Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
11-65 A consulting company estimated market demand and supply in a perfectly competitive industry
and obtained the following results:
Q
d
=25,000 –5,000
P
+25
M
Qs=240,000 +5,000P–2,000P
I
where P is price, M is income, and
P
I
is the price of a key input. The forecasts for the next year
are
ˆ
M
= $15,000 and
ˆ
P
I
= $20. Average variable cost is estimated to be
AVC =14 –0.008Q+0.000002Q2
Total fixed cost will be $6,000 next year. Suppose that income next year is forecasted to be
$10,000 instead. What is the revised price forecast for next year?
a. $5.00
b. $7.50
c. $15.75
d. $10.50
e. $12.00
11-66 A consulting company estimated market demand and supply in a perfectly competitive industry
and obtained the following results:
Q
d
=25,000 –5,000
P
+25
M
Qs=240,000 +5,000P–2,000P
I
where P is price, M is income, and
P
I
is the price of a key input. The forecasts for the next year
are
ˆ
M
= $15,000 and
ˆ
P
I
= $20. Average variable cost is estimated to be
AVC =14 –0.008Q+0.000002Q2
Total fixed cost will be $6,000 next year. Suppose income next year is forecasted to be $10,000
instead. What is the profit-maximizing output choice for the firm?
a. 8,000
b. 5,548
c. 3,480
d. 2,167
e. zero
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
11-67 A consulting company estimated market demand and supply in a perfectly competitive industry
and obtained the following results:
Q
d
=25,000 –5,000
P
+25
M
Qs=240,000 +5,000P–2,000P
I
where P is price, M is income, and
P
I
is the price of a key input. The forecasts for the next year
are
ˆ
M
= $15,000 and
ˆ
P
I
= $20. Average variable cost is estimated to be
AVC =14 –0.008Q+0.000002Q2
Total fixed cost will be $6,000 next year. Suppose that income next year is forecasted to be
$10,000 instead. What will the firm’s profit (loss) be?
a. zero
b. $2,500
c. −$3,550
d. −$2,856
e. −$6,000
11-68 A consulting company estimated market demand and supply in a perfectly competitive industry
and obtained the following results:
Q
d
=25,000 –5,000
P
+25
M
Qs=240,000 +5,000P–2,000P
I
where P is price, M is income, and
P
I
is the price of a key input. The forecasts for the next year
are
ˆ
M
= $15,000 and
ˆ
P
I
= $20. Average variable cost is estimated to be
AVC =14 –0.008Q+0.000002Q2
Total fixed cost will be $6,000 next year. Suppose that income for next year is forecasted to be
$9,000 instead. What is the revised price forecast for next year?
a. $ 3
b. $ 5
c. $15
d. $18
e. none of the above
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
11-69 A consulting company estimated market demand and supply in a perfectly competitive industry
and obtained the following results:
Q
d
=25,000 –5,000
P
+25
M
Qs=240,000 +5,000P–2,000P
I
where P is price, M is income, and
P
I
is the price of a key input. The forecasts for the next year
are
ˆ
M
= $15,000 and
ˆ
P
I
= $20. Average variable cost is estimated to be
AVC =14 –0.008Q+0.000002Q2
Total fixed cost will be $6,000 next year. Suppose that income for next year is forecasted to be
$9,000 instead. What is the profit-maximizing output choice for the firm?
a. 1,000 units
b. 1,860 units
c. 2,000 units
d. 2,860 units
e. none of the above
Learning Objective: 11-06
11-70 A consulting company estimated market demand and supply in a perfectly competitive industry
and obtained the following results:
Q
d
=25,000 –5,000
P
+25
M
Qs=240,000 +5,000P–2,000P
I
where P is price, M is income, and
P
I
is the price of a key input. The forecasts for the next year
are
ˆ
M
= $15,000 and
ˆ
P
I
= $20. Average variable cost is estimated to be
AVC =14 –0.008Q+0.000002Q2
Total fixed cost will be $6,000 next year. Suppose that income for next year is forecasted to be
$9,000 instead. What will the firm’s profit (loss) be?
a. zero
b. −$6,000
c. −$7,934
d. −$8,000
e. none of the above
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
11-71 Consider a competitive industry and a price-taking firm that produces in that industry. The market
demand and supply functions are estimated to be:
Demand:
Qd=10,000 –10,000P+1.0M
Supply:
Qs=80,000 +10,000P–4,000P
I
where Q is quantity, P is the price of the product, M is income, and
P
I
is the input price. The
manager of the perfectly competitive firm uses time−series data to obtain the following forecasted
values of M and
P
I
for 2015:
ˆ
M=$50,000 and ˆ
P
I=$20
The manager also estimates the average variable cost function to be
AVC =3.0 –0.0027Q+0.0000009Q2
Total fixed costs will be $2,000 in 2015. What is the price forecast for 2015?
a. $2
b. $2.50
c. $2.75
d. $3
e. none of the above
11-72 Consider a competitive industry and a price-taking firm that produces in that industry. The market
demand and supply functions are estimated to be:
Demand:
Qd=10,000 –10,000P+1.0M
Supply:
Qs=80,000 +10,000P–4,000P
I
where Q is quantity, P is the price of the product, M is income, and
P
I
is the input price. The
manager of the perfectly competitive firm uses time−series data to obtain the following forecasted
values of M and
P
I
for 2015:
ˆ
M=$50,000 and ˆ
P
I=$20
The manager also estimates the average variable cost function to be
AVC =3.0 –0.0027Q+0.0000009Q2
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
Total fixed costs will be $2,000 in 2015. Average variable cost reaches its minimum value of
_____ units of output.
a. 1,000
b. 1,500
c. 2,000
d. 2,500
11-73 Consider a competitive industry and a price-taking firm that produces in that industry. The market
demand and supply functions are estimated to be:
Demand:
Qd=10,000 –10,000P+1.0M
Supply:
Qs=80,000 +10,000P–4,000P
I
where Q is quantity, P is the price of the product, M is income, and
P
I
is the input price. The
manager of the perfectly competitive firm uses time−series data to obtain the following forecasted
values of M and
P
I
for 2015:
ˆ
M=$50,000 and ˆ
P
I=$20
The manager also estimates the average variable cost function to be
AVC =3.0 –0.0027Q+0.0000009Q2
Total fixed costs will be $2,000 in 2015. The minimum value of average variable cost is $_____.
a. $0.50
b. $0.75
c. $0.975
d. $1.00
e. $2.15
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
11-74 Consider a competitive industry and a price-taking firm that produces in that industry. The market
demand and supply functions are estimated to be:
Demand:
Qd=10,000 –10,000P+1.0M
Supply:
Qs=80,000 +10,000P–4,000P
I
where Q is quantity, P is the price of the product, M is income, and
P
I
is the input price. The
manager of the perfectly competitive firm uses time−series data to obtain the following forecasted
values of M and
P
I
for 2015:
ˆ
M=$50,000 and ˆ
P
I=$20
The manager also estimates the average variable cost function to be
AVC =3.0 –0.0027Q+0.0000009Q2
Total fixed costs will be $2,000 in 2015. The manager _____ produce since _____________.
a. should; $3 > $0.975
b. should; $2.75 > $0.75
c. should not; $2 < $2.15
d. should not; $0.50 < $1.00
11-75 Consider a competitive industry and a price-taking firm that produces in that industry. The
market demand and supply functions are estimated to be:
Demand:
Qd=10,000 –10,000P+1.0M
Supply:
Qs=80,000 +10,000P–4,000P
I
where Q is quantity, P is the price of the product, M is income, and
P
I
is the input price. The
manager of the perfectly competitive firm uses time−series data to obtain the following forecasted
values of M and
P
I
for 2015:
ˆ
M=$50,000 and ˆ
P
I=$20
The manager also estimates the average variable cost function to be
AVC =3.0 –0.0027Q+0.0000009Q2
Total fixed costs will be $2,000 in 2015. The marginal cost function is:
a. SMC = 3.0 − 0.0027Q + 0.0000009Q2
b. SMC = 3.0 − 0.00135Q + 0.00000045Q2
c. SMC = 3.0Q − 0.0027Q2 + 0.0000009Q3
d. SMC = 3.0 − 0.0054Q + 0.0000018Q2
e. none of the above
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
11-76 Consider a competitive industry and a price-taking firm that produces in that industry. The market
demand and supply functions are estimated to be:
Demand:
Qd=10,000 –10,000P+1.0M
Supply:
Qs=80,000 +10,000P–4,000P
I
where Q is quantity, P is the price of the product, M is income, and
P
I
is the input price. The
manager of the perfectly competitive firm uses time−series data to obtain the following forecasted
values of M and
P
I
for 2015:
ˆ
M=$50,000 and ˆ
P
I=$20
The manager also estimates the average variable cost function to be
AVC =3.0 –0.0027Q+0.0000009Q2
Total fixed costs will be $2,000 in 2015. The optimal level of production for the firm is
a. 1,000
b. 1,500
c. 2,000
d. 2,500
e. none of the above
11-77 Consider a competitive industry and a price-taking firm that produces in that industry. The market
demand and supply functions are estimated to be:
Demand:
Qd=10,000 –10,000P+1.0M
Supply:
Qs=80,000 +10,000P–4,000P
I
where Q is quantity, P is the price of the product, M is income, and
P
I
is the input price. The
manager of the perfectly competitive firm uses time−series data to obtain the following forecasted
values of M and
P
I
for 2015:
ˆ
M=$50,000 and ˆ
P
I=$20
The manager also estimates the average variable cost function to be
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
AVC =3.0 –0.0027Q+0.0000009Q2
Total fixed costs will be $2,000 in 2015. The profit (loss) is
a. $2,600
b. $2,000
c. $4,000
d. $3,250
e. none of the above
11-78 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts
product price to be $28 in 2015. Bartech’s average variable cost function is estimated to be
Bartech expects to face fixed costs of $12,000 in 2015. At what level of output will Bartech’s
average variable cost reach its minimum value?
