116. If a perfectly competitive firm increases production from 10 units to 11 un
ID: 1127339 • Letter: 1
Question
116. If a perfectly competitive firm increases production from 10 units to 11 units and the market price is $20 per unit, total revenue for 11 units is: A) S10. B) $20. C) $200. D) $220. 117. The demand curve for a perfectly competitive firm is: A) perfectly inelastic. B) perfectly elastic. C) downward-sloping. D) relatively but not perfectly elastic 118. Marginal revenue is a firm's: A) ratio of profit to quantity B) ratio of average revenue to quantity. C) price per unit times the number of units sold. D) increase in total revenue when it sells an additional unit of output 119. In the short run, if P> ATC, a perfectly competitive firm A) produces output and earns zero economic profit B) C) D) produces output and earns an economic profit. produces output and incurs an economic loss. does not produce output and earns economic profit. 120. A competitive firm operating in the short run is producing at the output level at wh ATC is at a minimum. IfATC-S8 and MR = $9, to maximize profits (or minimiz losses), this firm should: A) increase output. B) reduce output. C) increase price. D) do nothing; the firm is already maximizing profits.Explanation / Answer
(116) (D)
Total revenue = Price x Quantity = $20 x 11 = $220
(117) (B)
Since perfectly competitive firm is price taker, it accepts market price as its own price and its demand curve is horizontal (perfectly elastic).
(118) (D)
Marginal revenue is the additional revenue obtained from sale of one more unit.
(119) (B)
Profit = Quantity x (P - ATC)
When P > ATC, economic profit is positive and firm produces.
(120) (A)
When ATC is minimum, MC = ATC. Since firm maximizes profit by equating MR & MC, if MR > MC ($9 > $8), there is a marginal profit which can be increased if firm increases output.
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