Question 1

Figure: Profit Maximizing Output  Use the figure. The profit-maximizing output for this firm is:
A)40.
B)3.
C)6.
D)9.

Accepted Answer

The profit-maximizing output is where marginal revenue equals marginal cost. In the given figure, MR intersects MC at point Q which represents an output level of 6 where the total profit is maximized. Therefore, the answer is C) 6.

Question 2

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?
A) 67.5
B) 30
C) 45
D) 15

Accepted Answer

To find the profit-maximizing level of output, we need to set the MR equal to MC:
MR = MC
$45 = 1.5Q
Q = 30
Therefore, the firm's profit-maximizing level of output is 30.

Question 3

Fewer potential sellers make a firm-level demand curve ______ in the ______.
A) flatter; short run
B) flatter; long run
C) steeper; short run
D) steeper; long run

Accepted Answer

When there are fewer potential sellers, the firm-level demand curve becomes steeper in the short run because the firm has more market power and can increase their prices without losing too many customers. In the long run, however, more firms may enter the market, making the demand curve flatter again.

Question 4

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.
A) I and II only
B) II and III only
C) I and III only
D) III only

Accepted Answer

Economists typically assume that the goal of a firm is to maximize profit. While selling as much of their product as possible and setting the price of their product as high as possible may contribute to profit maximization, they are not the primary goals of the firm.

Question 5

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) $110.
B) $11.
C) $10.
D) $210.

Accepted Answer

Marginal revenue is the change in total revenue when output is increased by one unit. In this case, the increase in output from 10 to 11 units resulted in a $10 increase in total revenue. Therefore, the marginal revenue of the eleventh unit is $10.

Question 6

Use the following to answer questions: Table: Barrels of Oil 
-(Table: Barrels of Oil) Refer to the table. The profit-maximizing level of output is ________ barrels of oil.
A) 1
B) 3
C) 5
D) 7

Accepted Answer

The profit-maximizing level of output is where marginal revenue (MR) equals marginal cost (MC). At the quantity of 5 barrels, the marginal revenue (MR) is $8 and the marginal cost (MC) is $8, which means that the company is maximizing profit at this quantity. At any other quantity, the company would either be producing at a level where it is not maximizing profits or it would be producing at a loss. Therefore, the best choice is option C.

Question 7

Use the following to answer questions: Table: Barrels of Oil 
-(Table: Barrels of Oil) Refer to the table. The change in profit from producing the second barrel of oil is ________, and the marginal cost from producing the seventh barrel of oil is ________.
A) $140; $140
B) $100; $20
C) $60; $140
D) $140; $20

Accepted Answer

The answer of Use the following to answer questions: Table:...

Question 8

In the long run, demand is ______ the short run.
A) more elastic than in
B) less elastic than in
C) equally elastic as in
D) indeterminately different in elasticity as compared with

Accepted Answer

The answer of In the long run, demand is ______...

Question 9

If Homer operates a small bakery and sells donuts for $4/dozen, he should:
A) sell an additional dozen donuts as long as the marginal cost of producing an additional dozen donuts is less than $4.
B) sell an additional dozen donuts as long as the total cost of producing an additional dozen donuts is less than $4.
C) only sell more donuts if his total revenue is greater than his total cost.
D) sell an additional dozen donuts so long as the fixed cost of production is greater than $4.

Accepted Answer

Homer should sell an additional dozen donuts as long as the marginal cost of producing an additional dozen donuts is less than the selling price of $4/dozen. This is because the additional revenue generated from selling the extra dozen will exceed the cost of producing it, resulting in a profit.

Question 10

Which of the following best describes a competitive industry?
A) Its firms sell similar products and have little control over their prices; there are many buyers and sellers and each is relatively small compared with the overall market.
B) Its firms sell similar products and have direct control over their prices; there are many buyers and sellers and each is relatively small compared with the overall market.
C) Its firms have little control over the price of their product; the demand curve for each firm's product is downward sloping; there are many firms.
D) Its firms sell differentiated products and there are few potential sellers. They have little control over the price of their product; there are many relatively small buyers.

