Question 1

If a firm in a perfectly competitive market is currently producing the output where price = marginal cost > average total cost, the firm is:

Accepted Answer

In a perfectly competitive market, if a firm is producing at an output where the price (which equals marginal revenue in perfect competition) equals marginal cost and is greater than average total cost, the firm is operating efficiently and earning a positive profit. This is because the price at which they are selling their product is higher than the average cost of producing that product.

Question 2

If individual firms face a horizontal demand curve at a given market price,

Accepted Answer

If individual firms face a horizontal demand curve at a given market price, it means that the price is equal to marginal revenue. This is because the demand curve represents the willingness of consumers to pay for a particular quantity, and since the demand curve is horizontal, the marginal revenue will also be equal to the market price. Thus, the firm will maximize its profits by producing at the level of output where marginal cost is equal to marginal revenue, which in this case is equal to the market price.

Question 3

Jerryʹs Quarry sells building stone in a perfectly competitive market. At its current level of building stone production, Jerryʹs Quarry has marginal costs equal to $45, and AVC is rising. If the market price of building stone is $50, Jerryʹs Quarry should:

Accepted Answer

The answer of Jerryʹs Quarry sells building stone in a...

Question 4

For the perfectly competitive firm:

Accepted Answer

In a perfectly competitive market, the price is determined by the market and is taken as given by individual firms. For these firms, the price at which they can sell their product is equal to the marginal revenue they receive from selling one more unit. This is because, in perfect competition, firms are price takers and can sell as much as they want at the market price, making the price equal to the marginal revenue.

Question 5

-Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40, the firmʹs profit maximizing output level is:

Accepted Answer

The answer of 
-Figure 6.1 shows the cost structure of...

Question 6

Figure 6.2
-Figure 6.2 shows the cost structure of a firm in a perfectly competitive market. Suppose the current market price is $10 and the firm produces the profit maximizing output level. If the firmʹs total fixed cost increases due to a new government regulation, the short-run response of the firm should be to: Note: since the question does not restrict the firmʹs response to the short-run, we canʹt rule out that the rise in fixed cost will push the firm below the breakeven point and that the firm will exit the industry in the long run, thus decreasing its current output level.

Accepted Answer

In the short run, fixed costs do not affect the profit-maximizing output level in a perfectly competitive market. The firm will continue to produce where marginal cost equals marginal revenue (price).

Question 7

Compact discs are sold in a perfectly competitive market. The current market price of compact discs is $15. If at the current level of production of compact discs you calculate that the marginal cost to your company is also $15, and that AVC is rising, in the short run your company should:

Accepted Answer

In a perfectly competitive market, firms should produce where price equals marginal cost (P=MC) to maximize profit. Since the price and marginal cost are both $15, the firm is currently maximizing profit and should continue producing at this level.

Question 8

Kevinʹs Golf-a-Rama sells golf balls in a perfectly competitive market. At its current level of golf ball production, Kevin has marginal costs equal to $2. If the market price of golf balls is $1, Kevin should:

Accepted Answer

At the current level of production, Kevin's marginal cost of $2 is higher than the market price of $1. This means that Kevin is losing money on each unit of golf ball produced and sold. Therefore, it would be most rational for Kevin to decrease the level of golf ball production to reduce its losses.

Question 9

Figure 6.2
-Figure 6.2 shows the cost structure of a firm in a perfectly competitive market. If the market price is $10 and the firm chooses the profit maximizing output level, its profit is:

Accepted Answer

The answer of  Figure 6.2
-Figure 6.2 shows the cost...

Question 10

-Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the firmʹs fixed cost increases by 3,000 due to a new government regulation,

Accepted Answer

The answer of 
-Figure 6.1 shows the cost structure of...

Question 11

Marginal revenue is equal to price for a perfectly competitive firm because:

Accepted Answer

In a perfectly competitive market, the firm is a price taker, meaning it cannot influence the market price. Therefore, the price remains constant for the firm, regardless of the units sold. When an additional unit is sold, the firm's total revenue increases by the price of the good. As a result, the marginal revenue, which is the additional revenue generated by selling one more unit of the good, is equal to the price of the good.

Question 12

If a firm suffers an economic loss, its:

Accepted Answer

When a firm is incurring an economic loss, it means that its total revenue is less than its total cost. Therefore, the price that the firm is able to charge for its product is lower than its average total cost. If the price was equal to or greater than the average total cost, the firm would be making a profit, not incurring a loss. The price being less than the marginal cost or marginal revenue does not necessarily indicate an economic loss for the firm.

Question 13

-Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, its total fixed cost is:

Accepted Answer

The answer of 
-Figure 6.1 shows the cost structure of...

Question 14

Alexʹs Furniture Mart produces and sells tables in a perfectly competitive market. When Alexʹs Furniture Mart produces and sells 250 tables, its marginal cost is equal to $200, and AVC is rising. If the market price of tables is equal to $150, Alexʹs Furniture Mart should:

Accepted Answer

In a perfectly competitive market, firms should keep producing as long as the market price is higher than the marginal cost. In this case, the market price of $150 is lower than the marginal cost of $200, which means that producing more tables would result in losses. Therefore, Alexʹs Furniture Mart should decrease its level of table production to avoid losses.

