Question 1

A perfectly competitive firm maximizes its profits by producing the amount of output such that

Accepted Answer

In perfect competition, firms aim to maximize profits by producing the quantity of output where marginal revenue (MR) equals marginal cost (MC). This is because in a perfectly competitive market, firms are price takers, meaning they have no control over the price at which they sell their output. Therefore, the firm should produce where MR = MC to maximize their profits. Choices A, C, and D are not correct because MR = P only applies to a monopolist, P = AVC is the shutdown point for a firm in the short run, and P = ATC does not necessarily maximize profits in a perfectly competitive market.

Question 2

As long as it does not shut down, a profit-maximizing perfectly competitive firm will

Accepted Answer

A profit-maximizing perfectly competitive firm will produce where marginal revenue equals marginal cost. This is because in a perfectly competitive market, the firm is a price taker and must accept the market price for its output, so it can only control the quantity it produces. At the profit-maximizing quantity, marginal revenue equals marginal cost, and any additional production would result in a decrease in profit. Producing where price equals average cost would result in zero economic profit, and setting the price equal to marginal revenue might not allow the firm to cover its costs.

Question 3

A perfectly competitive firm maximizes its profit by

Accepted Answer

A perfectly competitive firm maximizes its profit by choosing to produce the quantity where marginal cost (MC) equals marginal revenue (MR). This is because in perfect competition, the firm is a price-taker, meaning it cannot influence the market price. Therefore, setting a price higher than marginal revenue would result in lower sales and profit. Cutting wages or manipulating demand are not relevant to maximizing profit in a perfectly competitive market.

Question 4

The difference between a perfectly competitive firm's total revenue and its total cost is

Accepted Answer

The profit-maximizing level of output is where total revenue minus total cost is the greatest, so the difference between a perfectly competitive firm's total revenue and its total cost is greatest at this level of output. Therefore, the answer is D.

Question 5

A perfectly competitive firm that is producing a positive quantity of a good maximizes its economic profit if it produces so that

Accepted Answer

In a perfectly competitive market, the firm is a price-taker and faces a horizontal demand curve, meaning the marginal revenue curve is also its demand curve. The profit-maximizing output level occurs where marginal revenue equals marginal cost, as producing any more or less would reduce profits. This is the point where the firm achieves allocative efficiency, producing the quantity that society values the most, at the lowest possible cost. Therefore, the correct choice is B - marginal revenue equals marginal cost.

Question 6

The marginal revenue curve for a perfectly competitive firm is

Accepted Answer

The marginal revenue curve for a perfectly competitive firm is a horizontal line because the firm is a price taker and can sell as much output as it wants at the market-determined price without affecting the price. Therefore, each additional unit sold will earn the same amount of revenue, resulting in a constant marginal revenue.

Question 7

The break-even point is defined as occurring at an output rate at which

Accepted Answer

The answer of The break-even point is defined as occurring...

Question 8

Charlie's Chimps is a perfectly competitive firm that produces cuddly chimps for children. The market price of a chimp is $10, and Charlie's produces 100 chimps. The marginal cost of the 100th chimp is $9. Charlie's ________.

Accepted Answer

The answer of Charlie's Chimps is a perfectly competitive firm...

Question 9

-In the above figure, if the milk industry is perfectly competitive, then the firm's marginal revenue curve is represented by

Accepted Answer

The answer of 
-In the above figure, if the milk...

Question 10

A perfectly competitive firm maximizes its economic profit when it produces the quantity that sets

Accepted Answer

In a perfectly competitive market, the firm is a price taker, meaning that it cannot influence the market price. Therefore, the firm's marginal revenue (MR) is equal to the market price. In order to maximize economic profit, the firm should produce the level of output where marginal cost (MC) equals marginal revenue (MR), or where MR = MC. At the profit-maximizing level of output, the firm's total revenue (TR) will be greater than its total cost (TC), resulting in economic profit. Therefore, choice A is the correct answer.

Question 11

A firm is producing the profit-maximizing amount of output when it is producing where its ________ curve intersects its ________ curve.

Accepted Answer

The profit-maximizing output is achieved at the point where marginal revenue (MR) equals marginal cost (MC). Therefore, the correct answer is A) MC and MR curves. The other options are either irrelevant or incorrect. For example, AVC and ATC do not determine the profit-maximizing output, while TR (total revenue) does not take into account the cost of production.

Question 12

-Based on the table above, what is the marginal revenue of the tenth unit of output?

Accepted Answer

The answer of 
-Based on the table above, what is...

Question 13

-Which of the following characterizes a perfectly competitive market?

Accepted Answer

The answer of 
-Which of the following characterizes a perfectly...

Question 14

At a firm's break-even point, its

Accepted Answer

The answer of At a firm's break-even point, its
...

Question 15

For a perfectly competitive firm, as its output increases its marginal revenue ________ and its marginal cost ________.

Accepted Answer

In perfect competition, a firm faces a horizontal demand curve, so its marginal revenue does not change with output. However, as output increases, the firm's marginal cost will eventually increase due to diminishing returns or the need to use more expensive inputs. Therefore, the correct answer is C, where marginal revenue does not change but marginal cost does change with increasing output.

Question 16

As long as it does not shut down, a perfectly competitive firm earns the maximum profit as long as it operates so that

Accepted Answer

A perfectly competitive firm maximizes profit where marginal revenue (MR) equals marginal cost (MC) because any deviation from this point would either reduce profit or lead to loss. As long as the firm's marginal cost does not exceed its price, it will continue to earn positive economic profit. However, if the price falls below the average total cost, the firm would begin incurring losses and would eventually shut down. Market demand or elasticity does not affect the firm's ability to maximize profit as it is a price taker and cannot influence the market price.

Question 17

When the firm produces the quantity that sets marginal revenue equal to marginal cost, a perfectly competitive firm is

Accepted Answer

When a firm sets its marginal revenue equal to marginal cost, it is producing at the point where its profit is maximized. This is because producing any additional units beyond this point would result in a higher marginal cost than the marginal revenue received for that unit, leading to a decrease in profit. Therefore, the correct answer is C- maximizing its profit.

Question 18

A perfectly competitive firm's economic profit is maximized by producing the amount of output such that

Accepted Answer

In a perfectly competitive market, firms are price takers, meaning they cannot influence the market price. Therefore, to maximize economic profit, the firm should produce up to the point where marginal revenue (MR) equals marginal cost (MC). This is because producing more would cause MR to fall below MC, leading to a decrease in profit, while producing less would mean there are still gains to be made by increasing output to match MR to MC. Therefore, choice B is the correct answer.

Question 19

-The above figure shows the total revenue curve for Dizzy Discs. The demand curve for CDs sold by Dizzy Discs

Accepted Answer

The answer of 
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Question 20

When Sidney's Sweaters, Inc. makes exactly zero economic profit, Sidney, the owner

Accepted Answer

When a firm makes zero economic profit, it means that it is earning enough revenue to cover all of its costs, including the opportunity cost of the owner's time and investments. Therefore, the owner is making an income equal to his or her best alternative forgone income, which could be working somewhere else or investing in a different opportunity. This is the best choice because it acknowledges the concept of opportunity cost and the idea that a zero economic profit is not necessarily a loss or a reason to shut down in the short run.

Quiz 12: Perfect Competition