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Exam 14: Firms in Competitive Markets

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Question 21

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A profit-maximizing firm in a competitive market will decrease production when marginal cost exceeds average revenue.

A) True
B) False

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Question 22

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Table 14-7 Suppose that a firm in a competitive market faces the following revenues and costs: -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 15 units
C) continue to operate at 14 units
D) increase quantity to 16 units

E) A) and B)
F) B) and C)

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Question 23

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Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

Scenario 14-3 Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. -Refer to Scenario 14-3. At Q=499, the firm's profits equal

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. If the market price is Pc, in the short run the firm will earn

Figure 14-7 -Refer to Figure 14-7. Let Q represent the quantity of output and suppose the price of the good is $125. Then marginal revenue is

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the average revenue when 4 units are sold?

A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.

When determining whether to shut down in the short run, a competitive firm should ignore (i) fixed costs. (ii) variable costs. (iii) sunk costs.

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

A firm operating in a perfectly competitive industry will continue to operate if it earns zero economic profits because it is likely to be earning positive accounting profits.

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Explain your answer.

Scenario 14-4 The information below applies to a competitive firm that sells its output for $40 per unit. -When the firm produces and sells 150 units of output, its average total cost is $24.50. -When the firm produces and sells 151 units of output, its average total cost is $24.55. -Refer to Scenario 14-4. When the firm increases its output from 150 units to 151 units, its profit

Table 14-1 -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

Figure 14-9 In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. -Refer to Figure 14-9. If there are 300 identical firms in this market, what level of output will be supplied to the market when price is $2.00?

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the unit for $6. The firm should produce more than 100 units in order to maximize its profits (or minimize its losses).

If identical firms that remain in a competitive market over the long run make zero economic profit, why do these firms choose to remain in the market?

Firms operating in perfectly competitive markets try to maximize profits.

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. The firm will earn positive economic profits if the price is (i) P4. (ii) P3. (iii) P2. (iv) P1.

In competitive markets, firms that raise their prices are typically rewarded with larger profits.