Question 1

Marginal cost is:

Accepted Answer

Marginal cost measures the cost of producing one additional unit of a good or service. It is calculated as the change in total cost divided by the change in quantity produced, and represents the additional cost of producing one more unit, after all fixed costs have been accounted for. Option A is the only choice that accurately describes this definition.

Question 2

A market becomes more competitive as the product becomes ______ homogeneous and there are ______ potential sellers.

Accepted Answer

A market becomes more competitive as the product becomes more homogeneous and there are more potential sellers, leading to increased competition and reduced differentiation.

Question 3

In the long run, demand is ______ the short run.

Accepted Answer

In the long run, consumers have more time to adjust their behavior and find substitutes, making demand more elastic compared to the short run.

Question 4

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

Accepted Answer

Marginal revenue is the additional revenue generated from selling one more unit of output. In this case, the firm expanded output from 10 to 11 units, and total revenue increased from $100 to $110. Therefore, the marginal revenue of the eleventh unit is $10, which is the difference between the new total revenue ($110) and the old total revenue ($100) divided by the increase in output (1). So, the answer is C, $10.

Question 5

A flat firm-level demand curve means:

Accepted Answer

A flat firm-level demand curve indicates that the firm's output level has no significant impact on the market price, implying that the firm has no pricing power in the market. The market price is determined by the industry supply and demand forces rather than the individual firm's actions.

Question 6

The demand curve for oil from OPEC is:

Accepted Answer

The demand curve for oil from OPEC is downward-sloping because as the price of oil increases, consumers will likely use less oil or seek alternatives, leading to a decrease in demand. On the other hand, if the price of oil decreases, consumers will likely use more oil, leading to an increase in demand.

Question 7

Figure: Profit Maximizing Output  Use the figure. The profit-maximizing output for this firm is:

Accepted Answer

The profit-maximizing output is the point where marginal revenue (MR) is equal to marginal cost (MC). In the figure, MR intersects MC at the output level of 6 units. At this output level, the firm produces and sells 6 units, which generates a profit of (P-ATC) × Q = ($8-$2) × 6 = $36. At any output level below or above 6, the firm would not be maximizing its profit. Therefore, the best choice is C) 6.

Question 8

In competitive markets, the demand curve faced by the individual firm is:

Accepted Answer

In competitive markets, the individual firm is a price taker, meaning that it has no control over the market price. The market demand curve represents the total demand for the product in the market, and the individual firm's demand curve is perfectly elastic at the market price. This means that the firm can sell as much or as little of the product as it wants at the market price.

Question 9

Fewer potential sellers make a firm-level demand curve ______ in the ______.

Accepted Answer

When there are fewer potential sellers, the firm-level demand curve becomes steeper in the short run. This is because with fewer competitors, the firm has more market power and can charge a higher price without losing customers. However, in the long run, new firms may enter the market, increasing the number of potential sellers and making the demand curve flatter again.

Question 10

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

Accepted Answer

To find the profit-maximizing output, we need to set MR = MC. 
Given, MR = $45 
And, MC = 1.5Q

So, 45 = 1.5Q

Solving for Q, we get Q = 30.

Therefore, the firm's profit-maximizing level of output is 30.

Question 11

According to the text, the demand curve for oil from a particular stripper well is:

Accepted Answer

The demand curve for oil from a particular stripper well is flat because the quantity of oil demanded is not affected by the price of oil.

Question 12

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

Accepted Answer

Variable cost refers to the cost of inputs that vary with the quantity of output produced by the firm. It includes the cost of raw materials, labor, and other inputs that are directly related to the level of output produced.

Question 13

Profit is defined as:

Accepted Answer

Profit is calculated as total revenue minus total cost. This includes all the expenses incurred in producing and selling the goods or services, not just the variable costs. Depreciation is a non-cash expense that is not included in calculating profit. Average revenue minus average total cost is the formula for calculating average profit, not total profit. Marginal revenue minus marginal cost is the formula for calculating marginal profit, not total profit.

Question 14

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

Accepted Answer

If Homer sells an additional dozen donuts, he will receive $4 in revenue. In order to determine if he should sell more, he needs to consider the marginal cost of producing an additional dozen donuts. If the cost is less than $4, he will make a profit. Therefore, choice A is the best option.

Question 15

A market becomes more competitive as there are ______ buyers and ______ sellers.

Accepted Answer

A market becomes more competitive with more buyers and more sellers, as this increases competition and reduces the market power of any single participant.

Question 16

Which of the following best describes a competitive industry?

Accepted Answer

In a competitive industry, firms sell similar products, have little control over prices, and there are many buyers and sellers, each small relative to the market.

Question 17

In a perfectly competitive market, firm level demand is:

Accepted Answer

In a perfectly competitive market, each firm is a price taker and has no control over the price of the product. Therefore, the demand curve faced by the firm is perfectly elastic, which means that the firm can sell any amount of output at the prevailing market price. As a result, the firm-level demand is flat or horizontal.

Question 18

Which of the following statements is TRUE? Economists normally 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 possible.
III. maximize profit.

Accepted Answer

Economists typically assume that the goal of the firm is to maximize profit. While selling as much of their product as possible and setting a high price may be strategies to achieve this goal, they are not inherently the goal itself.

Question 19

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

Accepted Answer

Total revenue is the amount a firm receives from sales of its output. Gross profit is the difference between total revenue and the cost of producing the goods, while net profit is the amount left over after all expenses are deducted from total revenue. Net revenue is not a commonly used term in business.

Question 20

More potential sellers ______ the elasticity of ______ firm-level demand.

Accepted Answer

When there are more potential sellers, there is greater competition in the market, leading to an increase in elasticity of demand in the short run. This is because in the short run, firms may not be able to adjust their production levels or prices as quickly as new firms enter the market, making their demand relatively more responsive to changes in price. In the long run, firms can adjust their production levels and prices more easily, reducing the impact of new competitors on the elasticity of demand.

Quiz 11: Costs and Profit Maximization Under Competition

Marginal cost is:

A market becomes more competitive as the product becomes homogeneous and there are potential sellers.

In the long run, demand is ______ the short run.

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

A flat firm-level demand curve means:

The demand curve for oil from OPEC is:

Figure: Profit Maximizing Output Use the figure. The profit-maximizing output for this firm is:

In competitive markets, the demand curve faced by the individual firm is:

Fewer potential sellers make a firm-level demand curve in the .

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