Economics Test Bank Chapter 14

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Chapter 14 Firms in Competitive Markets Multiple Choice 1. A FIRM HAS MARKET POWER IF IT CAN |a. |maximize profits. | |b. |minimize costs. | |c. |influence the market price of the good it sells. | |d. |hire as many workers as it needs at the prevailing wage rate. | ANS:CPTS:1DIF:1REF:14-0 NAT:AnalyticLOC:Perfect competitionTOP:Market power MSC:Definitional 2. A book store that has market power can |a. |influence the market price for the books it sells. | |b. |minimize costs more efficiently than its competitors. | |c. |reduce its advertising budget more so than its competitors. | |d. ignore profit-maximizing strategies when setting the price for its books. | ANS:APTS:1DIF:1REF:14-0 NAT:AnalyticLOC:Perfect competitionTOP:Market power MSC:Applicative 3. The analysis of competitive firms sheds light on the decisions that lie behind the |a. |demand curve. | |b. |supply curve. | |c. |way firms make pricing decisions in the not-for-profit sector of the economy. | |d. |way financial markets set interest rates. | ANS:BPTS:1DIF:1REF:14-0 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 4. For any competitive market, the supply curve is closely related to the |a. preferences of consumers who purchase products in that market. | |b. |income tax rates of consumers in that market. | |c. |firms’ costs of production in that market. | |d. |interest rates on government bonds. | ANS:CPTS:1DIF:1REF:14-0 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 5. Suppose a firm in each of the two markets listed below were to increase its price by 20 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not? |a. |corn and soybeans | |b. gasoline and restaurants | |c. |water and cable television | |d. |spiral notebooks and college textbooks | ANS:DPTS:1DIF:2REF:14-0 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Applicative 6. Suppose a firm in each of the two markets listed below were to increase its price by 30 percent.

In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not? |a. |oil and natural gas | |b. |cable television and gasoline | |c. |restaurants and MP3 players | |d. |movie theaters and ballpoint pens | ANS:BPTS:1DIF:2REF:14-0

NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Applicative What is a Competitive Market? 1. A KEY CHARACTERISTIC OF A COMPETITIVE MARKET IS THAT |a. |government antitrust laws regulate competition. | |b. |producers sell nearly identical products. | |c. |firms minimize total costs. | |d. |firms have price setting power. | ANS:BPTS:1DIF:1REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Definitional 2. Which of the following is not a characteristic of a competitive market? |a. |Buyers and sellers are price takers. | |b. |Each firm sells a virtually identical product. |c. |Entry is limited. | |d. |Each firm chooses an output level that maximizes profits. | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Definitional 3. Which of the following is a characteristic of a competitive market? |a. |There are many buyers but few sellers. | |b. |Firms sell differentiated products. | |c. |There are many barriers to entry. | |d. |Buyers and sellers are price takers. | ANS:DPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Definitional 4. Who is a price taker in a competitive market? |a. buyers only | |b. |sellers only | |c. |both buyers and sellers | |d. |neither buyers nor sellers | ANS:CPTS:1DIF:1REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Definitional 5. Competitive markets are characterized by |a. |a small number of buyers and sellers. | |b. |unique products. | |c. the interdependence of firms. | |d. |free entry and exit by firms. | ANS:DPTS:1DIF:1REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Definitional 6. A market is competitive if |(i) |firms have the flexibility to price their own product. | |(ii) |each buyer is small compared to the market. | |(iii) |each seller is small compared to the market. | |a. |(i) and (ii) only | |b. |(i) and (iii) only | |c. (ii) and (iii) only | |d. |(i), (ii), and (iii) | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 7. A firm that has little ability to influence market prices operates in a |a. |competitive market. | |b. |strategic market. | |c. |thin market. | |d. |power market. | ANS:APTS:1DIF:1REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Definitional 8. In a competitive market, the actions of any single buyer or seller will |a. have a negligible impact on the market price. | |b. |have little effect on market equilibrium quantity but will affect market equilibrium price. | |c. |affect marginal revenue and average revenue but not price. | |d. |adversely affect the profitability of more than one firm in the market. | ANS:APTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 9. In a competitive market, the actions of any single buyer or seller will |a. |discourage entry by competitors. | |b. |influence the profits of other firms in the market. | |c. |have a negligible impact on the market price. | |d. None of the above is correct. | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 10. Because the goods offered for sale in a competitive market are largely the same, |a. |there will be few sellers in the market. | |b. |there will be few buyers in the market. | |c. |only a few buyers will have market power. | |d. |sellers will have little reason to charge less than the going market price. | ANS:DPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 11. Which of the following is not a characteristic of a perfectly competitive market? a. |Firms are price takers. | |b. |Firms have difficulty entering the market. | |c. |There are many sellers in the market. | |d. |Goods offered for sale are largely the same. | ANS:BPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 12. Which of the following is not a characteristic of a perfectly competitive market? |a. |Firms are price takers. | |b. |Firms can freely enter the market. | |c. |Many firms have market power. | |d. |Goods offered for sale are largely the same. | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 3. Free entry means that |a. |the government pays any entry costs for individual firms. | |b. |no legal barriers prevent a firm from entering an industry. | |c. |a firm’s marginal cost is zero. | |d. |a firm has no fixed costs in the short run. | ANS:BPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 14. Which of the following industries is most likely to exhibit the characteristic of free entry? |a. |nuclear power | |b. |municipal water and sewer | |c. dairy farming | |d. |airport security | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Applicative 15. Which of the following industries is most likely to exhibit the characteristic of free entry? |a. |cable television | |b. |satellite radio | |c. |mineral mining | |d. t-shirt silkscreening | ANS:DPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Applicative 16. Which of the following industries is least likely to exhibit the characteristic of free entry? |a. |restaurants | |b. |municipal water and sewer | |c. |soybean farming | |d. |selling running apparel | ANS:BPTS:1DIF:2REF:14-1

NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Applicative 17. Which of the following industries is least likely to exhibit the characteristic of free entry? |a. |selling running apparel | |b. |wheat farming | |c. |yoga studios | |d. |satellite radio | ANS:DPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Applicative 8. When buyers in a competitive market take the selling price as given, they are said to be |a. |market entrants. | |b. |monopolists. | |c. |free riders. | |d. |price takers. | ANS:DPTS:1DIF:1REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Definitional 19. When firms are said to be price takers, it implies that if a firm raises its price, |a. |buyers will go elsewhere. | |b. |buyers will pay the higher price in the short run. | |c. |competitors will also raise their prices. | |d. |firms in the industry will exercise market power. | ANS:APTS:1DIF:2REF:14-1

NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 20. Which of the following statements best reflects a price-taking firm? |a. |If the firm were to charge more than the going price, it would sell none of its goods. | |b. |The firm has an incentive to charge less than the market price to earn higher revenue. | |c. |The firm can sell only a limited amount of output at the market price before the market price will fall. | |d. |Price-taking firms maximize profits by charging a price above marginal cost. | ANS:APTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 1. Why does a firm in a competitive industry charge the market price? |a. |If a firm charges less than the market price, it loses potential revenue. | |b. |If a firm charges more than the market price, it loses all its customers to other firms. | |c. |The firm can sell as many units of output as it wants to at the market price. | |d. |All of the above are correct. | ANS:DPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 22. In a competitive market, no single producer can influence the market price because |a. |many other sellers are offering a product that is ssentially identical. | |b. |consumers have more influence over the market price than producers do. | |c. |government intervention prevents firms from influencing price. | |d. |producers agree not to change the price. | ANS:APTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 23. A competitive firm would benefit from charging a price below the market price because the firm would achieve |(i) |higher average revenue. | |(ii) |higher profits. | |(iii) |lower total costs. | |a. |(i) only | |b. (ii) and (iii) only | |c. |(i), (ii), and (iii) | |d. |None of the above is correct. | ANS:DPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 24. Which of the following characteristics of competitive markets is necessary for firms to be price takers? |(i) |There are many sellers. | |(ii) |Firms can freely enter or exit the market. | |(iii) |Goods offered for sale are largely the same. |a. |(i) and (ii) only | |b. |(i) and (iii) only | |c. |(ii) only | |d. |(i), (ii), and (iii) | ANS:BPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 25. Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to |a. |increase. | |b. |remain unchanged. | |c. decrease by less than 20 percent. | |d. |decrease by more than 20 percent. | ANS:BPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Analytical 26. The Doris Dairy Farm sells milk to a dairy broker in Prairie du Chien, Wisconsin. Because the market for milk is generally considered to be competitive, the Doris Dairy Farm does not |a. |choose the quantity of milk to produce. | |b. |choose the price at which it sells its milk. | |c. |have any fixed costs of production. | |d. |set marginal revenue equal to marginal cost to maximize profit. | ANS:BPTS:1DIF:2REF:14-1

NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 27. The Doris Dairy Farm sells milk to a dairy broker in Prairie du Chien, Wisconsin. Because the market for milk is generally considered to be competitive, the Doris Dairy Farm does not choose the |a. |quantity of milk to produce. | |b. |price at which it sells its milk. | |c. |profits it earns. | |d. |All of the above are correct. | ANS:BPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 28. In a competitive market, |a. |no single buyer or seller can influence the price of the product. |b. |there are only a small number of sellers. | |c. |the goods offered by the different sellers are unique. | |d. |accounting profit is driven to zero as firms freely enter and exit the market. | ANS:APTS:1DIF:1REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 29. Which of the following statements regarding a competitive market is not correct? |a. |There are many buyers and many sellers in the market. | |b. |Because of firm location or product differences, some firms can charge a higher price than other firms and still | | |maintain their sales volume. | |c. Price and average revenue are equal. | |d. |Price and marginal revenue are equal. | ANS:BPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 30. Which of the following statements regarding a competitive market is not correct? |a. |There are many buyers and many sellers in the market. | |b. |Firms can freely enter or exit the market. | |c. |Price equals average revenue. | |d. |Price exceeds marginal revenue. | ANS:DPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 31. One of the defining characteristics of a perfectly competitive market is |a. a small number of sellers. | |b. |a large number of buyers and a small number of sellers. | |c. |a similar product. | |d. |significant advertising by firms to promote their products. | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Definitional 32. Which of the following firms is the closest to being a perfectly competitive firm? |a. |a hot dog vendor in New York | |b. |Microsoft Corporation | |c. |Ford Motor Company | |d. the campus bookstore | ANS:APTS:1DIF:1REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Applicative 33. Which of the following firms is the closest to being a perfectly competitive firm? |a. |the New York Yankees | |b. |Apple, Inc. | |c. |DeBeers diamond wholesalers | |d. |a wheat farmer in Kansas |

