5. For a firm in a perfectly competitive market, marginal revenue a is the addit

Question

5. For a firm in a perfectly competitive market, marginal revenue
a is the addition tototal revenue from producing one more unit of output.
b. decreases as the firm produces more output.
c. is equal to price at any level of output.
d. both a and b
e. both a and c

The next 3 questions refer to the following:
Total cost schedule for a perfectly competitive firm: Output
0 2345
Total Cost $10
60
80
110
165
245
6. If market price is $60, how many units of output will the firm produce?
a. Zero units of output because the firm shuts down.
b. 1 unit of output
c. 2 units of output
d. 3 units of output
e. none of the above
7. If market price is $60, what is the maximum profit the firm can earn?
a. -$10
b. Zero profit, the firm shuts down
c. $75
d. $80
e. $85
8. If market price is $30, how many units of output will the firm produce?
a. 0, the firm shut down
b. 1
c. 2
d. 3
e. 4
9. In a perfectly competitive industry the market price is $25. A firm is currently producing 10,000
units of output; average total cost is $28, marginal cost is $20, and average variable cost is $20.
The firm should
a. raise price because the firm is losing money.
b. keep output the same because the firm is producing at minimum average variable
cost.
c. produce more because the next unit of output increases profit by $5.
d. produce less because the next unit of output decreased profit by $3.
e. shut down because the firm is losing money.

The next three questions refer to the following: The graph on the left shows the short-run marginal cost curve for a typical firm selling in a
perfectly competitive market. The graph on the right shows current demand and supply in the market. 10. If the firm’s demand and marginal revenue curves were drawn in the left-hand graph, what would be the elasticity of demand?

a. zero b. -6
c. 0.6
d. infinitely elastic
e. unitary 11. What is the marginal revenue for the FIRM from selling the 250th unit of output?
a. $10
b. $8
c. $6 d. $4

e. Zero 1

2. What output should the firm produce?
a. 200

b. 250

c. 150
d. 30013

The next two questions refer to the following figure:
The graph shows demand and marginal cost for a perfectly competitive firm.
13. If the firm is producing 100 units of output, increasing output by one unit would
the firm’s profit by $ .
a. increase, $3
b. increase, $2
c. decrease, $1 d. increase, $1
e. decrease, $2
14. If the firm is producing 300 units of output, decreasing output by one unit would_
the firm’s profit by $ .
a. Decrease, $2v
b. Increase, $2
c. Increase, $2
d. Decrease, $5 e. Increase, $5
15. In order to minimize losses in the short run, a perfectly competitive firm should shut
down if
a. Total revenue is less than total cost
b. Total revenue is less than total fixed cost.
c. Total revenue is less than variable cost.
d. Total revenue is less than the difference between total fixed cost and total
variable cost.

The next three questions refer to the following: The graph on the left shows the short-run cost curves for a firm in a perfectly competitive market, and the graph on the right shows the current market conditions in this industry.
16. In order to maximize profit, how much output should the firm produce?
a. 20 units
b. 40 units
c. 50 units
d. 60 units
e. 80 units
17. What is the maximum amount of profit the firm can earn?
a. $50
b. $40
c. $80
d. $150
18. What do you expect to happen in the long-run?
a. Market supply will decrease.
b. Market price will decrease.
c. The firm’s profit will decrease. d. both b ande
e. all of the above
19. When total fixed costs increase,
a. The profit-maximizing level of output falls.
b. The firm may be forced to shut down in total fixed costs get too high.
c. Economic profit decreases. d. Both a and b
e. Both b ande

Explanation / Answer

Ans:

5) Option E

both a and c

marginal revenue is the additional revenue from producing a additional unit of output.In case of perfectly competitive firms, marginal revenue is equal to price at any given level of output.

Table show total cost,marginal cost and marginal revenue

6) Option E

none of the above

The profit maximizing level of output is where marginal revenue is above or equal to marginal cost.when output is 4 units marginal revenue($60) is above marginal cost($55).In this case profit maximizing level of output is 4 units.

7) Option C

$75

Maximum profit = Total revenue - Total cost

                         = (4 * $60) - $165

                         = $240 - $165

                        = $75

8) Option A

0, the firm shut down

The profit maximizing level of output is where marginal revenue is above or equal to marginal cost.when output is 3 units, marginal revenue($30) is equal to marginal cost($30).

Profit = Total revenue - Total cost

          = (3 * $30) - $110

          = $90 - $110

          = -$20

Output Total cost Marginal cost Marginal revenue 0 $10 $10 $60 1 $60 $50 $60 2 $80 $20 $60 3 $110 $30 $60 4 $165 $55 $60 5 $245 $80 $60

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