Question 1

Profit-maximizing firms enter a competitive market when existing firms in that market have

Accepted Answer

A profit-maximizing firm will enter a competitive market if it can produce at a lower cost than the prevailing market price, which means that its average total cost should be less than the market price. This allows the firm to earn a profit in the market.

Question 2

When price is greater than marginal cost for a firm in a competitive market,

Accepted Answer

When price is greater than marginal cost, it means there is an opportunity to increase profit by increasing production. This is because the additional cost involved in producing one extra unit is less than the revenue generated from selling that extra unit, thereby increasing profit. Therefore, the firm should increase production to maximize profit.

Question 3

Mrs.Smith operates a business in a competitive market.The current market price is $7.50.At her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Mrs.Smith should

Accepted Answer

In the short run, Mrs. Smith should shut down her business because her average variable cost is $8.00, which is higher than the market price of $7.50. This means she is not generating enough revenue to cover her variable costs, resulting in losses. However, in the long run, Mrs. Smith should still shut down her business because her average total cost is $8.25, which is still higher than the market price. Continuing to operate would result in losses in the long run as well. Therefore, shutting down in both the short run and long run is the best choice for Mrs. Smith.

Question 4

If a profit-maximizing firm in a competitive market discovers that,at its current level of production,price is greater than marginal cost,it should

Accepted Answer

If a profit-maximizing firm in a competitive market discovers that, at its current level of production, price is greater than marginal cost, it should increase its output. This is because producing more will result in increased revenue that exceeds the cost of producing the additional units, resulting in higher profits.

Question 5

Suppose a firm operates in the short run at a price above its average total cost of production.In the long run the firm should expect

Accepted Answer

Operating in the short run at a price above its average total cost of production indicates that the firm is earning economic profits. In the long run, these economic profits will attract new firms to enter the market, increasing competition and driving down prices. This is because existing firms will have to lower their prices to remain competitive and new firms will enter the market until prices are driven down to the level of average total cost. Therefore, the firm should expect new firms to enter the market in the long run.

Question 6

Susan quit her job as a teacher,which paid her $36,000 per year,in order to start her own catering business.She spent $12,000 of her savings,which had been earning 10 percent interest per year,on equipment for her business.She also borrowed $12,000 from her bank at 10 percent interest,which she also spent on equipment.For the past several months she has spent $1,000 per month on ingredients and other variable costs.Also for the past several months she has earned $4,500 in monthly revenue.

Accepted Answer

The answer of Susan quit her job as a teacher,which...

Question 7

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000,total variable cost to be $130,000,and total revenue to be $125,000.Because of this information,in the short run,the Brookside Racquet Club should

Accepted Answer

The answer of The accountants hired by the Brookside Racquet...

Question 8

A profit-maximizing firm in a competitive market is currently producing 200 units of output.It has average revenue of $9 and average total cost of $7.It follows that the firm's

Accepted Answer

A) This is true because in a competitive market, firms produce at the output level where price equals marginal cost. Since the firm is maximizing profit, it will produce where marginal cost equals marginal revenue, which intersects the average total cost curve at a level less than 200 units.
B) This is also true because the intersection of the average variable cost curve and the marginal cost curve occurs at the minimum point of the average variable cost curve, which is typically at an output level less than the profit-maximizing output level.
C) To calculate the firm's profit, we can use the formula:
Profit = (Price - Average Total Cost) x Quantity
= ($9 - $7) x 200
= $400
D) Therefore, all of the above statements are correct.

Question 9

Mrs.Smith operates a business in a competitive market.The current market price is $8.50.At her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Mrs.Smith should

Accepted Answer

Mrs. Smith's average variable cost is less than the market price, which means she can cover her variable costs and some of her fixed costs. As a result, she should continue to operate in the short run to minimize her losses. In the long run, Mrs. Smith may consider adjusting her production level or costs to increase profitability, but she should not shut down completely as she can cover her variable costs. Therefore, the best choice is to continue to operate in both the short run and long run.

Question 10

A firm in a competitive market has the following cost structure: 
If the market price is $16,this firm will

Accepted Answer

The answer of A firm in a competitive market has...

Question 11

Consider a competitive market with 50 identical firms.Suppose the market demand is given by the equation Qᴰ = 200 - 10P and the market supply is given by the equation Qˢ = 10P.In addition,suppose the following table shows the marginal cost of production for various levels of output for firms in this market. 
How many units should a firm in this market produce to maximize profit?

Accepted Answer

The answer of Consider a competitive market with 50 identical...