Accepted Answer

The answer of Which of the following best describes a...

Question 11

A market becomes more competitive as there are ______ buyers and ______ sellers.
A) fewer; fewer
B) fewer; more
C) more; fewer
D) more; more

Accepted Answer

The answer of A market becomes more competitive as there...

Question 12

In competitive markets, the demand curve faced by the individual firm is:
A) equal to the market demand curve.
B) perfectly elastic.
C) perfectly inelastic.
D) downward sloping.

Accepted Answer

The answer of In competitive markets, the demand curve faced...

Question 13

More potential sellers ______ the elasticity of ______ firm-level demand.
A) increase; short-run
B) decrease; short-run
C) increase; long-run
D) decrease; long-run

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.

Question 14

A market becomes more competitive as the product becomes ______ homogeneous and there are ______ potential sellers.
A) more and more; more
B) less and less; more
C) more and more; fewer
D) less and less; fewer

Accepted Answer

The answer of A market becomes more competitive as the...

Question 15

A flat firm-level demand curve means:
A) full market pricing power.
B) limited market pricing power.
C) no market pricing power.
D) seasonal market pricing power.

Accepted Answer

A flat firm-level demand curve indicates that a firm cannot increase its price without losing most of its customers, indicating that it has no or very limited market pricing power. Therefore, option C is the correct answer.

Question 16

Marginal cost is:
A) the change in total cost from producing one more unit of output.
B) total cost divided by the change in total output.
C) the change in total output divided by the change in total cost.
D) average cost times output.

Accepted Answer

Marginal cost is defined as the additional cost incurred by producing one more unit of output. Therefore, the correct choice is A, which states that marginal cost is the change in total cost from producing one more unit of output. B, C, and D are incorrect as they don't accurately define marginal cost.

Question 17

The total amount of money that a firm receives from sales of its output is called:
A) gross profit.
B) net profit.
C) total revenue.
D) net revenue.

Accepted Answer

Total revenue is the total amount of money earned by the firm from the sales of its products or services before deducting all the expenses. The term "gross profit" refers to the difference between total revenue and the cost of goods sold. "Net profit" is the revenue left after all the expenses, including taxes, have been deducted. "Net revenue" is not a commonly used term in business and does not have a clear definition.

Question 18

The demand curve for oil from OPEC is:
A) flat.
B) vertical.
C) upward-sloping.
D) downward-sloping.

Accepted Answer

The demand curve for oil from OPEC is downward-sloping because as the price of oil increases, the quantity demanded by consumers decreases.

Question 19

According to the text, the demand curve for oil from a particular stripper well is:
A) flat.
B) vertical.
C) upward-sloping.
D) downward-sloping.

Accepted Answer

The answer of According to the text, the demand curve...

Question 20

In a perfectly competitive market, firm level demand is:
A) flat.
B) vertical.
C) positively sloped.
D) negatively sloped.

Accepted Answer

In a perfectly competitive market, firms are price takers, meaning they cannot influence the market price by changing their own prices or output. As a result, the demand curve facing each individual firm is perfectly elastic, or flat. This means that the firm can sell any quantity of output at the market price, but cannot sell any units at a higher price.

Quiz 11: Costs and Profit Maximization Under Competition

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

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?

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

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.

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:

Use the following to answer questions: Table: Barrels of Oil -(Table: Barrels of Oil) Refer to the table. The profit-maximizing level of output is ________ barrels of oil.

Use the following to answer questions: Table: Barrels of Oil -(Table: Barrels of Oil) Refer to the table. The change in profit from producing the second barrel of oil is , and the marginal cost from producing the seventh barrel of oil is .

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

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

Which of the following best describes a competitive industry?

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

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

More potential sellers the elasticity of firm-level demand.

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

A flat firm-level demand curve means:

Marginal cost is:

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

The demand curve for oil from OPEC is:

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

In a perfectly competitive market, firm level demand is: