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

To maximize profit, a perfectly competitive firm

Accepted Answer

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

Question 3

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

In a perfectly competitive market, if the price is greater than the average variable cost, the firm should continue to operate in the short run, but in the long run, the firm should exit the market if it is not making a profit. However, if the marginal cost is higher than the price, the firm should reduce its output to increase its profit margin. In this scenario, since the marginal cost is higher than the price, it would be wise for the firm to decrease its output and produce a smaller level of output to maximize profits.

Question 4

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...

Question 5

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

Accepted Answer

In a perfectly competitive market, the marginal revenue is equal to the market price. Therefore, the marginal revenue of selling the fifth unit is $40.

Question 6

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...

Question 7

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The price of each good is $10. Calculate the firm's short-run profit or loss.

Accepted Answer

The firm's total revenue is calculated by multiplying the price per good by the quantity: 
$10 x 3,000 units = $30,000. 
The firm's total cost is given as $36,000. 
Therefore, the firm's short-run profit is: 
Profit = Total revenue - Total cost 
Profit = $30,000 - $36,000 = -$6,000 
Since the result is negative, the firm has incurred a loss of $6,000.

Question 8

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

Accepted Answer

In a perfectly competitive market, a firm maximizes its profits by producing at the output level where marginal cost equals marginal revenue, which is also where price equals marginal cost. At this point, the firm is producing the quantity of output where the additional revenue gained from producing one more unit (marginal revenue) is equal to the additional cost of producing that unit (marginal cost). Therefore, it is not true that the market price is greater than marginal cost at profit maximization. If the market price were greater than marginal cost, the firm could increase its profits by increasing production.

Question 9

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 of the product sold increases, the revenue earned also increases at a constant rate.

Question 10

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...

Question 11

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...

Question 12

For a perfectly competitive firm, average revenue is equal to

Accepted Answer

In a perfectly competitive market, each firm is a price taker and has no power to influence the market price. Therefore, the market price is the same as the firm's average revenue.

Question 13

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

Accepted Answer

In a perfectly competitive market, the firms are price takers, meaning they have no power to influence the price, and they have to accept the market price. Therefore, if the market price exceeds the marginal cost of production, the firm should increase its output to take advantage of the situation and maximize its profit. By increasing the output, the firm can increase its revenue and reduce the average cost, which will increase the profit.

Question 14

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

Accepted Answer

The answer of In a graph that illustrates a perfectly...

Question 15

For a firm in a perfectly competitive market, price is

Accepted Answer

In a perfectly competitive market, the firm is a price taker, meaning it has no control over the market price. Therefore, the firm can sell as much as it wants at the market price. This implies that both average revenue and marginal revenue are equal to the market price. Hence, the correct choice is A.

Question 16

Marginal revenue is

Accepted Answer

Marginal revenue is the change in total revenue due to a change in quantity of output. Therefore, the correct choice is D, which states that it is the change in total revenue divided by the change in the quantity of output.

Question 17

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

Accepted Answer

Average revenue is calculated by dividing total revenue by the quantity sold. In this case, if the market price is $40 and five units are sold, total revenue is 5 x $40 = $200. Dividing $200 by 5 units gives an average revenue of $40. Therefore, the best choice is C.

Question 18

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

Accepted Answer

When the marginal revenue (MR) of the last unit of a good produced by a perfectly competitive firm is greater than its marginal cost (MC), it means that the firm can increase its profit by producing and selling that unit.

To determine whether the firm should produce that unit or not, it should compare the additional revenue generated by selling it with the additional cost of producing it. If MR > MC, it means that the additional revenue gained by producing one more unit exceeds the additional cost incurred in producing it. Therefore, producing that unit will increase the firm's profit.

Since the firm is in a perfectly competitive market, it cannot charge a higher price for that unit, and it must accept the market price. Hence, the additional revenue gained is equal to the market price of the good.

If the market price is higher than the marginal cost of producing the last unit, the firm can increase its profit by producing more. Therefore, in producing the last unit, the firm adds more to total revenue than it adds to total cost.

Hence, the best choice is B.

Question 19

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

Accepted Answer

If the firm produces more than Q4 units, it enters the region where marginal cost exceeds marginal revenue, resulting in a loss.

Question 20

The marginal revenue curve for a perfectly competitive firm

Accepted Answer

For a perfectly competitive firm, the marginal revenue curve is the same as its demand curve. This is because the firm can sell any quantity at the prevailing market price, so the additional revenue gained from selling one more unit is equal to the market price. Therefore, the marginal revenue curve will be a horizontal line at the market price.

Quiz 12: Firms in Perfectly Competitive Markets