ANS:DPTS:1DIF:1REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Applicative 34. Firms that operate in perfectly competitive markets try to |a. |maximize revenues. | |b. |maximize profits. | |c. |equate marginal revenue with average total cost. | |d. |All of the above are correct. | ANS:BPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 35. A seller in a competitive market can |a. |sell all he wants at the going price, so he has little reason to charge less. | |b. |influence the market price by adjusting his output. | |c. influence the profits earned by competing firms by adjusting his output. | |d. |All of the above are correct. | ANS:APTS:1DIF:1REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 36. A seller in a competitive market |a. |can sell all he wants at the going price, so he has little reason to charge less. | |b. |will lose all his customers to other sellers if he raises his price. | |c. |considers the market price to be a “take it or leave it” price. | |d. |All of the above are correct. | ANS:DPTS:1DIF:1REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 7. In a perfectly competitive market, |a. |no one seller can influence the price of the product. | |b. |price exceeds marginal revenue for each unit sold. | |c. |average revenue exceeds marginal revenue for each unit sold. | |d. |All of the above are correct. | ANS:APTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 38. For a firm in a competitive market, an increase in the quantity produced by the firm will result in |a. |a decrease in the product’s market price. | |b. |an increase in the product’s market price. | |c. |no change in the product’s market price. |d. |either an increase or no change in the product’s market price depending on the number of firms in the market. | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive 39. If Cathy’s Coffee Emporium sells its product in a competitive market, then |a. |the price of that product depends on the quantity of the product that Cathy’s Coffee Emporium produces and sells | | |because Cathy’s Coffee Emporium’s demand curve is downward sloping. | |b. |Cathy’s Coffee Emporium’s total revenue must be proportional to its quantity of output. | |c. Cathy’s Coffee Emporium’s total cost must be a constant multiple of its quantity of output. | |d. |Cathy’s Coffee Emporium’s total revenue must be equal to its average revenue. | ANS:BPTS:1DIF:3REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Total revenue MSC:Analytical 40. Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm’s |a. |total revenue. | |b. |marginal revenue. | |c. |average revenue. | |d. |All of the above are correct. | ANS:APTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Total revenue MSC:Analytical 41.

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will |a. |more than triple. | |b. |less than triple. | |c. |exactly triple. | |d. |Any of the above may be true depending on the firm’s labor productivity. | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Total revenue MSC:Analytical 42. When a competitive firm doubles the quantity of output it sells, its |a. |total revenue doubles. | |b. |average revenue doubles. | |c. |marginal revenue doubles. | |d. |profits must increase. | ANS:APTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Total revenue

MSC:Analytical 43. If a firm in a competitive market doubles its number of units sold, total revenue for the firm will |a. |more than double. | |b. |double. | |c. |increase but by less than double. | |d. |may increase or decrease depending on the price elasticity of demand. | ANS:BPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Total revenue MSC:Analytical Table 14-1 |Quantity |Price | |0 |$5 | |1 |$5 | |2 |$5 | |3 |$5 | 4 |$5 | |5 |$5 | |6 |$5 | |7 |$5 | |8 |$5 | |9 |$5 | 44. Refer to Table 14-1. The price and quantity relationship in the table is most likely a demand curve faced by a firm in a |a. |monopoly. | |b. |concentrated market. | |c. |competitive market. | |d. |strategic market. | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Analytical 45. Refer to Table 14-1.

