Question 1

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s). -Refer to Graph 14-1.When marginal revenue is equal to MC₃, the profit-maximising firm will produce what level of output?

Accepted Answer

At the level of output where marginal revenue is equal to marginal cost (MC₃), the profit-maximizing firm would produce Q₃, as this is where marginal cost intersects with marginal revenue on the graph. This output level results in the highest profit for the firm as it is producing at the point where marginal cost equals marginal revenue.

Question 2

A rice farmer sells rice to an Australian grain broker.Suppose that the market for rice is competitive.This means that the farmer will maximise profit by choosing:

Accepted Answer

In a competitive market, profit is maximized at the quantity where market price equals marginal cost. This is because if the farmer produces more than this quantity, the marginal cost will be greater than the market price and therefore the farmer will incur losses. If the farmer produces less than this quantity, the marginal revenue will be greater than the marginal cost and therefore the farmer can increase profits by producing more. Therefore, the farmer should choose the quantity where market price is equal to the farm's marginal cost of production.

Question 3

Of the following characteristics of competitive markets, which are necessary for firms to be price takers?
(i) many sellers
(ii) goods offered for sale are largely the same
(iii) firms can freely enter or exit the market

Accepted Answer

For firms to be price takers, there must be many sellers (i) and the goods offered must be largely the same (ii), ensuring no single firm can influence the market price. Free entry and exit (iii) is not necessary for being a price taker but is a characteristic of competitive markets.

Question 4

Profit-maximising producers in a competitive market in general, produce output at a point where:

Accepted Answer

A profit-maximizing producer will produce at a point where marginal cost (MC) equals marginal revenue (MR). When marginal cost is increasing, this means that the producer is producing at a point where the additional cost of producing one more unit is increasing. Therefore, producing more units would result in higher costs than revenue. Hence, choice C is the best option.

Question 5

Because the goods offered for sale in a competitive market are largely the same:

Accepted Answer

Since the goods offered for sale in a competitive market are largely the same, sellers will have little reason to charge less than the going market price, as consumers can easily switch to a different seller offering the same product at a lower price. Therefore, prices in a competitive market tend to be similar across different sellers.

Question 6

The Wheeler Wheat Farm sells wheat to a grain broker.Since the market for wheat is generally considered to be competitive, the Wheeler Farm:

Accepted Answer

Since the market for wheat is considered to be competitive, the price for wheat is determined by market forces and the Wheeler Farm does not have the ability to choose the price at which it sells its wheat. However, it still has control over the quantity of wheat it produces and incurs fixed costs of production. It is also possible for the farm to earn an accounting profit if the price it receives for its wheat is higher than its total costs.

Question 7

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s). -Refer to Graph 14-1.When market price is at MC₂, a firm producing output level Q₁ would experience:

Accepted Answer

Without seeing Graph 14-1, we can deduce the correct answer based on the information provided. A firm experiences losses when the market price (P) is less than the average total cost (ATC). The choice mentioning "losses because P < ATC" directly indicates this situation, making it the correct answer.

Question 8

When firms think at the margin and make incremental adjustments to the level of production, they are naturally led to a level of production where:

Accepted Answer

When firms make decisions at the margin, they adjust their level of production to the point where marginal cost equals marginal revenue, which is the condition for profit maximization. This approach does not necessarily ensure that costs are minimized or that total cost is less than average revenue, nor does it concern the relationship between average variable cost and marginal cost in the context of profit maximization.

Question 9

When a firm in a competitive market produces 10 units of output, it has marginal revenue of $8.What is the firm's total revenue when it produces nine units of output?

Accepted Answer

When the firm produces 10 units of output, the marginal revenue is $8. This means that the firm earns an additional $8 for every additional unit of output produced. Therefore, the total revenue for the 10 units of output is:
10 units x $8 marginal revenue = $80
When the firm produces nine units of output, we do not know the marginal revenue. However, we can calculate the total revenue by using the concept of marginal revenue. If marginal revenue is $8 for each unit, then the firm would earn:
8 units x $8 marginal revenue = $64
However, since the firm is only producing nine units, we need to subtract the marginal revenue earned from the tenth unit that is not being produced:
9 units x $8 marginal revenue - 1 unit x $8 marginal revenue = $72 - $8 = $64
Therefore, the total revenue for the nine units of output is $64. The correct answer is C.

