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Exam 14: Firms in Competitive Markets

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Question 41

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A firm operating in a competitive market will stay in business in the short run so long as the market price exceeds the firm's average total cost; otherwise, the firm will shut down.

A) True
B) False

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Question 42

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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?

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For this firm, price = margina...

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Question 43

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In the short run, if the market price is below the firm's average total cost of production, the firm will always shut down.

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output

A competitive firm maximizes its profit by producing output up to the point at which price is equal to ______.

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing

A competitive firm currently produces and sells 800 units of output at a price of $10 per unit. The firm's fixed cost is $4,000 and its variable cost is $8,300. In the short run, should the firm continue to operate?

A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

A popular resort restaurant will maximize profits if it chooses to stay open during the less-crowded "off season" when its total revenues exceed its variable costs.

Scenario 14-1 Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. -Refer to Scenario 14-1. To maximize its profit, the firm should

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 300 identical firms in this market, what level of output will be supplied to the market when price is $1.00?

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

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

A competitive firm currently produces and sells 500 units of output. Its total revenue is $6,000; the marginal cost of producing the 500^th unit of output is $14.50; and the average total cost of producing the 500^th unit of output is $9.50. Is the firm maximizing its profit, or should it increase or decrease output in order to increase its profit?

A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

Scenario 14-4 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 14-4. Calculate the firm's fixed cost at 200 units of output.

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

Which of the following statements regarding a competitive firm is correct?

When a firm produces 2,000 units of output, its average total cost is $3.00 and its average revenue is $2.90. What is the firm's profit or loss?

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 rises above $13, the firm will earn