Question 1

Suppose that a perfectly competitive firm's marginal revenue equals $12 when it sells 10 units of output.If the marginal cost of producing the 10th unit is $14,to maximize its profit the firm should

Accepted Answer

In a perfectly competitive market, a firm maximizes profit where marginal revenue (MR) equals marginal cost (MC). If the MC of producing the 10th unit ($14) is higher than the MR ($12), the firm should reduce production to lower costs and increase profit.

Question 2

Jennifer's Bakery Shop produces baked goods in a perfectly competitive market.If Jennifer decides to produce her 100th batch of cookies,the marginal cost is $120.She can sell this batch of cookies at a market price of $110.To maximize her profit,Jennifer should

Accepted Answer

In a perfectly competitive market, a firm should only produce if the market price is greater than or equal to the marginal cost. In this case, the market price ($110) is less than the marginal cost ($120), meaning that producing this batch of cookies would result in a loss for Jennifer. Therefore, the best choice for Jennifer to maximize her profit is to not produce this additional batch (choice A).

Question 3

-As a perfectly competitive firm's output increases,its total revenue ________ and its total cost ________.

Accepted Answer

In a perfectly competitive market, as a firm increases its output, its total revenue increases because it sells more units of its product. Simultaneously, its total cost also increases due to the costs associated with producing additional units.

Question 4

If a perfectly competitive firm's marginal revenue is greater than its marginal cost,as it increases its output,its profit ________ and the price it can charge for its product ________.

Accepted Answer

If a perfectly competitive firm's marginal revenue is greater than its marginal cost, it means that producing an additional unit will add more to the firm's revenue than the cost of producing it. Therefore, producing more will increase the firm's profit. In a perfectly competitive market, the firm has no control over the price it can charge for its product, as it is determined by the market forces of supply and demand. Hence, the price it can charge for its product does not change, and remains the same as determined by the market.

Question 5

For a perfectly competitive firm,profit maximization occurs when output is such that

Accepted Answer

In a perfectly competitive market, firms are price takers, meaning they cannot influence the price of the product they sell. Therefore, the marginal revenue (MR) curve for a perfectly competitive firm is a horizontal line, and it equals the price of the product. In order to maximize profits, the firm should produce at the point where marginal revenue (MR) equals marginal cost (MC) because at that point, every additional unit produced adds more to revenue than it does to cost. Thus, choice C is the correct option.

Question 6

Shama is producing candles in a perfectly competitive market.When she produces 500 candles,her total cost is $250.If she produces one additional candle,her total cost increases to $260.In order to maximize her profit,she should produce the additional candle

Accepted Answer

To maximize profit in a perfectly competitive market, Shama should produce the additional candle if the market price is greater than or equal to the marginal cost of producing that candle. The marginal cost of the additional candle is $10 ($260 - $250). Therefore, if the market price is $12, which is greater than the marginal cost, she should produce the additional candle.

Question 7

Henry,a perfectly competitive lime grower in Southern California,notices that the market price of limes is greater than his marginal cost.What should Henry do?

Accepted Answer

Since the market price is greater than Henry's marginal cost, he should continue to produce and sell his limes where marginal revenue equals marginal cost. By expanding his output, he can increase his profits as long as the marginal revenue is still greater than the marginal cost.

Question 8

A perfectly competitive firm is producing at the quantity where marginal cost is $6 and average total cost is $4.The price of the good is $5.To maximize its profit,this firm should

Accepted Answer

In a perfectly competitive market, firms are price takers and cannot change the price. Since the marginal cost ($6) is greater than the price ($5), the firm is producing at a loss for each additional unit. To maximize profit, the firm should decrease its output until marginal cost equals the price.

Question 9

Mark owns a cattle ranch near Hugo,Oklahoma.Mark is currently producing beef at an output level where marginal revenue exceeds marginal cost.In order to maximize his profit,Mark should

Accepted Answer

Since Mark is currently producing beef at an output level where marginal revenue exceeds marginal cost, this implies that each additional unit he produces is generating more revenue than the cost of producing it. Therefore, to maximize his profits, Mark should increase his output until marginal revenue equals marginal cost.

Question 10

Jerry's Jellybean Factory produces 2,000 pounds of jellybeans per month and sells them in a perfectly competitive market.The marginal cost is $3 per pound,the average variable cost is $2 per pound,and the beans sell for $4 per pound.Jerry

Accepted Answer

The answer of Jerry's Jellybean Factory produces 2,000 pounds of...