Over which range of output is average revenue equal to price? |a. |1 to 5 units | |b. |3 to 7 units | |c. |5 to 9 units | |d. |Average revenue is equal to price over the entire range of output. | ANS:DPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Average revenue MSC:Analytical 46. Refer to Table 14-1. Over what range of output is marginal revenue declining? |a. 1 to 6 units | |b. |3 to 7 units | |c. |7 to 9 units | |d. |Marginal revenue is constant over the entire range of output. | ANS:DPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Marginal revenue MSC:Analytical 47. Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will |a. |increase by less than $15. | |b. |increase by exactly $15. |c. |increase by more than $15. | |d. |Total revenue cannot be determined from the information provided. | ANS:BPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Total revenue MSC:Applicative Table 14-2 The table represents a demand curve faced by a firm in a competitive market. |Price |Quantity | |$4 |0 | |$4 |1 | |$4 |2 | |$4 |3 | |$4 |4 | |$4 |5 | 48. Refer to Table 14-2. A firm operating in a competitive market maximizes total revenue by producing |a. |2 units. |b. |3 units. | |c. |4 units. | |d. |as many units as possible. | ANS:DPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Total revenue MSC:Applicative 49. Refer to Table 14-2. For a firm operating in a competitive market, the average revenue from selling 3 units is |a. |$12. | |b. |$4. | |c. |$3. | |d. |$1. 25. | ANS:BPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Average revenue MSC:Applicative 50. Refer to Table 14-2. For a firm operating in a competitive market, the marginal revenue from selling the 3rd unit is |a. |$12. | |b. |$4. | |c. |$3. | |d. |$1. 25. | ANS:BPTS:1DIF:3REF:14-1

NAT:AnalyticLOC:Perfect competitionTOP:Marginal revenue MSC:Applicative Table 14-3 |Quantity |Total Revenue | |0 |$0 | |1 |$7 | |2 |$14 | |3 |$21 | |4 |$28 | 51. Refer to Table 14-3. For a firm operating in a competitive market, the price is |a. |$0. | |b. |$7. | |c. |$14. | |d. |$21. | ANS:BPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Applicative 52.

Refer to Table 14-3. For a firm operating in a competitive market, the marginal revenue is |a. |$0. | |b. |$7. | |c. |$14. | |d. |$21. | ANS:BPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Marginal revenue MSC:Applicative 53. Refer to Table 14-3. For a firm operating in a competitive market, the average revenue is |a. |$21. | |b. |$14. | |c. |$7. | |d. |$0. | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Average revenue MSC:Applicative Table 14-4 |Quantity |Total Revenue | |0 |$0 | |1 |$15 | 2 |$30 | |3 |$45 | |4 |$60 | 54. Refer to Table 14-4. For a firm operating in a competitive market, the price is |a. |$45. | |b. |$30. | |c. |$15. | |d. |$0. | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Applicative 55. Refer to Table 14-4. For a firm operating in a competitive market, the marginal revenue is |a. |$45. | |b. |$30. | |c. |$15. | |d. |$0. | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Marginal revenue MSC:Applicative 56.

Refer to Table 14-4. For a firm operating in a competitive market, the average revenue is |a. |$45. | |b. |$30. | |c. |$15. | |d. |$0. | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Average revenue MSC:Applicative Table 14-5 |Quantity |Total Revenue | |12 |$132 | |13 |$143 | |14 |$154 | |15 |$165 | |16 |$176 | 57. Refer to Table 14-5.

The price of the product is |a. |$9. | |b. |$11. | |c. |$13. | |d. |$15. | ANS:BPTS:1DIF:1REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Applicative 58. Refer to Table 14-5. The average revenue when 14 units are produced and sold is |a. |$9. | |b. |$11. | |c. |$13. | |d. |$15. | ANS:BPTS:1DIF:1REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Average revenue MSC:Analytical 59. Refer to Table 14-5. The marginal revenue of the 12th unit is |a. |$9. | |b. |$10. | |c. |$11 | |d. The marginal revenue cannot be determined without knowing the total revenue when 11 units are sold. | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Marginal revenue MSC:Analytical Table 14-6 The following table presents cost and revenue information for a firm operating in a competitive industry. |COSTS |REVENUES | |Quantity |Total |Marginal |Quantity |Price |Total |Marginal | |Produced |Cost |Cost |Demanded | Revenue |Revenue | | 0 |$100 | — | 0 | $120 | | — | | 1 |$150 | | 1 | $120 | | | | 2 |$202 | | 2 | $120 | | | | 3 |$257 | | 3 | $120 | | | | 4 |$317 | | 4 | $120 | | | | 5 |$385 | | 5 | $120 | | | | 6 |$465 | | 6 | $120 | | | | 7 |$562 | | 7 | $120 | | | | 8 |$682 | | 8 | $120 | | | 60. Refer to Table 14-6. What is the total revenue from selling 7 units? |a. $120 | |b. |$490 | |c. |$562 | |d. |$840 | ANS:DPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Total revenue MSC:Applicative 61. Refer to Table 14-6. What is the total revenue from selling 4 units? |a. |$120 | |b. |$257 | |c. $317 | |d. |$480 | ANS:DPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Total revenue MSC:Applicative 62. Refer to Table 14-6. What is the marginal revenue from selling the 3rd unit? |a. |$55 | |b. |$120 | |c. |$137 | |d. |$140 | ANS:BPTS:1DIF:2REF:14-1

NAT:AnalyticLOC:Perfect competitionTOP:Marginal revenue MSC:Applicative 63. Refer to Table 14-6. What is the average revenue when 4 units are sold? |a. |$60 | |b. |$120 | |c. |$125 | |d. |$197 | ANS:BPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Average revenue MSC:Applicative 64. Which of the following statements is correct? a. |For all firms, marginal revenue equals the price of the good. | |b. |Only for competitive firms does average revenue equal the price of the good. | |c. |Marginal revenue can be calculated as total revenue divided by the quantity sold. | |d. |Only for competitive firms does average revenue equal marginal revenue. | ANS:DPTS:1DIF:3REF:14-1 NAT:AnalyticLOC:Perfect competition TOP:Average revenue | Marginal revenueMSC:Interpretive 65. Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold? |a. $5 and 50 units | |b. |$5 and 100 units | |c. |$10 and 50 units | |d. |$10 and 100 units | ANS:DPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Average revenue MSC:Applicative 66. Which of the following statements regarding a competitive firm is correct? |a. |Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower | | |price to sell the additional output. | |b. If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. | |c. |By lowering its price below the market price, the firm will benefit from selling more units at the lower price than | | |it could have sold by charging the market price. | |d. |For all firms, average revenue equals the price of the good. | ANS:DPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Average revenue MSC:Analytical 67. Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be |a. less than $12. | |b. |more than $12. | |c. |$12. | |d. |Any of the above may be correct depending on the price elasticity of demand for the product. | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Average revenue MSC:Analytical 68. Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, total revenue will be |a. |$2,000. | |b. |$2,400. | |c. |$4,200. | |d. |We do not have enough information to answer the question. | ANS:BPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Total revenue MSC:Analytical 69.

Firms operating in competitive markets produce output levels where marginal revenue equals |a. |price. | |b. |average revenue. | |c. |total revenue divided by output. | |d. |All of the above are correct. | ANS:DPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competition TOP:Marginal revenue | Average revenueMSC:Applicative 70. For a competitive firm, |a. |total revenue equals average revenue. | |b. |total revenue equals marginal revenue. | |c. |total cost equals marginal revenue. | |d. |average revenue equals marginal revenue. | ANS:DPTS:1DIF:1REF:14-1 NAT:AnalyticLOC:Perfect competition TOP:Marginal revenue | Average revenueMSC:Definitional 71.

Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct? |(i) |Marginal revenue equals $5. | |(ii) |Average revenue equals $5. | |(iii) |Price equals $5. | |a. |(i) only | |b. |(iii) only | |c. |(i) and (ii) only | |d. |(i), (ii), and (iii) | ANS:DPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competition

TOP:Marginal revenue | Average revenueMSC:Analytical 72. Suppose that a firm operating in perfectly competitive market sells 200 units of output at a price of $3 each. Which of the following statements is correct? |(i) |Marginal revenue equals $3. | |(ii) |Average revenue equals $600. | |(iii) |Average revenue exceeds marginal revenue, but we don’t know by how much. | |a. |(i) only | |b. |(iii) only | |c. |(i) and (ii) only | |d. (i), (ii), and (iii) | ANS:APTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competition TOP:Marginal revenue | Average revenueMSC:Analytical 73. Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? |(i) |Marginal revenue equals $3. | |(ii) |Average revenue equals $100. | |(iii) |Total revenue equals $300. | |a. |(i) only | |b. |(iii) only | |c. (i) and (ii) only | |d. |(i), (ii), and (iii) | ANS:APTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competition TOP:Marginal revenue | Average revenueMSC:Analytical 74. Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct? |(i) |Marginal revenue equals $4. | |(ii) |Average revenue equals $100. | |(iii) |Total revenue equals $1,600. | |a. |(i) only | |b. (iii) only | |c. |(i) and (iii) only | |d. |(i), (ii), and (iii) | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competition TOP:Marginal revenue | Average revenueMSC:Analytical 75. For a firm operating in a competitive industry, which of the following statements is not correct? |a. |Price equals average revenue. | |b. |Price equals marginal revenue. | |c. |Total revenue is constant. | |d. |Marginal revenue is constant. | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competition

TOP:Marginal revenue | Average revenueMSC:Interpretive 76. For a firm in a perfectly competitive market, the price of the good is always |a. |equal to marginal revenue. | |b. |equal to total revenue. | |c. |greater than average revenue. | |d. |equal to the firm’s efficient scale of output. | ANS:APTS:1DIF:1REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Marginal revenue MSC:Interpretive 77. Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8. 00. What would be the firm’s total revenue if it instead produced and sold 4 units of output? |a. |$4 | |b. |$8 | |c. $32 | |d. |$64 | ANS:CPTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Marginal revenue MSC:Applicative 78. Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue |a. |increases if MR < ATC and decreases if MR > ATC. | |b. |does not change. | |c. |increases. | |d. |decreases. | ANS:BPTS:1DIF:1REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Marginal revenue MSC:Interpretive 79. Suppose that in a competitive market the equilibrium price is $2. 50.

