Question 1

Table 14-1
This table shows the revenue and costs of a parrot farmer.
 
-Refer to Table 14-1. If the farmer chooses to maximise profit, the appropriate output level is where marginal cost is equal to:

Accepted Answer

To maximize profit, the farmer needs to produce where the marginal cost is equal to the marginal revenue. Looking at the table, at 15 parrots, the marginal cost is $15 and the marginal revenue is $20, suggesting that the farmer earns a profit of $5 per parrot. At any level of production higher or lower than 15, the marginal cost is higher than marginal revenue indicating that the farmer would not earn optimal profit at those levels. Therefore, C) 15 parrots is the appropriate output level for profit maximization.

Question 2

Which of the following are true of comparing marginal revenue to marginal cost? (i) it reveals the contribution of the last unit of production to total profit
(ii) it is helpful in making profit-maximising production decisions
(iii) it always reveals whether a firm is making an economic profit
(iv) it tells a firm whether its fixed costs are too high

Accepted Answer

Comparing marginal revenue to marginal cost helps in making profit-maximising production decisions by revealing the contribution of the last unit of production to total profit. However, it does not always reveal whether a firm is making an economic profit or whether its fixed costs are too high.

Question 3

Table 14-2
The price of each David Butterfly a butterfly farmer in Greytown sells is:
 
-Refer to Table 14-2. Price equals average revenue over the range of:

Accepted Answer

The price of each David Butterfly is constant over the entire range of output, which means the average revenue equals the price over the whole range. Therefore, D is the best choice.

Question 4

For a firm in a perfectly competitive market, the price of the good is always equal to:

Accepted Answer

In a perfectly competitive market, the price of the good is equal to the marginal revenue (the additional revenue from selling one more unit), the average revenue (total revenue divided by the quantity sold), and the equilibrium market price (where supply equals demand). This is because firms in perfect competition are price takers and cannot influence the market price.

Question 5

When a firm has market power, it can:

Accepted Answer

When a firm has market power, it can influence the market price of the good it sells. This means that it can set a higher price than would occur in a perfectly competitive market, resulting in the ability to earn higher profits. However, the firm cannot necessarily sell as much as it wants at any market price as there may be demand constraints. The firm also may not be able to control the number of firms in the industry or disregard government regulation.

Question 6

Suppose a firm in a perfectly competitive market doubles its sales. This means that the firm's total revenue will:

Accepted Answer

In a perfectly competitive market, the firm is a price taker and cannot influence the market price. Therefore, if the firm doubles its sales, the quantity demanded in the market remains the same, and the firm's revenue would exactly double as well (assuming no change in costs). This is because, in a perfectly competitive market, the demand curve is perfectly elastic, meaning that the firm can sell as much as it wants at the market price.

Question 7

When a firm has little ability to influence market prices, it is said to be in what kind of a market?

Accepted Answer

In a competitive market, no single firm or group of firms has enough market power to influence market prices, meaning each firm has little ability to do so. This is in contrast to markets where a few large firms dominate and have more market power, such as in a monopoly or oligopoly market.

Question 8

Table 14-1
This table shows the revenue and costs of a parrot farmer.
 
-Refer to Table 14-1. The maximum profit available to this farmer's firm is:

Accepted Answer

To find the maximum profit, we need to subtract the total cost from the total revenue for each possible quantity of parrots produced and sold. The quantity with the highest profit will be the maximum profit. For example, at a quantity of 3 parrots, the revenue is $60 and total cost is $15, so the profit is $45. Similarly, at a quantity of 4 parrots, the profit is $36. Thus, the maximum profit available to this farmer's firm is $45 at a quantity of 3 parrots.

Question 9

Total profit for a firm is calculated as:

Accepted Answer

Total profit for a firm is calculated as total revenue minus total cost. This is because profit is the difference between the money the firm brings in and the expenses it incurs to produce its goods or services. Marginal revenue and average revenue are measures of how much revenue is earned per additional unit of output, but they do not account for all of a firm's costs. Marginal cost is the additional cost of producing one more unit of output, so subtracting it from revenue only gives the profit from that one additional unit, not total profit.

Question 10

Table 14-2
The price of each David Butterfly a butterfly farmer in Greytown sells is:
 
-Refer to Table 14-2. If the firm doubles its output from three to six units, total revenue will:

Accepted Answer

The total revenue with an output of 3 units is 3 x $45 = $135. If the firm doubles its output to 6 units, the total revenue will increase to 6 x $45 = $270. The increase in revenue is exactly $45.

Question 11

Table 14-1
This table shows the revenue and costs of a parrot farmer.
 
-Refer to Table 14-1. Average revenue will equal to marginal cost when harvest is equal to:

Accepted Answer

To find the point at which average revenue equals marginal cost, we need to compare the values in the "AR" (average revenue) and "MC" (marginal cost) columns. At a harvest of 5 parrots, the AR is $20, which matches the MC. Therefore, the best choice is 5 parrots.

Question 12

Table 14-1
This table shows the revenue and costs of a parrot farmer.
 
-Refer to Table 14-1. If the farmer determines that marginal cost is $11, harvest of parrots should:

Accepted Answer

If the marginal cost is $11 and the farmer is looking to maximize profit, they should increase production as long as the marginal cost is less than the marginal revenue. Without specific marginal revenue data, the assumption is that increasing production could lead to higher profits.

Question 13

Table 14-1
This table shows the revenue and costs of a parrot farmer.
 
-Refer to Table 14-1. If the farmer harvested three parrots then:

Accepted Answer

According to the table, when the farmer harvests three parrots, the total variable cost is $24, which gives a marginal cost of $14 (the difference between the total variable cost of harvesting three and two parrots). The fixed cost is not specified in the table. The total revenue for harvesting three parrots is $48, which is greater than the total variable cost, so C is false. Marginal revenue for harvesting the third parrot is $18, which is greater than marginal cost, so D is false. Therefore, the correct answer is B, marginal cost is $14.

Question 14

If marginal cost exceeds marginal revenue:

Accepted Answer

If marginal cost exceeds marginal revenue, the firm may still be earning a profit overall, but it should reduce output to maximize profit, as producing additional units would decrease profit.

Question 15

A market is competitive if which of the following are true? (i) each buyer is small compared to the market
(ii) a single firm has a significant impact on the market price
(iii) the good offered for sale is largely the same

Accepted Answer

A market is competitive if there are many buyers and sellers, each of whom is small relative to the whole market, and the good being offered for sale is largely the same. Therefore, statements (i) and (iii) are true for a competitive market. Statement (ii) implies the presence of a monopoly firm, which is not consistent with a competitive market.

Question 16

The costs of investigating new factories can be regarded as a sunk cost

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered, regardless of whether a project or investment goes forward. Investigating new factories is a cost that has already been incurred, therefore it can be considered a sunk cost.

Question 17

Table 14-1
This table shows the revenue and costs of a parrot farmer.
 
-Refer to Table 14-1. If the farmer finds that its marginal cost is $20, the best response would be to:

Accepted Answer

The farmer should decrease production to maximize profit when marginal cost is greater than marginal revenue.

Question 18

In a competitive market, the actions of any single buyer or seller will:

Accepted Answer

In a competitive market, individual buyers or sellers are price takers, meaning their actions have a negligible impact on the overall market price due to the large number of participants.

Question 19

Table 14-2
The price of each David Butterfly a butterfly farmer in Greytown sells is:
 
-Refer to Table 14-2. The price and quantity relationship shows that the market structure most likely facing a butterfly farmer is a:

Accepted Answer

The price and quantity relationship in a competitive market is such that more units are sold at lower prices and fewer units are sold at higher prices. This is reflected in Table 14-2 where the price drops as the quantity sold increases, indicating that David Butterfly operates in a competitive market.

Question 20

Table 14-2
The price of each David Butterfly a butterfly farmer in Greytown sells is:
 
-Refer to Table 14-2. Marginal revenue is declining over the range:

Accepted Answer

The answer of Table 14-2
The price of each David Butterfly...

Quiz 14: Firms in Competitive Markets

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1. If the farmer chooses to maximise profit, the appropriate output level is where marginal cost is equal to:

Table 14-2 The price of each David Butterfly a butterfly farmer in Greytown sells is: -Refer to Table 14-2. Price equals average revenue over the range of:

For a firm in a perfectly competitive market, the price of the good is always equal to:

When a firm has market power, it can:

Suppose a firm in a perfectly competitive market doubles its sales. This means that the firm's total revenue will:

When a firm has little ability to influence market prices, it is said to be in what kind of a market?

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1. The maximum profit available to this farmer's firm is:

Total profit for a firm is calculated as:

Table 14-2 The price of each David Butterfly a butterfly farmer in Greytown sells is: -Refer to Table 14-2. If the firm doubles its output from three to six units, total revenue will:

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1. Average revenue will equal to marginal cost when harvest is equal to:

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1. If the farmer determines that marginal cost is $11, harvest of parrots should:

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1. If the farmer harvested three parrots then:

If marginal cost exceeds marginal revenue:

A market is competitive if which of the following are true? (i) each buyer is small compared to the market (ii) a single firm has a significant impact on the market price (iii) the good offered for sale is largely the same

The costs of investigating new factories can be regarded as a sunk cost

Table 14-1 This table shows the revenue and costs of a parrot farmer. -Refer to Table 14-1. If the farmer finds that its marginal cost is $20, the best response would be to:

In a competitive market, the actions of any single buyer or seller will:

Table 14-2 The price of each David Butterfly a butterfly farmer in Greytown sells is: -Refer to Table 14-2. The price and quantity relationship shows that the market structure most likely facing a butterfly farmer is a:

Table 14-2 The price of each David Butterfly a butterfly farmer in Greytown sells is: -Refer to Table 14-2. Marginal revenue is declining over the range: