Question 1

The firm will make the most profits if it produces the quantity of output at which

Accepted Answer

The profit-maximizing level of output occurs where marginal revenue (MR) equals marginal cost (MC). This is because producing an additional unit of output will only increase profit if the marginal revenue generated by that unit is greater than or equal to the marginal cost of producing it. Therefore, the firm should produce up to the point where MR=MC in order to maximize its profits.

Question 2

Mrs.Smith operates a business in a competitive market.The current market price is $8.50,and at her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Which of the following statements about Mrs.Smith's firm is correct?

Accepted Answer

Mrs. Smith should continue to operate in both the short run and long run. This is because the market price is greater than the average variable cost, which means that the firm is making a positive contribution towards paying off its fixed costs. In the short run, Mrs. Smith may not be making a profit, but she is covering her variable costs and some of her fixed costs. In the long run, it is possible that the market price may increase, allowing Mrs. Smith to make a profit. Therefore, the best choice is option C.

Question 3

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 the price is greater than the marginal cost, it means that the firm is earning additional revenue by producing and selling one more unit. Therefore, the firm should increase its output to maximize its profit.

Question 4

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...

Question 5

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 that the additional revenue earned from producing one more unit of output is greater than the additional cost of producing that unit. Therefore, the firm has an opportunity to increase profit by increasing production. This is because the firm can sell additional units at a price higher than their marginal cost.

Question 6

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 7

Which of the following expressions is correct for a competitive firm?

Accepted Answer

For a competitive firm, profit is calculated as the quantity of output multiplied by the difference between price and average total cost.

Question 8

Raiman's Shoe Repair produces custom-made shoes.When Mr.Raiman produces 12 pairs per week,the marginal cost of the twelfth pair is $84,and the marginal revenue of the twelfth pair is $70.What would you advise Mr.Raiman to do?

Accepted Answer

The marginal cost of the twelfth pair ($84) is greater than the marginal revenue of the twelfth pair ($70), which means that producing the twelfth pair actually leads to a loss. This suggests that Mr. Raiman is experiencing decreasing marginal returns and he should produce fewer custom-made shoes to reduce costs and increase profits. Therefore, producing fewer custom-made shoes is the best choice.

Question 9

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

Accepted Answer

In a competitive market, firms will only enter if they can make a profit. This means that their average total costs must be less than the market price. If their costs are higher than the market price, they will not be able to earn a profit and will exit the market. Therefore, choice D is the correct answer.

Question 10

A firm in a competitive market has the following cost structure:

If the market price is $8,how many units should the firm produce to maximize profit?

Accepted Answer

To maximize profit, the firm should produce at the quantity where marginal cost equals marginal revenue. In this case, the marginal cost is constant at $3 across all quantities, and the marginal revenue equals the market price of $8. Setting $3 equal to $8 - 2Q, where Q is the quantity produced, we get Q = 2.5. Since the firm can only produce whole units, it should produce 6 units to maximize profit. At this quantity, the firm's total revenue is $48 and total cost is $38, resulting in a profit of $10.

Question 11

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 12

Consider a competitive market with 50 identical firms.Suppose the market demand is given by the equation Q^D = 200 - 10P and the market supply is given by the equation Q^S = 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 13

Cold Duck Airlines flies between Tacoma and Portland.The company leases planes on a year-long contract at a cost that averages $600 per flight.Other costs (fuel,flight attendants,etc. )amount to $550 per flight.Currently,Cold Duck's revenues are $1,000 per flight.All prices and costs are expected to continue at their present levels.If it wants to maximize profit,Cold Duck Airlines should

Accepted Answer

The answer of Cold Duck Airlines flies between Tacoma and...

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 operates in the short run at a price above its average total cost of production, it is earning economic profits. This signals to other firms that there are profits to be made in this industry, and thus new firms are likely to enter the market in the long run. This increased competition puts downward pressure on the market price, which can cause the firm's profits to fall. Therefore, all of the choices (A), (B), and (C) are correct.

Question 15

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) The firm is currently producing 200 units, which means it is already producing at the output level where marginal cost equals average total cost. This implies that the average total cost curve intersects the marginal cost curve at 200 units of output.
B) Since the firm is producing at the output level where marginal cost equals average total cost, the marginal cost curve must also intersect the average variable cost curve at 200 units of output or less.
C) To calculate the firm's profit, we can use the formula: profit = (price - average total cost) x quantity. Substituting the given values, we get profit = ($9 - $7) x 200 = $400.
Therefore, all of the above statements are correct.

Question 16

Carla's Candy Store is maximizing profits by producing 1,000 pounds of candy per day.If Carla's fixed costs unexpectedly increase and the market price remains constant,then the short run profit-maximizing level of output

Accepted Answer

In the short run, fixed costs do not affect the profit-maximizing level of output because they do not change with the level of production. Therefore, Carla should continue producing 1,000 pounds to maximize profits.

Question 17

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 equals marginal revenue. In this case, the marginal cost is constant at $5 per unit. The market price is $10, so the marginal revenue for each additional unit produced is also $10. Therefore, the firm should produce until the third unit, where the marginal cost is equal to the marginal revenue ($5 = $10). Producing more than three units would result in increasing costs without increasing revenue, leading to lower profits. So, the best choice is to produce 3 units to maximize profit.

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, firms aim to maximize profit. And by comparing marginal revenue and marginal cost, firms can adjust their production level to the point where their marginal revenue equals their marginal cost, resulting in maximum profit. Therefore, the correct choice is B.

Question 19

The accountants hired by Davis Golf Course 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,Davis Golf Course should

Accepted Answer

The total cost of operating the golf course is $205,000 ($75,000 fixed + $130,000 variable), which is greater than the total revenue of $145,000. However, shutting down would still incur the fixed cost of $75,000. Therefore, it is best for Davis Golf Course to continue operating in the short run despite making a loss, as this is the more cost-effective option.

Question 20

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 taken in $4,500 in monthly revenue.

Accepted Answer

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

Quiz 14: Firms in Competitive Markets

The firm will make the most profits if it produces the quantity of output at which

Mrs.Smith operates a business in a competitive market.The current market price is $8.50,and at her profit-maximizing level of production,the average variable cost is $8.00,and the average total cost is $8.25.Which of the following statements about Mrs.Smith's firm is correct?

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

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

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

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

Which of the following expressions is correct for a competitive firm?

Raiman's Shoe Repair produces custom-made shoes.When Mr.Raiman produces 12 pairs per week,the marginal cost of the twelfth pair is $84,and the marginal revenue of the twelfth pair is $70.What would you advise Mr.Raiman to do?

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

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

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

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

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

Carla's Candy Store is maximizing profits by producing 1,000 pounds of candy per day.If Carla's fixed costs unexpectedly increase and the market price remains constant,then the short run profit-maximizing level of output

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?

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

The accountants hired by Davis Golf Course 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,Davis Golf Course should