Question 1

Which of the following expressions is correct for a competitive firm?

Accepted Answer

A is the correct expression for a competitive firm because it calculates the firm's profit as the difference between total revenue (price x quantity of output) and total cost (average total cost x quantity of output). B is a correct expression for the calculation of marginal revenue, but it does not represent the full calculation for a competitive firm. C is an incorrect expression because average total cost is calculated as (total fixed cost + total variable cost) / quantity of output. D is incorrect because average revenue is calculated as total revenue / quantity of output, not as the product of marginal revenue and quantity of output.

Question 2

A competitive firm's short-run supply curve is part of which of the following curves?

Accepted Answer

The short-run supply curve for a competitive firm is the portion of the marginal cost curve above the shutdown point (where price is below average variable cost), so it is part of the marginal cost curve.

Question 3

Consider a firm operating in a competitive market.The firm is producing 40 units of output,has an average total cost of production equal to $5,and is earning $240 economic profit in the short run.What is the current market price?

Accepted Answer

The answer of Consider a firm operating in a competitive...

Question 4

We can measure the profits earned by a firm in a competitive industry as

Accepted Answer

The answer of We can measure the profits earned by...

Question 5

Which of these curves is the competitive firm's short-run supply curve?

Accepted Answer

The competitive firm's short-run supply curve is the portion of the marginal cost curve that lies above the average variable cost curve. This is because firms will only produce output in the short run if it covers the variable costs of production, and the marginal cost curve represents the cost of producing each additional unit. Therefore, Choice C, the marginal cost curve above the average variable cost curve, is the best choice for the competitive firm's short-run supply curve.

Question 6

Consider a firm operating in a competitive market.The firm is producing 40 units of output,has an average total cost of production equal to $6,and is earning $240 economic profit in the short run.What is the current market price?

Accepted Answer

The answer of Consider a firm operating in a competitive...

Question 7

In the short run,a firm operating in a competitive industry will shut down if price is

Accepted Answer

If the price falls below the average variable cost, the firm is not even covering its variable costs and so it will shut down in the short run. On the other hand, if the price is greater than average variable cost but less than average total cost, the firm is covering its variable costs but not its fixed costs. In this case, the firm may continue to operate in the short run but it will eventually exit the industry in the long run if it cannot cover all its costs including fixed costs.

Question 8

The firm will make the most profits if it produces the quantity of output at which

Accepted Answer

The firm will make the most profit if it produces the quantity of output at which marginal revenue equals marginal cost. This is because at this level of output, the firm is earning the maximum amount of revenue for each additional unit produced, while also incurring the minimum amount of cost for producing that additional unit. Producing at any other level would result in either lower revenue per unit or higher cost per unit, leading to lower profits.

Question 9

A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob.Which of the following events would decrease the firm's average revenue?

Accepted Answer

If the market price of doorknobs falls below $10, the firm will have to lower its price in order to stay competitive. This will decrease the firm's average revenue, even if it maintains the same level of output.

Question 10

Which of the following could be used to calculate the profit for a firm?

Accepted Answer

The answer of Which of the following could be used...

Question 11

In the short run,a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the

Accepted Answer

The answer of In the short run,a firm operating in...

Question 12

Assume a firm in a competitive industry is producing 800 units of output,and it sells each unit for $6.Its average total cost is $4.Its profit is

Accepted Answer

Profit is calculated as (Price - Average Total Cost) * Quantity. Here, it is ($6 - $4) * 800 = $2 * 800 = $1,600.

Question 13

Total profit for a firm is calculated as

Accepted Answer

Total profit is calculated by subtracting the total cost of production from the total revenue earned. The formula is (Price - Average Cost) x Quantity of output. Option D is the only choice that corresponds with this formula.

Question 14

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day.If Winona's fixed costs unexpectedly increase and the market price remains constant,then the short run profit-maximizing level of output

Accepted Answer

In the short run, the profit-maximizing level of output is determined by the marginal cost and marginal revenue. An increase in fixed costs does not affect the marginal cost or the market price, so the profit-maximizing level of output remains the same.

Question 15

Raiman's Shoe Repair produces custom-made shoes.When Mr.Raiman produces 12 pairs per week,the marginal cost of the 12th pair is $84,and the marginal revenue of the 12th pair is $70.What would you advise Mr.Raiman to do?

Accepted Answer

The marginal cost of producing the 12th pair ($84) is higher than the marginal revenue of the 12th pair ($70), indicating that the business is experiencing diminishing returns. Therefore, Mr. Raiman should produce fewer custom-made shoes to reduce the marginal cost and increase the marginal revenue.

Question 16

Cold Duck Airlines flies between Tacoma and Portland.The company leases planes on a year-long contract at a cost that averages $600 per flight.Other costs (fuel,flight attendants,etc. )amount to $550 per flight.Currently,Cold Duck's revenues are $1,000 per flight.All prices and costs are expected to continue at their present levels.If it wants to maximize profit,Cold Duck Airlines should

Accepted Answer

The answer of Cold Duck Airlines flies between Tacoma and...

Question 17

In a competitive market the price is $8.A typical firm in the market has ATC = $6,AVC = $5,and MC = $8.How much economic profit is the firm earning in the short run?

Accepted Answer

Economic profit per unit is calculated as price minus average total cost (ATC). Given the price is $8 and ATC is $6, the economic profit per unit is $8 - $6 = $2.

Question 18

Suppose that a firm in a competitive market is currently maximizing its short-run profit at an output of 50 units.If the current price is $9,the marginal cost of the 50th unit is $9,and the average total cost of producing 50 units is $4,what is the firm's profit?

Accepted Answer

To find the firm's profit, we need to use the following formula:
Profit = Total revenue - Total cost
Total revenue = Price * Quantity = $9 * 50 = $450
Total cost = Average total cost * Quantity = $4 * 50 = $200
Profit = $450 - $200 = $250
Therefore, the firm's profit is $250. (Option C is correct)

Question 19

The short-run supply curve for a firm in a perfectly competitive market is

Accepted Answer

In a perfectly competitive market, the short-run supply curve of a firm is the portion of the marginal cost curve that lies above the average variable cost curve. This is because in the short run, the firm's fixed costs cannot be changed, and therefore, the supply curve is influenced only by the variable costs which are represented by the marginal cost curve. Hence, choice D is the correct answer. The other choices are incorrect because the short-run supply curve is not horizontal as in the long-run, it is not likely to slope downward, and it is not determined by external forces.

Question 20

When a profit-maximizing firm is earning profits,those profits can be identified by

Accepted Answer

Profits are calculated as (P - ATC)Q. This formula takes into account the total cost of production (ATC) and subtracts it from the price (P) at which the product is sold to obtain the profit. Therefore, option C is the correct answer as it represents the formula for calculating profits. The other options are not correct because they do not take into account the total cost of production or do not include the price at which the product is sold.

Quiz 14: Firms in Competitive Markets