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Exam 14: Firms in Competitive Markets

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Question 111

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Table 14-4 The following table presents cost and revenue information for a firm operating in a competitive industry. ​ ​ -Refer to Table 14-4. What is the average revenue when 3 units are sold?

A) $40
B) $257
C) $120
D) $86

E) None of the above
F) B) and C)

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Question 112

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Suppose a firm in a competitive market earned $2,000 in total revenue and had a marginal revenue of $20 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) $100 and 20 units
D) $20 and 100 units

E) All of the above
F) None of the above

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Question 113

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In making a short-run profit-maximizing production decision, the firm must consider both fixed and variable cost.

Suppose a firm is considering producing zero units of output. We call this shutting down in the short run and exiting an industry in the long run.

A competitive firm currently produces and sells 7,500 units of output at a price of $2.50 per unit. The firm's average fixed cost is $0.75 and its average total cost is $2.80. In the short run, should the firm continue to operate?

At its current level of production a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces and faces an average total cost of $10. At the market price of $12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1,000 units. What is the firm's current profit? What is likely to occur in this market and why?

Table 14-5 Suppose that a firm in a competitive market faces the following revenues and costs: ​ $\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Marginal Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Marginal Revenue } \\\text { (Dollars) }\end{array} \\\hline 12 & 5 & 7 \\\hline 13 & 6 & 7 \\\hline 14 & 7 & 7 \\\hline 15 & 8 & 7 \\\hline 16 & 9 & 7 \\\hline 17 & 10 & 7 \\\hline\end{array}$ -Refer to Table 14-5. If the firm is currently producing 14 units, what would you advise the owners?

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. In the short run, if the market price is higher than P₄ but less than P₆, individual firms in a competitive industry will earn

A firm maximizes its profit by selling 2,500 units of output with an average revenue of $6.99. The firm's marginal cost at 2,500 units of output is __________.

Table 14-1 ​ ​ $\begin{array} { | c | c | } \hline \begin{array} { c } \text { Price } \\\text { (Dollars per unit) }\end{array} & \begin{array} { c } \text { Quantity Demanded } \\\text { (Units) }\end{array} \\\hline 5 & 0 \\\hline 5 & 2 \\\hline 5 & 4 \\\hline 5 & 6 \\\hline 5 & 8 \\\hline 5 & 10 \\\hline 5 & 12 \\\hline 5 & 14 \\\hline 5 & 16 \\\hline 5 & 18 \\\hline\end{array}$ -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

Table 14-8 A firm in a competitive market has the following cost structure. ​ ​ $\begin{array} { | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Average Total Cost } \\\text { (Dollars) }\end{array} \\\hline 0 & - - \\\hline 1 & 10 \\\hline 2 & 8 \\\hline 3 & 7 \\\hline 4 & 8 \\\hline 5 & 10 \\\hline\end{array}$ -Refer to Table 14-8. If the firm's fixed cost of production is $3, and the market price is $10, how many units should the firm produce to maximize profit?

If a firm observes that the price of its product is above average variable cost, it would choose to continue to produce the good in the short run, even if that firm experiences economic losses. ​

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $11 and a marginal cost of $10. It follows that the

Table 14-6 Suppose that a firm in a competitive market faces the following revenues and costs: ​ ​ $\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Total Revenue } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { (Dollars) }\end{array} \\\hline 0 & 0 & 3 \\\hline 1 & 6 & 5 \\\hline 2 & 12 & 8 \\\hline 3 & 18 & 12 \\\hline 4 & 24 & 17 \\\hline 5 & 30 & 23 \\\hline 6 & 36 & 30 \\\hline 7 & 42 & 38 \\\hline\end{array}$ ​ -Refer to Table 14-6. The firm will produce a quantity greater than three because at 3 units of output, marginal cost

Figure 14-7 ​ -Refer to Figure 14-7. Assume that the market starts in equilibrium at point W in graph (b) and that graph (a) illustrates the cost curves facing individual firms. Suppose that demand increases from D₀ to D₁. Which of the following statements is correct?

Figure 14-4 In the following figure, graph (a) depicts the linear marginal cost (MC) of a firm in a competitive market, and graph (b) depicts the linear market supply curve for a market with a fixed number of identical firms. ​ -Refer to Figure 14-4. If there are 100 identical firms in this market, what is the value of Q₂?

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: ​ -Refer to Figure 14-1. If the market price falls below $6, the firm will earn

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue

What is the relationship between price and marginal revenue for a competitive firm?

Tom produces commemorative t-shirts in a competitive market. If Tom decides to decrease his output, this will