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Exam 14: Firms in Competitive Markets

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Question 301

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Table 14-14 The following table presents cost and revenue information for Bob's bakery production and sales. -Refer to Table 14-14. Suppose that due to a decrease in the market demand for bread the market price of bread drops to $2.75 per loaf. At this new price, what is Bob's profit-maximizing quantity?

A) 5 units
B) 6 units
C) 7 units
D) 8 units

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

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Question 302

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Total profit for a firm is calculated as

A) marginal revenue minus average total cost.
B) average revenue minus average total cost.
C) marginal revenue minus marginal cost.
D) (price minus average cost) times quantity of output.

E) All of the above
F) A) and C)

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Question 303

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Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

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

A competitive firm sells 500 units of output and its marginal revenue at 500 units of output is $35. The firm's total revenue amounts to __________.

Suppose that the organic-produce industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will

In a long-run equilibrium, the marginal firm has

​Perfectly competitive markets are characterized by

​In the long run, if we observe firms in a competitive market earning economic profits, we know that this market is in long-run equilibrium.

​In competitive markets where firms are observed to be exiting the market, the firms that remain will obtain economic profits in the long run.

Consider a firm that operates in a perfectly competitive market. Currently the firm is producing 50 units of output and at that output level, marginal revenue is $6. Suppose that the firm increases output by 50%. Total revenue will be

Scenario 14-1. A competitive firm sells its output for $20 per unit. When the firm produces 200 units of output, average variable cost is $16, marginal cost is $18, and average total cost is $23. -Refer to Scenario 14-1. Is the firm maximizing its profit (or minimizing its loss) by producing 200 units of output?

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=500, the firm's profits equal

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price?

When a resource used in the production of a good sold in a competitive market is available in only limited quantities, the long-run supply curve is likely to be upward sloping.

Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?

Because there are many sellers in a competitive market, individual firms are unable to maximize profits.

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $12.50 at the profit-maximizing output level, then in the long run

A competitive firm currently produces and sells 500 units of output. Its total revenue is $3,500; the marginal cost of producing the 500^th unit of output is $5.75; and the average total cost of producing the 500^th unit of output is $4.00. Is the firm maximizing its profit, or should it increase or decrease output in order to increase its profit?

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).