an average total cost of $10. If new firms enter and do not affect the cost for all firms, the market price will until it reaches .

In the short run, a decrease in the market demand will cause a perfectly competitive firm to production and _ .