Question 12

A firm in a competitive market has the following cost structure: 
If the market price is $8,how many units of output should the firm produce to maximize profit?

Accepted Answer

The answer of A firm in a competitive market has...

Question 13

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000,total variable cost to be $130,000,and total revenue to be $145,000.Because of this information,in the short run,the Brookside Racquet Club should

Accepted Answer

In the short run, the Brookside Racquet Club should stay open because shutting down would be more expensive. Although the club is not making an economic profit, its total revenue covers its total variable cost and some portion of its total fixed costs. If the club shuts down, it would still have to pay its fixed costs, which would result in a bigger loss than if it stays open. Therefore, staying open is the best choice in the short run.

Question 14

Suppose a firm operates in the short run at a price above its average total cost of production.In the long run the firm should expect

Accepted Answer

If a firm is operating in the short run at a price above its average total cost of production, it is earning economic profits. In the long run, this situation will attract new firms to enter the market to take advantage of these profits. As a result, the increased competition will lead to a decrease in the market price, and the existing firm will have to lower its price to remain competitive. This, in turn, will lead to lower profits for the firm. Therefore, all of the above choices are correct.

Question 15

For any given price,a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the

Accepted Answer

The answer of For any given price,a firm in a...

Question 16

A firm in a competitive market has the following cost structure: 
If the firm's fixed cost of production is $3,and the market price is $10,how many units should the firm produce to maximize profit?

Accepted Answer

To maximize profit, the firm should produce where marginal cost (MC) equals marginal revenue (MR).

In this case, the marginal cost can be found by taking the derivative of the total cost equation:

MC = 2Q + 1

The marginal revenue for a firm in a competitive market is equal to the market price, which is given as $10.

Setting MC equal to MR:

2Q + 1 = 10

Solving for Q:

Q = 4.5

Since the firm cannot produce half a unit, it should produce 3 units to maximize profit.

Question 17

A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as

Accepted Answer

The answer of A profit-maximizing firm in a competitive market...

Question 18

By comparing marginal revenue and marginal cost,a firm in a competitive market is able to adjust production to the level that achieves its objective,which we assume to be

Accepted Answer

In a competitive market, a firm's objective is to maximize profit. By comparing marginal revenue and marginal cost, the firm can determine the level of production that will maximize profit, as profit is maximized when marginal revenue equals marginal cost. Therefore, the firm's objective is to produce at the point where marginal revenue equals marginal cost, which will maximize profit.

Question 19

Mrs.Smith operates a business in a competitive market.The current market price is $8.10.At her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Mrs.Smith should

Accepted Answer

The answer of Mrs.Smith operates a business in a competitive...

Question 20

If a competitive firm is currently producing a level of output at which profit is not maximized,then it must be true that

Accepted Answer

The answer of If a competitive firm is currently producing...

Quiz 14: Firms in Competitive Markets.

Profit-maximizing firms enter a competitive market when existing firms in that market have

When price is greater than marginal cost for a firm in a competitive market,

Mrs.Smith operates a business in a competitive market.The current market price is $7.50.At her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Mrs.Smith should

If a profit-maximizing firm in a competitive market discovers that,at its current level of production,price is greater than marginal cost,it should

Suppose a firm operates in the short run at a price above its average total cost of production.In the long run the firm should expect

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000,total variable cost to be $130,000,and total revenue to be $125,000.Because of this information,in the short run,the Brookside Racquet Club should

A profit-maximizing firm in a competitive market is currently producing 200 units of output.It has average revenue of $9 and average total cost of $7.It follows that the firm's

Mrs.Smith operates a business in a competitive market.The current market price is $8.50.At her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Mrs.Smith should

A firm in a competitive market has the following cost structure: If the market price is $16,this firm will

A firm in a competitive market has the following cost structure: If the market price is $8,how many units of output should the firm produce to maximize profit?

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000,total variable cost to be $130,000,and total revenue to be $145,000.Because of this information,in the short run,the Brookside Racquet Club should

Suppose a firm operates in the short run at a price above its average total cost of production.In the long run the firm should expect

For any given price,a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the

A firm in a competitive market has the following cost structure: If the firm's fixed cost of production is $3,and the market price is $10,how many units should the firm produce to maximize profit?

A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as

By comparing marginal revenue and marginal cost,a firm in a competitive market is able to adjust production to the level that achieves its objective,which we assume to be

Mrs.Smith operates a business in a competitive market.The current market price is $8.10.At her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Mrs.Smith should

If a competitive firm is currently producing a level of output at which profit is not maximized,then it must be true that