Question 1

Figure 12-2 -Refer to Figure 12-2. Suppose the firm is currently producing Q₂units. What happens if it expands output to Q₃units?

Accepted Answer

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

Question 2

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 last unit produced added more to total revenue (MR) than it added to total cost (MC). Therefore, the firm should continue to produce that unit as it will increase the total profit. This condition is a necessary condition for profit maximization in the short run for perfectly competitive firms.

Question 3

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

The answer of Mark Frost grows apples in a perfectly...

Question 4

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, the marginal revenue is equal to the market price. Therefore, the marginal revenue from selling the fifth unit is $40, which is equal to the market price.

Question 5

Marginal revenue is

Accepted Answer

Marginal revenue is the change in total revenue resulting from a one-unit increase in output quantity. Therefore, the best choice is (D) - the change in total revenue divided by the change in the quantity of output.

Question 6

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...

Question 7

Figure 12-2 -Refer to Figure 12-2. What is the amount of profit if the firm produces Q₂units?

Accepted Answer

The profit is equal to the vertical distance c to g.

Question 8

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. As the quantity sold increases, the total revenue also increases proportionally. Therefore, the curve is a straight line with a constant slope and intersects the origin.

Question 9

Figure 12-2 -Refer to Figure 12-2. What happens if the firm produces more than Q₄units?

Accepted Answer

If the firm produces more than Q4 units, it makes a loss because the marginal cost of producing additional units exceeds the marginal revenue, leading to a decrease in profit.

Question 10

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

Accepted Answer

In a perfectly competitive market, the firm is a price taker and must accept the market price as given. Therefore, at profit maximization, the market price equals the firm's marginal cost. If the market price is greater than marginal cost, the firm could increase its profits by producing more.

Question 11

For a perfectly competitive firm, average revenue is equal to

Accepted Answer

In a perfectly competitive market, firms are price-takers and cannot influence the market price. Therefore, the market price is equal to the firm's average revenue, which is the revenue earned per unit of output sold. The other options (A, C, and D) are not necessarily equal to the average revenue in a perfectly competitive market. Marginal cost may be higher or lower than average revenue, total revenue is the total amount earned from all units sold and is not equal to average revenue, and average fixed cost is a fixed cost per unit of output, which is not necessarily equal to average revenue.

Question 12

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

If the marginal cost is greater than the price, the firm is earning negative profits (losses). To minimize the losses, the firm should produce at a lower output level where the marginal cost intersects with the marginal revenue, or in other words, produce where the marginal cost equals the price. In this case, the firm should produce a smaller level of output to minimize losses.

Question 13

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

Accepted Answer

Producing where marginal revenue equals marginal cost leads to maximizing total profit. This is because, at this point, the incremental revenue earned from producing an additional unit equals the incremental cost of producing that unit, resulting in the optimal level of output that maximizes profit.

Question 14

To maximize profit, a perfectly competitive firm

Accepted Answer

The answer of To maximize profit, a perfectly competitive firm
...

Question 15

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

Accepted Answer

In a perfectly competitive market, firms are price takers and must accept the market price as given. If the market price exceeds the marginal cost of production, it means that there is a profit to be made by increasing production. By increasing output, the firm can take advantage of the higher price and increase its profit. Therefore, choice A is the best option.

Question 16

For a firm in a perfectly competitive market, price is

Accepted Answer

In a perfectly competitive market, firms are price takers and have no control over the price. The price is determined by the market and is the same for all firms in the market. Therefore, the price is equal to both average revenue (AR) and marginal revenue (MR), since in a perfectly competitive market, a firm's AR curve is a horizontal line at the market price, and its MR curve is also a horizontal line at the same price.

Question 17

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

Accepted Answer

The answer of If the market price is $40, the...

Question 18

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

Accepted Answer

The answer of In a graph that illustrates a perfectly...

Question 19

The marginal revenue curve for a perfectly competitive firm

Accepted Answer

In a perfectly competitive market, a firm is a price-taker and has no control over the price of its product. Therefore, the demand curve facing the firm is perfectly elastic, or horizontal at the market price. Since marginal revenue is the additional revenue earned from selling one more unit of output, it is also equal to the market price for a perfectly competitive firm. Hence, the marginal revenue curve for a perfectly competitive firm is the same as its demand curve, which is horizontal at the market price.

Question 20

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

The answer of In a graph with output on the...

Quiz 12: Firms in Perfectly Competitive Markets

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?