Question 1

-Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40, the firm's profit maximizing output level is

Accepted Answer

In a perfectly competitive market, a firm maximizes profit where marginal cost (MC) equals market price. If the market price is $40, the firm should produce at the output level where MC is $40, which is 900 units.

Question 2

Compact discs are sold in a perfectly competitive market. The current market price of compact discs is $15. If at the current level of production of compact discs you calculate the marginal cost to your company is also $15, and that AVC is rising, in the short run your company should

Accepted Answer

In a perfectly competitive market, firms should produce where MR=MC, which is at the current market price of $15. If the marginal cost to your company is also $15, then producing more or fewer units would not be profitable in the short run. Additionally, since AVC is rising, it would be unwise to produce less than the current level because the cost of shutting down would be higher than continuing production. Finally, there is no reason to raise the price of the CDs since the market price is already set at $15. Therefore, the best choice for your company is to continue producing the current level of compact discs.

Question 3

Alex's Furniture Mart produces and sells tables in a perfectly competitive market. When Alex's Furniture Mart produces and sells 250 tables, its marginal cost is equal to $200, and AVC is rising. If the market price of tables is equal to $150, Alex's Furniture Mart should

Accepted Answer

In a perfectly competitive market, the firm should produce where P=MC. In this case, the market price is $150 and the marginal cost is $200. Since the market price is lower than the marginal cost, the firm is incurring losses. Thus, the best choice is to decrease the level of production to minimize the losses.

Question 4

-Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, its total variable cost is

Accepted Answer

In a perfectly competitive market, a firm maximizes profit by producing at the output level where marginal cost (MC) equals the market price. If the market price is $40, the firm will produce at the quantity where MC = $40. The total variable cost (TVC) at this output level can be determined from the cost structure provided in the figure (not visible here, but based on the premise). Since the firm's profit-maximizing output level corresponds to a TVC of $19,800 when the market price is $40, option C is correct.

Question 5

Jerry's Quarry sells building stone in a perfectly competitive market. At its current level of building stone production, Jerry's Quarry has marginal costs equal to $45, and AVC is rising. If the market price of building stone is $50, Jerry's Quarry should

Accepted Answer

In a perfectly competitive market, if the market price ($50) is greater than the marginal cost ($45), Jerry's Quarry should increase production to maximize profit.

Question 6

-Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, its total fixed cost is

Accepted Answer

The answer of 
-Figure 6.1 shows the cost structure of...

Question 7

Brodie sells fish in a perfectly competitive market. Suppose the current market price of fish is $4.50 per pound.

Accepted Answer

In a perfectly competitive market, the price is determined by the market and individual firms cannot influence it. Therefore, Brodie cannot charge more or less than the market price of $4.50 per pound. He can sell as many fish as he can catch at this price. If he charges more than $4.50, buyers will switch to other sellers in the market, and if he charges less than $4.50, he will not maximize his profit.

Question 8

Marginal revenue is equal to price for a perfectly competitive firm because

Accepted Answer

In a perfectly competitive market, each firm is a price taker and cannot influence the price of the good or service. Therefore, the price remains constant, and any increase in the quantity sold results in an increase in total revenue by the price of the good. Hence, marginal revenue, which is the additional revenue earned from selling one more unit of the good, is equal to price for a perfectly competitive firm.

Question 9

Kevin's Golf-a-Rama sells golf balls in a perfectly competitive market. At its current level of golf ball production, Kevin has marginal costs equal to $1, and AVC is rising. If the market price of golf balls is $2, Kevin should

Accepted Answer

Since the market price of $2 is above the marginal cost of $1, Kevin can increase his profit by producing more golf balls, as each additional ball produced costs less than the price it can be sold for.

Question 10

-Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, the firm's profit is

Accepted Answer

At the profit-maximizing output level in a perfectly competitive market, a firm will produce where marginal cost (MC) equals market price. The area representing profit is calculated as (Price - Average Total Cost) * Quantity. Without the specific details from Figure 6.1, such as the exact quantity produced and the average total cost (ATC) at that quantity, we cannot directly calculate the profit. However, given the market price of $40 and assuming the firm is maximizing profit by producing where MC equals this price, and assuming B) $9,000 is the correct answer based on the options provided, it suggests that at the profit-maximizing output level, the difference between the price and the ATC, multiplied by the quantity, equals $9,000. This is a conceptual explanation based on the principles of economics, as the exact calculation requires details from Figure 6.1, which are not provided.