Question 10

In a competitive market, no single producer can influence the market price because:

Accepted Answer

In a competitive market, there are a large number of producers offering identical or similar products, which means that even if one producer tries to influence the price, consumers can easily switch to another producer offering the same product at a lower price. Therefore, no single producer can influence the market price.

Question 11

Which of the following is not a characteristic of a perfectly competitive market?

Accepted Answer

In a perfectly competitive market, firms have no barriers to entry or exit, meaning they can enter or leave the market freely. Therefore, firms do not have difficulty entering the market. The other characteristics listed are all commonly associated with perfectly competitive markets.

Question 12

Why would a profit-maximising firm in a competitive market set a price higher than the market price?

Accepted Answer

A profit-maximizing firm in a competitive market will always set the price at the market price or lower to avoid losing customers to competitors. Setting a price higher than the market price would result in a decrease in demand and lower profits, which is not in the best interest of the firm. Additionally, increasing the price to increase market share would not be a profitable strategy in a competitive market, as other firms would be able to match or undercut the price. Therefore, none of the options provided would lead a profit-maximizing firm in a competitive market to set a price higher than the market price.

Question 13

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s). -Refer to Graph 14-1.When market price is at MC₄, a profit-maximising firm will produce what level of output?

Accepted Answer

The answer of Graph 14-1  
This graph depicts the...

Question 14

When buyers in a competitive market take the selling price as given, they are said to be:

Accepted Answer

When buyers in a competitive market take the selling price as given, they have no ability to influence the price and must accept it, thus they are called “price takers”. Option A (free-riders) refers to individuals who enjoy benefits without paying for them, and does not apply here. Option B (market entrants) refers to companies entering a market, and their behavior is not necessarily tied to the price. Option D (monopolists) refers to companies that have a dominant position in a market and have the ability to set prices, which is the exact opposite of the situation described in the question.

Question 15

The implication of a firm being a price taker is that, if it increases its price then:

Accepted Answer

If a firm is a price taker, it means that it cannot influence the market price and must accept the prevailing price. If the firm increases its price, buyers will seek the same or similar product from other sellers who offer a lower price, causing the firm to lose its customers to competitors. Therefore, the firm cannot increase its price without losing its market share.

Question 16

When marginal revenue equals marginal cost:

Accepted Answer

When marginal revenue equals marginal cost, the firm is operating at its profit-maximizing level of output. At this level, the firm is not generating economic profits, but it is not necessarily generating economic losses either. The firm may still be able to cover its variable costs and some portion of its fixed costs, leading to losses being minimized rather than profits being maximized. Therefore, the correct answer is D.

Question 17

Graph 14-1  
This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s).
-Refer to Graph 14-1.What price level will leave the profit-maximising firm with zero profits?

Accepted Answer

The price level that will leave the profit-maximizing firm with zero profits is the one where the price is equal to the average total cost (ATC). Without seeing Graph 14-1, the correct answer typically involves identifying the point where the price intersects the ATC curve, indicating that the firm is covering all its costs, including both variable and fixed costs, but not making any economic profit.

Question 18

Which of the following statements best reflects a price-taking firm?

Accepted Answer

All of the statements accurately describe characteristics of a price-taking firm. Price-taking firms operate in perfectly competitive markets where the market price is determined by supply and demand, and individual firms have no influence over the price. They must accept the market price as given, meaning if they charge more, they sell nothing (A), there's no incentive to charge less because they can sell all their output at the market price (B), and they can indeed sell as much as they want at the market price without affecting it (C).

Question 19

If a firm in a competitive market increases production and its marginal revenue remains greater than its marginal cost, raising production will:

Accepted Answer

If the firm's marginal revenue remains greater than its marginal cost, then producing more units will lead to additional revenue that exceeds the additional cost of producing those units. This means that the firm can earn a profit on the additional units produced, so increasing production will be profitable.

