Question 1

When price is greater than marginal cost for a firm in a competitive market,

Accepted Answer

When price is greater than marginal cost, it means that the firm can increase profit by producing and selling more goods. This is because the extra revenue generated from selling one more unit is greater than the extra cost of producing that unit. Therefore, there are opportunities to increase profit by increasing production.

Question 2

A firm in competitive price-taker market is maximizing profit at Q = 3,000.Then its fixed cost increases.The profit-maximizing output is now

Accepted Answer

The answer of A firm in competitive price-taker market is...

Question 3

Suppose Thelma and Louise both sell fried green tomatoes in a competitive price-taker market.If Louise increases her output,

Accepted Answer

The answer of Suppose Thelma and Louise both sell fried...

Question 4

For a certain firm,the 100th unit of output that the firm produces has marginal revenue equal to $10 and a marginal cost of $7.It follows that

Accepted Answer

Marginal revenue (MR) is the additional revenue earned from producing one more unit of output. In this case, the MR of the 100th unit is $10. Marginal cost (MC) is the additional cost of producing one more unit of output. In this case, the MC of the 100th unit is $7. 
For profit maximization, a firm should produce where MR = MC. Since MR > MC for the 100th unit, producing it would increase the firm's profit. 
The profit earned from producing the 100th unit can be calculated as: 
Profit = MR - MC = $10 - $7 = $3. 
Therefore, the production of the 100th unit of output increases the firm's profit by $3. Option A is correct. 
Option B is incorrect because the average total cost is not given and cannot be determined from the information provided. 
Option C is incorrect because we cannot determine the firm's profit-maximizing level of output from the information provided. 
Option D is incorrect because we cannot determine the profit earned from producing the 110th unit from the information given.

Question 5

Farmer Fanny sells her crops in a competitive price-taker market.If she produces 500 bushels for total revenue of $2,500 and if harvesting the 501st bushel would raise her total cost from $2,500 to $2,505,her

Accepted Answer

The answer of Farmer Fanny sells her crops in a...

Question 6

If a competitive price-taker firm is currently producing a level of output at which marginal cost exceeds marginal revenue,then

Accepted Answer

If the firm is producing at a level where marginal cost exceeds marginal revenue, it means that producing one more unit of output would cause the cost of producing that unit to be higher than the additional revenue generated from selling it. Therefore, the firm should decrease its output by one unit. This would decrease its cost by more than the decrease in revenue, leading to an increase in profit. Therefore, a one-unit decrease in output would increase the firm's profit. Option A is not necessarily true as it depends on the specific values of average revenue and marginal cost. Option B is not correct since if the firm is not producing at the profit-maximizing level of output, it cannot be earning a positive profit.

Question 7

The Wheeler Wheat Farm sells wheat to a grain broker in Seattle,Washington.Since the market for wheat is generally considered to be competitive,the Wheeler Wheat Farm maximizes its profit by choosing

Accepted Answer

In a competitive market, firms aim to maximize their profits by producing the quantity at which their marginal cost of production is equal to the market price. This is because in a perfectly competitive market, a firm has no market power and must accept the market price for their product. Therefore, producing the quantity where marginal cost equals the market price is the best choice for the Wheeler Wheat Farm to maximize its profit.

Question 8

Claude's Copper Clappers sells clappers for $40 each in a competitive price-taker market.At its present rate of output,Claude's marginal cost is $39,average variable cost is $25,and average total cost is $45.To improve his profit/loss situation,Claude should

Accepted Answer

Claude is currently producing at a point where marginal revenue (which is equal to the selling price of $40 in a competitive market) is greater than marginal cost of production, which is $39. Thus, producing more will increase his profits by $1 for each additional unit produced. Moreover, since average variable cost is less than the selling price, he is covering his variable costs and some part of fixed costs. Therefore, increasing output will lead to a higher contribution towards covering the fixed costs, which will further improve the profit/loss situation of Claude.

Question 9

In competitive price-taker markets,if one firm raises its price,

Accepted Answer

In competitive price-taker markets, each firm has no market power to affect the market price. Therefore, if one firm raises its price, it will lose customers to its competitors who maintain the initial price. As a result, that firm will lose revenues because other firms will not follow.

Question 10

Scenario 9-1
Assume a certain competitive price-taker firm is producing Q = 1,000 units of output.At Q = 1,000,the firm's marginal cost equals $15 and its average total cost equals $11.The firm sells its output for $12 per unit.
-Refer to Scenario 9-1.At Q = 999,the firm's profit amounts to

Accepted Answer

The answer of Scenario 9-1
Assume a certain competitive price-taker firm...