Question 11

A perfectly competitive firm is earning an economic profit when total fixed costs increase.Assuming the firm does not shut down,in the short run the firm will

Accepted Answer

In a perfectly competitive market, firms are price takers, meaning they cannot influence the market price by altering their output level. If a firm's total fixed costs increase, it cannot change the market price to cover these costs. Instead, it will continue producing the same quantity as before because its decision is based on marginal cost and marginal revenue, not fixed costs. However, the increase in fixed costs will reduce its economic profit.

Question 12

If a perfectly competitive wheat farmer is maximizing its profit and then increases its output,the farmer's

Accepted Answer

In a perfectly competitive market, the additional output will be sold at the market price. Since the farmer is already maximizing profits, the marginal cost of producing the additional unit will be equal to the market price. Therefore, the increase in output will increase total revenue, but total cost will increase by more due to the additional unit's marginal cost. As a result, the total profit will decrease.

Question 13

To increase its profit,a perfectly competitive firm will produce more output when

Accepted Answer

In a perfectly competitive market, a firm will increase its output as long as the price of the product is greater than the marginal cost of producing an additional unit. This is because the firm can increase its profit by producing and selling additional units at a price higher than their cost.

Question 14

In a perfectly competitive market,the market price is $23.At the current level of output,a firm has a marginal cost of $28.What should the firm do?

Accepted Answer

In a perfectly competitive market, firms are price takers, meaning they cannot influence the market price. If the marginal cost ($28) is higher than the market price ($23), the firm is not covering its variable costs for the additional units produced. Therefore, producing less could decrease the marginal cost, potentially making it closer to or lower than the market price, which could help in maximizing profit or minimizing losses.

Question 15

A firm maximizes its profit by producing the amount of output such that

Accepted Answer

Maximizing profit occurs when marginal revenue (MR) equals marginal cost (MC). This is because the extra revenue received from producing one more unit (MR) is equal to the extra cost of producing that additional unit (MC), meaning that there is no further gain to be made from producing more output. Therefore, choice A is the best answer.

Question 16

For a perfectly competitive firm,profit is maximized at the output level where
i.total revenue exceeds total cost by the largest amount.
ii.marginal revenue equals marginal cost.
iii.price equals marginal cost.

Accepted Answer

In a perfectly competitive market, profit is maximized when total revenue exceeds total cost by the largest amount, which occurs at the output level where marginal revenue equals marginal cost. Since price equals marginal revenue in a perfectly competitive market, this also means that price equals marginal cost at the profit-maximizing output level. Therefore, all three statements are correct.

Question 17

For a syrup producer in central Vermont,profit is maximized at the level of output for which total

Accepted Answer

Profit is maximized when the difference between total revenue and total cost is the largest, meaning when revenue exceeds cost by the greatest amount.

Question 18

During the winter,theme parks in Orlando close earlier than in the summer.The reason the theme parks close early during the winter is because during that season the marginal revenue from staying open later is ________ the marginal cost.

Accepted Answer

The marginal revenue from staying open later during the winter is likely to be less than the marginal cost. This is because the number of visitors decreases during the winter, making it less profitable to keep the park open for longer hours. Therefore, the parks close earlier during the winter season to minimize costs and maximize profits, indicating that the marginal revenue from staying open later is less than the marginal cost.

Question 19

A perfectly competitive firm will maximize profit when the quantity produced is such that the

Accepted Answer

In a perfectly competitive market, the firm is a price taker and can sell any quantity at the market determined price. Therefore, the marginal revenue (MR) curve is horizontal at the market price. The firm will maximize its profit by producing the quantity where MR=MC (marginal cost). This is because producing any more or any less than this quantity will decrease profit. At the profit-maximizing quantity, the firm's total revenue (TR) will exceed its total cost (TC) by the maximum amount possible. Therefore, A) is not correct as it only covers the break-even point, and D) and E) overstate the condition by using the term "as much as possible" or "maximum amount," which may not always be the same for every firm.

Question 20

-In a perfectly competitive industry,when a firm is producing so that its total revenue equals its total cost,the firm is

Accepted Answer

When a firm's total revenue equals its total cost, it is making zero economic profit, as economic profit is calculated by subtracting total cost from total revenue.

Quiz 15: Perfect Competition