Question 20

When you buy a product from a firm in a competitive market, the price you pay for the product is likely to be:

Accepted Answer

In a competitive market, firms are price takers, meaning the price of the product is determined by the market and equals both the firm's marginal revenue and its average revenue. This is because each firm's output decision does not affect the market price.

Quiz 14: Firms in Competitive Markets

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-1.When marginal revenue is equal to MC₃, the profit-maximising firm will produce what level of output?

A rice farmer sells rice to an Australian grain broker.Suppose that the market for rice is competitive.This means that the farmer will maximise profit by choosing:

Of the following characteristics of competitive markets, which are necessary for firms to be price takers? (i) many sellers (ii) goods offered for sale are largely the same (iii) firms can freely enter or exit the market

Profit-maximising producers in a competitive market in general, produce output at a point where:

Because the goods offered for sale in a competitive market are largely the same:

The Wheeler Wheat Farm sells wheat to a grain broker.Since the market for wheat is generally considered to be competitive, the Wheeler Farm:

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-1.When market price is at MC₂, a firm producing output level Q₁ would experience:

When firms think at the margin and make incremental adjustments to the level of production, they are naturally led to a level of production where:

When a firm in a competitive market produces 10 units of output, it has marginal revenue of $8.What is the firm's total revenue when it produces nine units of output?

In a competitive market, no single producer can influence the market price because:

Which of the following is not a characteristic of a perfectly competitive market?

Why would a profit-maximising firm in a competitive market set a price higher than the market price?

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-1.When market price is at MC₄, a profit-maximising firm will produce what level of output?

When buyers in a competitive market take the selling price as given, they are said to be:

The implication of a firm being a price taker is that, if it increases its price then:

When marginal revenue equals marginal cost:

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-1.What price level will leave the profit-maximising firm with zero profits?

Which of the following statements best reflects a price-taking firm?

If a firm in a competitive market increases production and its marginal revenue remains greater than its marginal cost, raising production will:

When you buy a product from a firm in a competitive market, the price you pay for the product is likely to be:

Quiz 14: Firms in Competitive Markets

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-1.When marginal revenue is equal to MC3, the profit-maximising firm will produce what level of output?

A rice farmer sells rice to an Australian grain broker.Suppose that the market for rice is competitive.This means that the farmer will maximise profit by choosing:

Of the following characteristics of competitive markets, which are necessary for firms to be price takers? (i) many sellers (ii) goods offered for sale are largely the same (iii) firms can freely enter or exit the market

Profit-maximising producers in a competitive market in general, produce output at a point where:

Because the goods offered for sale in a competitive market are largely the same:

The Wheeler Wheat Farm sells wheat to a grain broker.Since the market for wheat is generally considered to be competitive, the Wheeler Farm:

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-1.When market price is at MC2, a firm producing output level Q₁ would experience:

When firms think at the margin and make incremental adjustments to the level of production, they are naturally led to a level of production where:

When a firm in a competitive market produces 10 units of output, it has marginal revenue of $8.What is the firm's total revenue when it produces nine units of output?

In a competitive market, no single producer can influence the market price because:

Which of the following is not a characteristic of a perfectly competitive market?

Why would a profit-maximising firm in a competitive market set a price higher than the market price?

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-1.When market price is at MC4, a profit-maximising firm will produce what level of output?

When buyers in a competitive market take the selling price as given, they are said to be:

The implication of a firm being a price taker is that, if it increases its price then:

When marginal revenue equals marginal cost:

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-1.What price level will leave the profit-maximising firm with zero profits?

Which of the following statements best reflects a price-taking firm?

If a firm in a competitive market increases production and its marginal revenue remains greater than its marginal cost, raising production will:

When you buy a product from a firm in a competitive market, the price you pay for the product is likely to be:

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-1.When marginal revenue is equal to MC₃, the profit-maximising firm will produce what level of output?

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-1.When market price is at MC₂, a firm producing output level Q₁ would experience:

Graph 14-1 This graph depicts the cost structure for a firm in a competitive market.Use the graph to answer the following question(s) . -Refer to Graph 14-1.When market price is at MC₄, a profit-maximising firm will produce what level of output?