What is marginal revenue for the last unit sold by the typical firm in this market? |a. |less than $2. 50 | |b. |more than $2. 50 | |c. |exactly $2. 50 | |d. |The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm. | ANS:CPTS:1DIF:1REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Marginal revenue MSC:Interpretive 80. For an individual firm operating in a competitive market, marginal revenue equals |a. |average revenue and the price for all levels of output. | |b. |average revenue, which is greater than the price for all levels of output. | |c. average revenue, the price, and marginal cost for all levels of output. | |d. |marginal cost, which is greater than average revenue for all levels of output. | ANS:APTS:1DIF:2REF:14-1 NAT:AnalyticLOC:Perfect competition TOP:Marginal revenue | Average revenueMSC:Interpretive 81. If the market elasticity of demand for potatoes is -0. 3 in a perfectly competitive market, then the individual farmer’s elasticity of demand |a. |will also be -0. 3. | |b. |depends on how large a crop the farmer produces. | |c. |will range between -0. 3 and -1. 0. | |d. |will be infinite. | ANS:DPTS:1DIF:3REF:14-1 NAT:AnalyticLOC:Perfect competitionTOP:Elasticity MSC:Analytical

Profit Maximization and the Competitive Firm’s Supply Curve 1. IF A COMPETITIVE FIRM IS CURRENTLY PRODUCING A LEVEL OF OUTPUT AT WHICH MARGINAL REVENUE EXCEEDS MARGINAL COST, THEN |a. |a one-unit increase in output will increase the firm’s profit. | |b. |a one-unit decrease in output will increase the firm’s profit. | |c. |total revenue exceeds total cost. | |d. |total cost exceeds total revenue. | ANS:APTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Analytical 2. If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then |a. |a one-unit increase in output will increase the firm’s profit. | |b. a one-unit decrease in output will increase the firm’s profit. | |c. |total revenue exceeds total cost. | |d. |total cost exceeds total revenue. | ANS:BPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Analytical 3. If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then |a. |average revenue exceeds marginal cost. | |b. |the firm is earning a positive profit. | |c. |decreasing output would increase the firm’s profit. | |d. |All of the above are correct. | ANS:CPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Analytical 4. Comparing marginal revenue to marginal cost (i) |reveals the contribution of the last unit of production to total profit. | |(ii) |is helpful in making profit-maximizing production decisions. | |(iii) |tells a firm whether its fixed costs are too high. | |a. |(i) only | |b. |(i) and (ii) only | |c. |(ii) and (iii) only | |d. |(i) and (iii) only | ANS:BPTS:1DIF:2REF:14-2

NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Interpretive 5. At the profit-maximizing level of output, |a. |marginal revenue equals average total cost. | |b. |marginal revenue equals average variable cost. | |c. |marginal revenue equals marginal cost. | |d. |average revenue equals average total cost. | ANS:CPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Interpretive 6. The intersection of a firm’s marginal revenue and marginal cost curves determines the level of output at which |a. |total revenue is equal to variable cost. | |b. |total revenue is equal to fixed cost. | |c. |total revenue is equal to total cost. | |d. |profit is maximized. | ANS:DPTS:1DIF:2REF:14-2

NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Interpretive 7. For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $10 and a marginal cost of $7. It follows that the |a. |production of the 100th unit of output increases the firm’s profit by $3. | |b. |production of the 100th unit of output increases the firm’s average total cost by $7. | |c. |firm’s profit-maximizing level of output is less than 100 units. | |d. |production of the 99th unit of output must increase the firm’s profit by less than $3. | ANS:APTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Analytical 8.

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $10 and a marginal cost of $11. It follows that the |a. |production of the 100th unit of output increases the firm’s profit by $1. | |b. |production of the 100th unit of output increases the firm’s average total cost by $1. | |c. |firm’s profit-maximizing level of output is less than 100 units. | |d. |production of the 110th unit of output must increase the firm’s profit but by less than $1. | ANS:CPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Analytical 9. A certain competitive firm sells its output for $20 per unit. The 50th unit of output that the firm produces has a marginal cost of $22.

Production of the 50th unit of output does not necessarily |a. |increase the firm’s total revenue by $20. | |b. |increase the firm’s total cost by $22. | |c. |decrease the firm’s profit by $2. | |d. |increase the firm’s average variable cost by $0. 44. | ANS:DPTS:1DIF:3REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Analytical 10. Sam sells soybeans to a broker in Chicago, Illinois. Because the market for soybeans is generally considered to be competitive, Sam maximizes his profit by choosing |a. |to produce the quantity at which average variable cost is minimized. | |b. |to produce the quantity at which average fixed cost is minimized. |c. |to sell at a price where marginal cost is equal to average total cost. | |d. |the quantity at which market price is equal to Sam’s marginal cost of production. | ANS:DPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Analytical 11. If a competitive firm is selling 1,000 units of its product at a price of $9 per unit and earning a positive profit, then |a. |its total cost is less than $9,000. | |b. |its marginal revenue is less than $9. | |c. |its average revenue is greater than $9. | |d. |the firm cannot be a competitive firm because competitive firms cannot earn positive profits. | ANS:APTS:1DIF:2REF:14-2

NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Analytical 12. If a competitive firm is selling 1,000 units of its product at a price of $8 per unit and earning a positive profit, then |a. |its average revenue is greater than $8. | |b. |its marginal revenue is less than $8. | |c. |its total cost is less than $8,000. | |d. |All of the above are correct. | ANS:CPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Analytical 13. Max sells maps. The map industry is competitive. Max hires a business consultant to analyze his company’s financial records. The consultant recommends that Max increase his production. The consultant must have concluded that Max’s |a. total revenues exceed his total accounting costs. | |b. |marginal revenue exceeds his total cost. | |c. |marginal revenue exceeds his marginal cost. | |d. |marginal cost exceeds his marginal revenue. | ANS:CPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Interpretive 14. Christopher is a professional tennis player who gives tennis lessons. The industry is competitive. Christopher hires a business consultant to analyze his financial records. The consultant recommends that Christopher give fewer tennis lessons. The consultant must have concluded that Christopher’s |a. |total revenues exceed his total accounting costs. | |b. marginal revenue exceeds his total cost. | |c. |marginal revenue exceeds his marginal cost. | |d. |marginal cost exceeds his marginal revenue. | ANS:DPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Interpretive 15. Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should |a. |make more than 20 wedding cakes per month. | |b. |make fewer than 20 wedding cakes per month. | |c. continue to make 20 wedding cakes per month. | |d. |We do not have enough information with which to answer the question. | ANS:BPTS:1DIF:3REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Analytical 16. Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $200. In order to maximize profits, Laura should |a. |make more than 20 wedding cakes per month. | |b. |make fewer than 20 wedding cakes per month. | |c. |continue to make 20 wedding cakes per month. | |d. We do not have enough information with which to answer the question. | ANS:APTS:1DIF:3REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Analytical 17. Marcia is a fashion designer who runs a small clothing business in a competitive industry. Marcia specializes in making designer dresses. Marcia sells 10 dresses per month. Her monthly total revenue is $5,000. The marginal cost of making a dress is $400. In order to maximize profits, Marcia should |a. |make more than 10 dresses per month. | |b. |make fewer than 10 dresses per month. | |c. |continue to make 10 dresses per month. | |d. |We do not have enough information with which to answer the question. | ANS:APTS:1DIF:3REF:14-2

NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Analytical 18. Marcia is a fashion designer who runs a small clothing business in a competitive industry. Marcia specializes in making designer dresses. Marcia sells 10 dresses per month. Her monthly total revenue is $5,000. The marginal cost of making a dress is $500. In order to maximize profits, Marcia should |a. |make more than 10 dresses per month. | |b. |make fewer than 10 dresses per month. | |c. |continue to make 10 dresses per month. | |d. |We do not have enough information with which to answer the question. | ANS:CPTS:1DIF:3REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Analytical 19.

Marcia is a fashion designer who runs a small clothing business in a competitive industry. Marcia specializes in making designer dresses. Marcia sells 10 dresses per month. Her monthly total revenue is $5,000. The marginal cost of making a dress is $600. In order to maximize profits, Marcia should |a. |make more than 10 dresses per month. | |b. |make fewer than 10 dresses per month. | |c. |continue to make 10 dresses per month. | |d. |We do not have enough information with which to answer the question. | ANS:BPTS:1DIF:3REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Analytical 20. A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive.

Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its |a. |quantity of output is higher than it was previously. | |b. |average total cost is higher than it was previously. | |c. |marginal revenue is higher than it was previously. | |d. |All of the above are correct. | ANS:DPTS:1DIF:3REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Interpretive 21. A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price falls to $18, and the firm makes whatever adjustments are necessary to maximize its profit at the now-lower price. Once the firm has adjusted, its |a. quantity of output is lower than it was previously. | |b. |average total cost is lower than it was previously. | |c. |marginal cost is higher than it was previously. | |d. |All of the above are correct. | ANS:APTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Interpretive 22. A competitive firm has been selling its output for $10 per unit and has been maximizing its profit. Then, the price rises to $14, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its |a. |marginal revenue is lower than it was previously. | |b. |marginal cost is lower than it was previously. | |c. quantity of output is higher than it was previously. | |d. |All of the above are correct. | ANS:CPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Interpretive 23. When profit-maximizing firms in competitive markets are earning profits, |a. |market demand must exceed market supply at the market equilibrium price. | |b. |market supply must exceed market demand at the market equilibrium price. | |c. |new firms will enter the market. | |d. |the most inefficient firms will be encouraged to leave the market. | ANS:CPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive markets MSC:Interpretive Table 14-7

