Question 1

Figure 12-2
 
-Refer to Figure 12-2.What happens if the firm produces more than Q₄ units?

Accepted Answer

Producing more than Q₄ means producing beyond the point where marginal cost exceeds marginal revenue, resulting in a decrease in profit or even a loss. Therefore, the firm incurs a loss if it produces more than Q₄ units.

Question 2

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize profits the firm should

Accepted Answer

In a perfectly competitive market, firms maximize profits by producing at the output level where marginal cost equals price. In this scenario, the marginal cost is $14.54, which is higher than the price of $11. This means the firm is producing at a loss, and should reduce its output to decrease its losses. Thus, the best option is to produce a smaller level of output (Choice C).

Question 3

Figure 12-2
 
-Refer to Figure 12-2.What is the amount of profit if the firm produces Q₂ units?

Accepted Answer

Profit is the vertical distance between the price line and the marginal cost curve. At Q₂, this distance is c to g.

Question 4

If the market price is $40, the average revenue of selling five units is

Accepted Answer

Average revenue is calculated by dividing total revenue by the number of units sold. If the market price is $40 and five units are sold, total revenue is $40 * 5 = $200. Average revenue is $200 / 5 = $40.

Question 5

To maximize profit, a perfectly competitive firm

Accepted Answer

A perfectly competitive firm maximizes profit by producing the quantity of output where the difference between total revenue and total cost is greatest, which occurs where marginal cost equals marginal revenue.

Question 6

In a graph that illustrates a perfectly competitive firm, the marginal revenue curve is

Accepted Answer

In a perfectly competitive market, the marginal revenue curve is the same as the firm's demand curve because the firm is a price taker and can sell any quantity at the market price.

Question 7

For a perfectly competitive firm, average revenue is equal to

Accepted Answer

In a perfectly competitive market, a firm is a price taker, meaning it has no control over the price of the product. Therefore, the average revenue earned by the firm is equal to the market price.

Question 8

In a graph with output on the horizontal axis and total revenue on the vertical axis, what is the shape of the total revenue curve for a perfectly competitive seller?

Accepted Answer

In perfect competition, the total revenue curve is a ray from the origin because total revenue increases linearly with output at a constant price.

Question 9

If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should

Accepted Answer

In a perfectly competitive market, the firm is a price taker and has to accept the market price. If the market price exceeds the marginal cost of production, then the firm can increase its profits by producing more output. This is because the additional revenue from selling the extra output will exceed the additional cost of producing it. Therefore, the best choice is to increase output.

Question 10

For a firm in a perfectly competitive market, price is

Accepted Answer

In a perfectly competitive market, a firm is a price taker and must accept the market price for its product. Therefore, the price is equal to both average revenue (AR) and marginal revenue (MR) because each additional unit sold brings in the same price. In other market structures, such as a monopoly, the price is greater than the marginal revenue because the monopolist must lower the price on all units to sell one additional unit.

Question 11

The marginal revenue curve for a perfectly competitive firm

Accepted Answer

In perfect competition, the firm is a price taker and the demand curve faced by the firm is perfectly elastic. Since the firm has no control over the market price, the marginal revenue curve is also perfectly elastic and identical to the demand curve. Therefore, the correct answer is B, which states that the marginal revenue curve for a perfectly competitive firm is the same as its demand curve.

Question 12

Mark Frost grows apples in a perfectly competitive market.If we drew a line in a graph that illustrates Mark's total revenue from selling apples, it would be

Accepted Answer

In a perfectly competitive market, the total revenue line is a straight, upward-sloping line because total revenue increases at a constant rate as output increases, given the constant market price.

Question 13

For a perfectly competitive firm, which of the following is not true at profit maximization?

Accepted Answer

Market price is equal to marginal cost at profit maximization for a perfectly competitive firm.

Question 14

Figure 12-2
 
-Refer to Figure 12-2.Suppose the firm is currently producing Q₂ units.What happens if it expands output to Q₃ units?

Accepted Answer

The answer of Figure 12-2
 
-Refer to Figure 12-2.Suppose the...

Question 15

Marginal revenue is

Accepted Answer

Marginal revenue is the change in total revenue divided by the change in the quantity of output. It represents the additional revenue generated by selling one more unit of output. Therefore, D is the best choice.

Question 16

If the market price is $40 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

Accepted Answer

In a perfectly competitive market, individual firms are price takers, meaning they cannot influence the market price. Therefore, the marginal revenue from selling the fifth unit will also be $40. This is because marginal revenue is the change in total revenue that results from producing one additional unit, and in a perfectly competitive market, selling an additional unit will not affect the market price.

Question 17

If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing it, the firm

Accepted Answer

If MR > MC, then the firm is adding more to total revenue than it is adding to total cost.

Question 18

Figure 12-2
 
-Refer to Figure 12-2.Why is the total revenue curve a ray from the origin?

Accepted Answer

The total revenue curve is a ray from the origin because the firm can sell its product at a constant price. This means that the quantity sold and the total revenue earned are directly proportional, and as a result, the graph forms a straight line passing through the origin.

Question 19

Producing where marginal revenue equals marginal cost is equivalent to producing where

Accepted Answer

Producing where marginal revenue equals marginal cost ensures that the profit is maximized, as any additional production beyond this point would result in higher costs than revenue. Therefore, the correct choice is D - total profit is maximized.

Question 20

Figure 12-2
 
-Refer to Figure 12-2.The firm breaks even at an output level of

Accepted Answer

The answer of Figure 12-2
 
-Refer to Figure 12-2.The firm...

Quiz 12: Firms in Perfectly Competitive Markets

Figure 12-2 -Refer to Figure 12-2.What happens if the firm produces more than Q₄ units?