Question 11

Profit-maximizing firms enter a competitive market when,for existing firms in that market,

Accepted Answer

Profit-maximizing firms only enter a competitive market when the price exceeds the average total cost. This is because firms need to cover both variable and fixed costs in order to make a profit. If the price is lower than the average total cost, the firm will suffer losses and will not have an incentive to enter the market. If the price is higher than the average total cost, the firm will be able to cover costs and make a profit, thus making it attractive for entry.Option A and B are not the best choice as they provide only partial information and do not consider all costs. Option C is incorrect as the firm needs to have a price higher than the average total cost, not the other way around.

Question 12

Scenario 9-1
Assume a certain competitive price-taker firm is producing Q = 1,000 units of output.At Q = 1,000,the firm's marginal cost equals $15 and its average total cost equals $11.The firm sells its output for $12 per unit.
-Refer to Scenario 9-1.At Q = 1,000,the firm's profit amounts to

Accepted Answer

The answer of Scenario 9-1
Assume a certain competitive price-taker firm...

Question 13

Scenario 9-1
Assume a certain competitive price-taker firm is producing Q = 1,000 units of output.At Q = 1,000,the firm's marginal cost equals $15 and its average total cost equals $11.The firm sells its output for $12 per unit.
-Refer to Scenario 9-1.To maximize its profit,the firm should

Accepted Answer

The firm should decrease its output because the marginal cost ($15) is greater than the price ($12), indicating that producing the last unit is not profitable. However, since the price is above the average total cost ($11), the firm should continue to produce to cover its costs and make a profit.

Question 14

If a competitive price-taker firm is currently producing a level of output at which marginal revenue exceeds marginal cost,then

Accepted Answer

A competitive price-taker firm maximizes its profit at the output level where marginal revenue equals marginal cost. However, if the firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then it means that they can increase profit by producing more. Therefore, a one-unit increase in output will increase the firm's profit.

Question 15

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

Accepted Answer

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which profit is maximized. At this point, marginal revenue is equal to marginal cost, meaning that producing any additional unit of output would result in a decrease in profits. Therefore, firms aim to produce at this level of output in order to maximize their profitability.

Question 16

Suppose the equilibrium price in a competitive price-taker market is $10 and a firm in the industry charges $9.Which of the following is true?

Accepted Answer

In a competitive price-taker market, the firm cannot charge a price lower than the equilibrium price ($10 in this case) and expect to sell any output in the long run due to competition. Therefore, the firm will have to lower its price to $10 or exit the market. If it charges $9, it may be able to sell some output initially due to the lower price, but it will be making less profit than it could at the $10 price. Thus, the firm will make less profit than it could at the $10 price.

Question 17

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive price-taker market when price falls below the minimum of average variable cost?

Accepted Answer

When the price falls below the minimum of average variable cost, the firm is no longer covering all of its variable costs and is producing at a loss. In a competitive price-taker market, the firm cannot raise the price to cover its costs, so the best decision is to stop production and minimize its losses by only paying its fixed costs. This is known as the shutdown point. Option A is incorrect because attempting to pay fixed costs is not a valid reason for a firm to continue production when it is not covering its variable costs. Option C is incorrect because sunk costs do not affect production decisions, as they are irrelevant to current and future costs. Option D is partially correct in that the firm may continue to produce in the short run, as it is already incurring fixed costs, but it is more likely that the firm will exit the market in the long run since it cannot sustain losses indefinitely.

Question 18

Competitive price-taker firms respond to changing market conditions by varying their

Accepted Answer

The answer of Competitive price-taker firms respond to changing market...

Question 19

Scenario 9-1
Assume a certain competitive price-taker firm is producing Q = 1,000 units of output.At Q = 1,000,the firm's marginal cost equals $15 and its average total cost equals $11.The firm sells its output for $12 per unit.
-Refer to Scenario 9-1.At Q = 999,the firm's total cost amounts to

Accepted Answer

The total cost at Q = 1,000 is 1,000 units * $11 (average total cost) = $11,000. The marginal cost of producing the 1,000th unit is $15, so the total cost at Q = 999 is $11,000 - $15 = $10,985.

Question 20

Claude's Copper Clappers sells clappers for $40 each in a competitive price-taker market.At its present rate of output,Claude's marginal cost is $40,average variable cost is $45,and average total cost is $60.Claude should

Accepted Answer

At the present rate of output, Claude's average total cost is greater than the price of the product, which means that Claude is operating at a loss. In such a case, it is better for Claude to shut down rather than continuing to operate and incurring losses.

Quiz 22: Aprice Takers and the Competitive Process