Suppose that a firm in a competitive market faces the following revenues and costs: | |Marginal |Marginal | |Quantity |Cost |Revenue | |12 |$5 |$9 | |13 |$6 |$9 | |14 |$7 |$9 | |15 |$8 |$9 | |16 |$9 |$9 | |17 |$10  |$9 | 24. Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners? |a. |decrease quantity to 13 units | |b. |increase quantity to 17 units | |c. |continue to operate at 14 units | |d. increase quantity to 16 units | ANS:DPTS:1DIF:1REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Profit maximization MSC:Applicative 25. Refer to Table 14-7. If the firm is maximizing profit, how much profit is it earning? |a. |$0 | |b. |$1 | |c. |$10 | |d. |There is insufficient data to determine the firm’s profit. | ANS:DPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Profit MSC:Applicative Table 14-8

Suppose that a firm in a competitive market faces the following revenues and costs: |Quantity |Total Revenue |Total Cost | |0 |$0 |$3 | |1 |$7 |$5 | |2 |$14 |$8 | |3 |$21 |$12 | |4 |$28 |$17 | |5 |$35 |$23 | |6 |$42 |$30 | |7 |$49 |$38 | 26. Refer to Table 14-8.

The firm will not produce an output level beyond |a. |4 units. | |b. |5 units. | |c. |6 units. | |d. |7 units. | ANS:CPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Profit maximization MSC:Applicative 27. Refer to Table 14-8. The firm will produce a quantity greater than 4 because at 4 units of output, marginal cost |a. |is less than marginal revenue. | |b. |equals marginal revenue. | |c. |is greater than marginal revenue. | |d. |is minimized. | ANS:APTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Profit maximization MSC:Applicative 28. Refer to Table 14-8. In order to maximize profits, the firm will produce |a. |1 unit of output because marginal cost is minimized. | |b. 4 units of output because marginal revenue exceeds marginal cost. | |c. |6 units of output because marginal revenue equals marginal cost. | |d. |8 units of output because total revenue is maximized. | ANS:CPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Profit maximization MSC:Applicative Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: |Quantity |Total Revenue |Total Cost | |0 |$0 |$10 | |1 | $9 | $14 | |2 $18 | $19 | |3 |$27 | $25 | |4 |$36 | $32 | |5 |$45 | $40 | |6 |$54 | $49 | |7 |$63 | $59 | |8 |$72 | $70 | |9 |$81 | $82 | 29. Refer to Table 14-9. If the firm produces 4 units of output, |a. |marginal cost is $4. | |b. |total revenue is greater than variable cost. | |c. |marginal revenue is less than marginal cost. | |d. |the firm is maximizing profit. | ANS:BPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Competitive firms MSC:Analytical 30. Refer to Table 14-9. At which quantity of output is marginal revenue equal to marginal cost? |a. 3 units | |b. |6 units | |c. |8 units | |d. |9 units | ANS:BPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Profit maximization MSC:Applicative 31. Refer to Table 14-9. In order to maximize profit, the firm will produce a level of output where marginal revenue is equal to |a. |$6. | |b. |$7. | |c. |$8. | |d. |$9. | ANS:DPTS:1DIF:2REF:14-2

NAT:AnalyticLOC:Perfect competitionTOP:Profit maximization MSC:Applicative 32. Refer to Table 14-9. In order to maximize profit, the firm will produce a level of output where marginal cost is equal to |a. |$5. | |b. |$7. | |c. |$9. | |d. |$10. | ANS:CPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Profit maximization MSC:Applicative 33. Refer to Table 14-9. The maximum profit available to the firm is |a. |$2. | |b. |$3. | |c. |$4. | |d. |$5. | ANS:DPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Profit maximization MSC:Applicative 34. Refer to Table 14-9. If the firm’s marginal cost is $11, it should |a. |increase production to maximize profit. | |b. increase the price of the product to maximize profit. | |c. |advertise to attract additional buyers to maximize profit. | |d. |reduce production to increase profit. | ANS:DPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Profit maximization MSC:Analytical 35. Refer to Table 14-9. If the firm’s marginal cost is $5, it should |a. |reduce fixed costs by lowering production. | |b. |increase production to maximize profit. | |c. |decrease production to maximize profit. | |d. |maintain its current level of production to maximize profit. | ANS:BPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Profit maximization MSC:Analytical Table 14-10

Suppose that a firm in a competitive market faces the following revenues and costs: |Quantity |Total Revenue |Total Cost | |0 |$0 |$3 | |1 |$7 |$5 | |2 |$14 |$9 | |3 |$21 |$15 | |4 |$28 |$23 | |5 |$35 |$33 | |6 |$42 |$45 | |7 |$49 |$59 | 36. Refer to Table 14-10. The marginal cost of producing the 4th unit is |a. |$7. | |b. |$8. | |c. |$10. | |d. |$23. | ANS:BPTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Marginal cost MSC:Applicative 37. Refer to Table 14-10. At which level of production will the firm maximize profit? |a. |3 units | |b. |4 units | |c. |5 units | |d. 6 units | ANS:APTS:1DIF:2REF:14-2 NAT:AnalyticLOC:Perfect competitionTOP:Profit maximization MSC:Applicative 38. Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will the firm earn? |a. |$2 | |b. |$4 | |c. |$6 | |d. |$8 | ANS:CPTS:1DIF:2REF:14-2

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