Question 1

In a graph with output on the horizontal axis and total revenue on the vertical axis, what is the shape of the total revenue curve for a perfectly competitive seller?

Accepted Answer

The answer of In a graph with output on the...

Question 2

For a perfectly competitive firm, average revenue is equal to

Accepted Answer

In a perfectly competitive market, the individual firm has no control over the market price, which is determined by the intersection of supply and demand. Therefore, the average revenue for the firm is equal to the market price. Marginal cost, total revenue, and average fixed cost are all independent of the market price and are determined by the firm's production and cost characteristics.

Question 3

If the market price is $40, the average revenue of selling five units is

Accepted Answer

Average revenue is the revenue per unit sold. In this case, if the market price is $40 and the firm is selling five units, the total revenue earned would be $200. Dividing this by the number of units sold (5) gives an average revenue of $40. Therefore, the correct choice is C.

Question 4

Figure 12-2
 
-Refer to Figure 12-2.What happens if the firm produces more than Q₄ units?

Accepted Answer

Producing more than Q₄ units would result in a loss for the firm, as the marginal cost exceeds the marginal revenue beyond Q₄.

Question 5

Figure 12-2
 
-Refer to Figure 12-2.Suppose the firm is currently producing Q₂ units.What happens if it expands output to Q₃ units?

Accepted Answer

The answer of Figure 12-2
 
-Refer to Figure 12-2.Suppose the...

Question 6

If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should

Accepted Answer

If the price exceeds the marginal cost of production, the firm can still make a profit by increasing its output. This is because the additional revenue from selling more units will exceed the additional cost of producing those units. Ultimately, the firm wants to produce at the point where marginal revenue equals marginal cost, but in the short run, it can increase its profit by producing more and selling at the higher price.

Question 7

For a firm in a perfectly competitive market, price is

Accepted Answer

In a perfectly competitive market, a firm is a price taker and therefore, the price is determined by the market. Each unit sold adds the same amount of revenue to the total revenue. Therefore, average revenue and marginal revenue are equal and the price is also equal to both.

Question 8

If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing it, the firm

Accepted Answer

If MR > MC, then the last unit produced will generate more revenue than the cost incurred to produce it. Therefore, the firm will add more to total revenue than it adds to total cost. This means that the firm will make a profit on the last unit produced, and it is in the best interest of the firm to produce it.

Question 9

The marginal revenue curve for a perfectly competitive firm

Accepted Answer

In a perfectly competitive market, the individual firm is a price taker, meaning it cannot influence the market price. Therefore, its demand curve is perfectly elastic, and its marginal revenue curve is the same as its demand curve. Both of these curves are horizontal at the market price.

Question 10

To maximize profit, a perfectly competitive firm

Accepted Answer

The answer of To maximize profit, a perfectly competitive firm
...

Question 11

Figure 12-2
 
-Refer to Figure 12-2.Why is the total revenue curve a ray from the origin?

Accepted Answer

The total revenue curve is a ray from the origin because the firm can sell its product at a constant price. This means that as the quantity sold increases, the revenue also increases by the same amount, resulting in a straight line. Choices A, B, and D do not accurately describe the reason for the shape of the total revenue curve in this case.

Question 12

Figure 12-2
 
-Refer to Figure 12-2.What is the amount of profit if the firm produces Q₂ units?

Accepted Answer

The answer of Figure 12-2
 
-Refer to Figure 12-2.What is...

Question 13

For a perfectly competitive firm, which of the following is not true at profit maximization?

Accepted Answer

For a perfectly competitive firm, at profit maximization, price equals marginal cost. Therefore, option D is true. The firm also produces where marginal revenue equals marginal cost, so option B is true. Furthermore, total revenue minus total cost is maximized at profit maximization, so option C is also true. However, at profit maximization, market price is equal to marginal cost, not greater than marginal cost, so option A is not true.

Question 14

In a graph that illustrates a perfectly competitive firm, marginal revenue is

Accepted Answer

In a perfectly competitive market, the firm's demand curve is perfectly elastic, meaning it is a horizontal line. The marginal revenue for a perfectly competitive firm is constant and equal to the price, which is why it coincides with the demand curve.

Question 15

Marginal revenue is

Accepted Answer

Marginal revenue is the change in total revenue divided by the change in the quantity of output. It shows the additional revenue generated from producing one more unit of output.

Question 16

If the market price is $40 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

Accepted Answer

In perfect competition, the market price is also the marginal revenue. Therefore, the marginal revenue from selling any unit, including the fifth unit, will be $40.

Question 17

Producing where marginal revenue equals marginal cost is equivalent to producing where

Accepted Answer

Producing where marginal revenue equals marginal cost ensures that the firm is maximizing its profits. At this point, the additional revenue earned by selling one more unit is exactly equal to the additional cost incurred in producing that extra unit. This means that the firm is not leaving any potential profits on the table by not producing enough or losing money by producing too much.

Question 18

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize profits the firm should

Accepted Answer

When the price ($11) is less than the marginal cost ($14.54), producing the current output will result in negative economic profits. Therefore, the most rational choice for the firm is to decrease production to a level where price equals marginal cost. This will ensure that the firm is operating at an efficient level where it can cover all of its variable costs as well as contribute something to its fixed costs.

Question 19

Figure 12-2
 
-Refer to Figure 12-2.The firm breaks even at an output level of

Accepted Answer

The answer of Figure 12-2
 
-Refer to Figure 12-2.The firm...

Question 20

Mark Frost grows apples in a perfectly competitive market.If we drew a line in a graph that illustrates Mark's total revenue from selling apples, it would be

Accepted Answer

The answer of Mark Frost grows apples in a perfectly...

Quiz 12: Firms in Perfectly Competitive Markets