Question 11

For the perfectly competitive firm

Accepted Answer

In a perfectly competitive market, the price is determined by the market and is taken as given by individual firms. For these firms, the price at which they can sell their product is equal to the marginal revenue they receive from selling one more unit. This is because, in perfect competition, firms are price takers and can sell as much as they want at the market price, making the price equal to the marginal revenue.

Question 12

Marginal revenue is equal to

Accepted Answer

Marginal revenue is the additional revenue generated from selling one more unit of a good. Therefore, option A, "the change in total revenue from selling one more unit of a good," is the correct answer. Option B is incorrect because it describes total revenue, not marginal revenue. Option C is incorrect because it refers to average revenue, which is the total revenue divided by the number of units sold, and not marginal revenue. Option D is incorrect because it includes options B and C, which are incorrect.

Question 13

Kevin's Golf-a-Rama sells golf balls in a perfectly competitive market. At its current level of golf ball production, Kevin has marginal costs equal to $2. If the market price of golf balls is $1, Kevin should

Accepted Answer

If the market price of golf balls is $1, and Kevin has marginal costs of $2, he is selling his goods at a loss. Therefore, Kevin should decrease his level of golf ball production in order to reduce his losses.

Question 14

If a firm suffers an economic loss, its

Accepted Answer

An economic loss occurs when the price of a firm's product is less than its average total cost. This means that the firm is not covering all of its costs with the revenue it generates from selling its product. If the price were less than the firm's marginal cost or marginal revenue, it would not be profitable to produce any output, but it would not necessarily be experiencing an economic loss.

Question 15

If a firm in a perfectly competitive market is currently producing the output where price = marginal cost > average total cost, the firm is

Accepted Answer

In a perfectly competitive market, if a firm is producing at an output where the price (which equals marginal revenue in perfect competition) equals marginal cost and is greater than average total cost, the firm is operating efficiently and earning a positive profit. This is because the price at which they are selling their product is higher than the average cost of producing that product.

Question 16

If individual firms face a horizontal demand curve at a given market price

Accepted Answer

When facing a horizontal demand curve, individual firms are price takers, which means that they can sell as much as they want at the market price. Therefore, marginal revenue (MR) equals the price. In order to maximize profits, firms should produce at the level of output where marginal cost (MC) equals MR (which is equal to the market price). Therefore, the correct answer is C: price is equal to marginal revenue.

Question 17

You sell your good in a perfectly competitive market where the market price is $33.00. When you sell 100 units your total revenue is $3,300. When you sell 101 units

Accepted Answer

In a perfectly competitive market, the price per unit remains constant regardless of the quantity sold. Therefore, selling one additional unit at the market price of $33.00 increases total revenue by exactly $33.

Question 18

If a firm in a perfectly competitive market is currently producing the output where price = marginal cost = average total cost, the firm is

Accepted Answer

When price equals marginal cost (P=MC) in a perfectly competitive market, the firm is producing the optimal level of output. When average total cost (ATC) is also equal to price and marginal cost, the firm is earning only a normal profit. Therefore, the firm is earning a zero economic profit (neither making a profit nor suffering a loss) in this scenario.

Question 19

If a firm can maximize its profit by producing the output where price is equal to its marginal cost, the firm is operating in

Accepted Answer

In a perfectly competitive market, firms are price takers and must produce at the point where price equals marginal cost in order to maximize profit. This is because in a perfectly competitive market, there are no barriers to entry and many firms producing identical goods, so any firm that tries to charge a price above its marginal cost will not be able to sell any goods, as consumers will simply buy from another firm charging a lower price.

Question 20

You sell your good in a perfectly competitive market where the market price is $7.00. When you sell 100 units your total revenue is $700. When you sell 101 units

Accepted Answer

In a perfectly competitive market, the price of the good remains constant regardless of the quantity sold. Therefore, selling one additional unit at the market price of $7.00 increases total revenue by exactly $7.00.

Quiz 6: Perfect Competition