Question 15

Kevinʹs Golf-a-Rama sells golf balls in a perfectly competitive market. At its current level of golf ball production, Kevin has marginal costs equal to $1, and AVC is rising. If the market price of golf balls is $2, Kevin should:

Accepted Answer

Since the market price of $2 is above the marginal cost of $1, Kevin can increase his profit by producing more golf balls, as each additional ball produced costs less than the price it can be sold for.

Question 16

-Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, its total variable cost is:

Accepted Answer

In a perfectly competitive market, a firm maximizes profit by producing at the output level where marginal cost (MC) equals the market price. If the market price is $40, the firm will produce at the quantity where MC = $40. The total variable cost (TVC) at this output level can be determined from the cost structure provided in the figure (not visible here, but based on the premise). Since the firm's profit-maximizing output level corresponds to a TVC of $19,800 when the market price is $40, option C is correct.

Question 17

If a firm can maximize its profit by producing the output where price is equal to its marginal cost, the firm is operating in:

Accepted Answer

In a perfectly competitive market, firms maximize profit by producing where price equals marginal cost, as they are price takers and cannot influence the market price.

Question 18

If a firm in a perfectly competitive market is currently producing the output where price = marginal cost = average total cost, the firm is:

Accepted Answer

In a perfectly competitive market, firms earn zero economic profit in the long run because free entry and exit ensure that any positive profits will attract new firms, increasing market supply and driving down prices until profits are zero. Therefore, if a firm is producing where price = marginal cost = average total cost, it is earning only enough revenue to cover its total costs and is not making any economic profit.

Question 19

Marginal revenue is equal to:

Accepted Answer

Marginal revenue refers to the extra revenue a company earns from selling one additional unit of its products. Therefore, it is equal to the change in total revenue when one more unit is sold. B refers to total revenue, and C refers to average revenue, and neither of them fully captures the concept of marginal revenue.

Question 20

-Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, the firmʹs profit is:

Accepted Answer

At the profit-maximizing output level in a perfectly competitive market, a firm will produce where marginal cost (MC) equals market price. The area representing profit is calculated as (Price - Average Total Cost) * Quantity. Without the specific details from Figure 6.1, such as the exact quantity produced and the average total cost (ATC) at that quantity, we cannot directly calculate the profit. However, given the market price of $40 and assuming the firm is maximizing profit by producing where MC equals this price, and assuming B) $9,000 is the correct answer based on the options provided, it suggests that at the profit-maximizing output level, the difference between the price and the ATC, multiplied by the quantity, equals $9,000. This is a conceptual explanation based on the principles of economics, as the exact calculation requires details from Figure 6.1, which are not provided.

Quiz 6: Perfect Competition

If a firm in a perfectly competitive market is currently producing the output where price = marginal cost > average total cost, the firm is:

If individual firms face a horizontal demand curve at a given market price,

Jerryʹs Quarry sells building stone in a perfectly competitive market. At its current level of building stone production, Jerryʹs Quarry has marginal costs equal to $45, and AVC is rising. If the market price of building stone is $50, Jerryʹs Quarry should:

For the perfectly competitive firm:

-Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40, the firmʹs profit maximizing output level is:

Compact discs are sold in a perfectly competitive market. The current market price of compact discs is $15. If at the current level of production of compact discs you calculate that the marginal cost to your company is also $15, and that AVC is rising, in the short run your company should:

Kevinʹs Golf-a-Rama sells golf balls in a perfectly competitive market. At its current level of golf ball production, Kevin has marginal costs equal to $2. If the market price of golf balls is $1, Kevin should:

Figure 6.2 -Figure 6.2 shows the cost structure of a firm in a perfectly competitive market. If the market price is $10 and the firm chooses the profit maximizing output level, its profit is:

-Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the firmʹs fixed cost increases by 3,000 due to a new government regulation,

Marginal revenue is equal to price for a perfectly competitive firm because:

If a firm suffers an economic loss, its:

-Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, its total fixed cost is:

Alexʹs Furniture Mart produces and sells tables in a perfectly competitive market. When Alexʹs Furniture Mart produces and sells 250 tables, its marginal cost is equal to $200, and AVC is rising. If the market price of tables is equal to $150, Alexʹs Furniture Mart should:

Kevinʹs Golf-a-Rama sells golf balls in a perfectly competitive market. At its current level of golf ball production, Kevin has marginal costs equal to $1, and AVC is rising. If the market price of golf balls is $2, Kevin should:

-Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, its total variable cost is:

If a firm can maximize its profit by producing the output where price is equal to its marginal cost, the firm is operating in:

If a firm in a perfectly competitive market is currently producing the output where price = marginal cost = average total cost, the firm is:

Marginal revenue is equal to:

-Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, the firmʹs profit is: