Question 1

Firms in competitive industries:
I. can only charge a price equal to the market price
II.cannot charge any more than the market price
III. will earn less profit if they charge less than the marketprice.

Accepted Answer

Firms in competitive industries are price takers, meaning they must accept the market price; charging more would result in no sales, and charging less would reduce their profit. Thus, all three statements are correct.

Question 2

When there are many buyers and sellers of a good, and theproduct sold is identical across firms:

Accepted Answer

When there are many buyers and sellers of a good and the product is identical, it is a perfect competition market. In such a market, each firm is a price taker, and the demand curve for each firm's output is perfectly elastic because a small increase in the price would lead to a significant loss of customers, and a small decrease in price would lead to an increase in customers, but not enough to make a profit.

Question 3

Which of the following is NOT a key decision that a firm mustmake?

Accepted Answer

Where to produce is a key decision for a firm to make because it affects the costs of production, access to resources and markets, and other factors that can impact a firm's competitiveness and profitability. The other options listed, including what price to set, what quantity to produce, and when to enter and exit an industry, are all decisions that can have significant implications for a firm's success and require careful consideration.

Question 4

Accepted Answer

The answer of 
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Question 5

(Table: Barrels of Oil) Refer to the table. The profit-maximizing level ofoutput is ________ barrels of oil.

Accepted Answer

The profit-maximizing level of output is where marginal revenue (MR) equals marginal cost (MC). 
At a quantity of 1 barrel, MR ($10) is less than MC ($12), leading to a loss.
At a quantity of 3 barrels, MR ($20) is greater than MC ($16), indicating a gain in profits, but there is still room for improvement.
At a quantity of 5 barrels, MR ($20) is equal to MC ($20), meaning that profits are maximized at this level of output.
At a quantity of 7 barrels, MR ($16) is less than MC ($20), indicating a decrease in profits. Therefore, the answer is C.

Question 6

The total amount of money that a firm receives from sales ofits output is called:

Accepted Answer

Total revenue is the total amount of money a firm receives from selling its output. Gross profit refers to revenue minus the costs directly associated with producing and selling the goods or services, while net profit is revenue minus all costs, including indirect costs like taxes and interest expenses. Net revenue is not a common term and is not typically used in business contexts.

Question 7

(Table: Barrels of Oil) Refer to the table. The change in profit fromproducing the second barrel of oil is ________, and the marginal cost fromproducing the seventh barrel of oil is ________.

Accepted Answer

The answer of  (Table: Barrels of Oil) Refer to...

Question 8

To maximize profit firms should keep producing as long asmarginal revenue is:

Accepted Answer

To maximize profit, a firm should keep producing as long as marginal revenue is greater than marginal cost. This is because producing one more unit generates additional revenue that exceeds the additional cost. Therefore, the firm can increase its total profit by continuing to produce as long as this condition is met. If marginal revenue equals marginal cost or is less than marginal cost, the firm should not produce the additional unit as it would create a loss or decrease in profit.

Question 9

When a firm expands output from 10 to 11 units and totalrevenue increases from $100 to $110, marginal revenue of the 11th unit is:

Accepted Answer

Marginal revenue is the additional revenue generated by the production and sale of an additional unit. Here, when the firm expands output from 10 to 11 units, the total revenue increases from $100 to $110. Therefore, the additional revenue generated by producing the 11th unit is $10. So, the marginal revenue of the 11th unit is $10, which is option C.

Question 10

In the small town of Wellsville, there is only one grocery store.Given that everyone needs food, we would expect that:

Accepted Answer

Since everyone in the town needs food, the grocery store has a large customer base. However, if they charged exorbitant prices, customers would either go without or shop elsewhere, if possible. Therefore, the grocery store would have to price competitively to attract and retain customers. This does not necessarily make them a monopoly or guarantee highly profitable returns. It also does not necessarily mean that their demand is perfectly inelastic.

Question 11

An industry is said to be perfectly competitive when:

Accepted Answer

In a perfectly competitive market, there are many buyers and sellers, each is small relative to the overall market, and the product being sold is identical regardless of the seller. This means that each firm has virtually no influence over the price of the product and must accept the going market price. Therefore, option B is the correct choice.

Question 12

To maximize profit a firm in a competitive market increasesoutput until:

Accepted Answer

In a competitive market, the firm's goal is to maximize profit. Profit is maximized at the output level where marginal cost (MC) equals price (P), as long as price is greater than or equal to average variable cost (AVC). Therefore, the correct choice is C, P = MC, which represents the profit-maximizing output level. Option A, P = TC, is not a relevant condition for profit maximization. Option B, P = AR, is not a sufficient condition for profit maximization because AR equals price only under perfect competition, whereas in other market structures, AR might be different from price. Option D, P = AC, is not a relevant condition for profit maximization because profit is not necessarily maximized at the output level where average cost (AC) is minimized.

Question 13

The marginal revenue (MR) for a firm is a constant $45, andthe firm's marginal cost (MC) is given by MC = 1.5Q (where Qis quantity of output). What is the firm's profit-maximizinglevel of output?

Accepted Answer

To maximize profit, a firm sets its marginal revenue (MR) equal to its marginal cost (MC). Given MR = $45 and MC = 1.5Q, setting them equal gives 45 = 1.5Q. Solving for Q gives Q = 45 / 1.5 = 30.

Question 14

If Homer operates a small bakery and sells donuts for$4/dozen, he should:

Accepted Answer

Homer should sell an additional dozen donuts as long as the marginal cost of producing an additional dozen donuts is less than $4. This is because he will still make a profit from each additional dozen sold and it will increase his total revenue. However, if the marginal cost exceeds $4, he will not make a profit and it would be better to not sell any more donuts.

Question 15

At a ski resort located over one hour from the nearest largetown, there is only one grocery store and it charges pricesmore than 200 percent above the typical retail prices. In thelong run, we would expect that:

Accepted Answer

Another store is likely to open that will offer lower prices because the market is underserved, and there is an opportunity for a competitor to enter the market and gain market share by offering more competitive prices. This is a typical response to the high prices charged by a monopoly or monopolistic competitor. As more stores enter the market, prices are likely to decrease until they reach a level that reflects competitive conditions.

Question 16

Which of the following statements is TRUE?
Economistsnormally assume that the goal of the firm is to:
I. sell as much of their product as possible
II.set the price of their product as high as possibleIII. maximize profit.

Accepted Answer

Economists usually assume that firms aim to maximize profits, which means they seek to earn as much revenue as possible while minimizing costs. While selling as much of their product as possible or setting the highest possible price may sometimes be useful tactics for achieving this goal, they are not overarching goals for the firm.

Question 17

Marginal cost is:

Accepted Answer

Marginal cost is the additional cost of producing one more unit of output. It is calculated by taking the change in total cost and dividing it by the change in quantity produced.

Question 18

When there are many buyers and sellers of a good, and theproduct sold is identical across firms:

Accepted Answer

When there are many buyers and sellers of a good, and the product sold is identical across firms, it creates a perfectly competitive market. In such a market, the demand curve for each firm's output is perfectly elastic because consumers can easily switch to another seller if one firm tries to raise its price, implying that firms are price takers.

Question 19

The amount of money that the firm pays for its inputs iscalled:

Accepted Answer

Variable cost refers to the cost incurred by the firm on its inputs which can vary in the short run. Therefore, the amount paid for inputs is considered as the variable cost. Marginal cost is the additional cost incurred by producing one more unit, total cost is the sum of all costs (fixed and variable), and fixed cost remains constant irrespective of the level of output.

Question 20

A perfectly competitive industry exists under which of thefollowing conditions?
I. The product sold is similar across firms
II.There are many sellers, each small relative to the totalmarket
III. There are many sellers, each with total assets less than $2million.IV. The threat of competition exists from potential sellers thathave not yet entered the market.

Accepted Answer

A perfectly competitive industry exists when there are many small firms producing a homogeneous product, in which no single firm has market power. Condition I states that the product sold by firms is similar, which is a characteristic of a homogeneous product. Condition II states that there are many small sellers, which is also a characteristic of perfect competition. Condition III is incorrect because the size of assets of each seller does not affect whether an industry is perfectly competitive or not. Finally, condition IV is relevant because the presence of potential sellers implies that the market is not controlled by a single seller or a few large firms, which is a characteristic of a perfectly competitive industry. Therefore, the correct choice is D.

Quiz 11: Monopoly and Antitrust Policy

Firms in competitive industries: I. can only charge a price equal to the market price II.cannot charge any more than the market price III. will earn less profit if they charge less than the marketprice.

When there are many buyers and sellers of a good, and theproduct sold is identical across firms:

Which of the following is NOT a key decision that a firm mustmake?

(Table: Barrels of Oil) Refer to the table. The profit-maximizing level ofoutput is ________ barrels of oil.

The total amount of money that a firm receives from sales ofits output is called:

(Table: Barrels of Oil) Refer to the table. The change in profit fromproducing the second barrel of oil is , and the marginal cost fromproducing the seventh barrel of oil is .

To maximize profit firms should keep producing as long asmarginal revenue is:

When a firm expands output from 10 to 11 units and totalrevenue increases from $100 to $110, marginal revenue of the 11th unit is:

In the small town of Wellsville, there is only one grocery store.Given that everyone needs food, we would expect that:

An industry is said to be perfectly competitive when:

To maximize profit a firm in a competitive market increasesoutput until:

The marginal revenue (MR) for a firm is a constant $45, andthe firm's marginal cost (MC) is given by MC = 1.5Q (where Qis quantity of output) . What is the firm's profit-maximizinglevel of output?

If Homer operates a small bakery and sells donuts for$4/dozen, he should:

At a ski resort located over one hour from the nearest largetown, there is only one grocery store and it charges pricesmore than 200 percent above the typical retail prices. In thelong run, we would expect that:

Which of the following statements is TRUE? Economistsnormally assume that the goal of the firm is to: I. sell as much of their product as possible II.set the price of their product as high as possibleIII. maximize profit.

Marginal cost is:

When there are many buyers and sellers of a good, and theproduct sold is identical across firms:

The amount of money that the firm pays for its inputs iscalled: