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Exam 14: Firms in Competitive Markets

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Question 41

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Figure 14-7 -Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 514 units of output, its profit is approximately

A) $24,995.
B) $25,550.
C) $25,750.
D) $26,025.

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

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Question 42

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For a firm, marginal revenue minus marginal cost is equal to

A) profit.
B) average total cost.
C) change in profit.
D) change in average revenue.

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

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Question 43

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In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15.

In the short run for a particular market, there are 5,000 firms. Each firm has a marginal cost of $7 when it produces 200 units of output. One point on the market supply curve is

News reports from the western United States occasionally report incidents of cattle ranchers slaughtering a large number of newborn calves and burying them in mass graves rather than transporting them to markets. Assuming that this is rational behavior by profit-maximizing "firms," explain what economic factors may influence such behavior.

Mrs. Smith operates a business in a competitive market. The current market price is $7.50. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

All firms maximize profits by producing an output level where marginal revenue equals marginal cost; for firms operating in perfectly competitive industries, maximizing profits also means producing an output level where price equals marginal cost.

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

A firm has market power if it can

If all existing firms and all potential firms have the same cost curves, there are no inputs in limited quantities, and the market is characterized by free entry and exit, then the long-run market supply curve

You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $6 value on reading a book.

A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the long run.

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, the Brookside Racquet Club should

In a certain large city there are two firms that supply concrete. The concrete sold by the first firm is indistinguishable from the concrete sold by the second firm. Is the market competitive?

Table 14-12 -Refer to Table 14-12. What is Bill's economic profit at the profit-maximizing output level?

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. If the market price is $6, what is the firm's short-run economic profit?

Scenario 14-4 Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year. -Refer to Scenario 14-4. What is Victor's opportunity costs of operating his new business?

​Whenever firms in a perfectly competitive market produce the output level where marginal revenue equals marginal cost, we know that the firm is earning an economic profit.

Table 14-1 -Refer to Table 14-1. Over what range of output is marginal revenue declining?