a. 2,000 units
b. 3,000 units
c. 4,000 units
d. 5,000 units
e. 6,000 units
11-79 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts
product price to be $28 in 2015. Bartech’s average variable cost function is estimated to be
Bartech expects to face fixed costs of $12,000 in 2015. What is the minimum average variable
cost?
a. $0
b. $5.50
c. $6.00
d. $6.50
e. $7.00
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
11-80 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts
product price to be $28 in 2015. Bartech’s average variable cost function is estimated to be
Bartech expects to face fixed costs of $12,000 in 2015. The profit-maximizing (or loss-
minimizing) output for Bartech is
a. 0 units
b. 500 units
c. 1,000 units
d. 2,000 units
e. 6,000 units
11-81 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts
product price to be $28 in 2015. Bartech’s average variable cost function is estimated to be
Bartech expects to face fixed costs of $12,000 in 2015. How much profit (loss) does Bartech, Inc.
expect to earn?
a. −$2,500
b. $96,000
c. $127,000
d. $156,000
e. $166,000
11-82 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts
product price to be $28 in 2015. Bartech’s average variable cost function is estimated to be
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
Bartech expects to face fixed costs of $12,000 in 2015. Now, suppose that the 2015 price forecast
is drastically revised downward to $5. What is Bartech’s profit-maximizing (or loss-minimizing)
output for 2015?
a. 0 units
b. 1,000 units
c. 2,000 units
d. 3,000 units
e. 4,000 units
11-83 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts
product price to be $28 in 2015. Bartech’s average variable cost function is estimated to be
Bartech expects to face fixed costs of $12,000 in 2015. Now, suppose that the 2015 price forecast
is drastically revised downward to $5. Under the revised forecast how much profit (loss) does
Bartech, Inc. expect to earn?
a. $0
b. −$12,000
c. $2,500
d. $16,000
e. $18,000
11-84 Radon Research Corporation (RRC) is one of 24 firms in Albuquerque testing homes for
dangerous levels of radon gas. There is a standard test that all testing companies use. The
manager of RRC wants to know the number of homes to test in 2015 in order to maximize the
firm’s profit. The manager forecasted a price of $160 for radon tests in 2015. The firm’s marginal
cost was estimated as
SMC=200 –15Q+0.8Q2
where Q is the number of tests performed each week. RRC’s fixed cost will be $250 per week.
The average variable cost at RRC is
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
a. 200 − 30Q + 1.6Q2
b. 200Q − 15Q2 + 0.8Q3
c. 100 − 10Q + 0.4Q2
d. 200 − 7.5Q + 0.2667Q2
e. none of the above
11-85 Radon Research Corporation (RRC) is one of 24 firms in Albuquerque testing homes for
dangerous levels of radon gas. There is a standard test that all testing companies use. The
manager of RRC wants to know the number of homes to test in 2015 in order to maximize the
firm’s profit. The manager forecasted a price of $160 for radon tests in 2015. The firm’s marginal
cost was estimated as
SMC=200 –15Q+0.8Q2
where Q is the number of tests performed each week. RRC’s fixed cost will be $250 per week.
How many radon tests per week should be undertaken?
a. 12.5
b. 15.5
c. 16.8
d. 17.3
e. 20
11-86 Radon Research Corporation (RRC) is one of 24 firms in Albuquerque testing homes for
dangerous levels of radon gas. There is a standard test that all testing companies use. The
manager of RRC wants to know the number of homes to test in 2015 in order to maximize the
firm’s profit. The manager forecasted a price of $160 for radon tests in 2015. The firm’s marginal
cost was estimated as
SMC=200 –15Q+0.8Q2
where Q is the number of tests performed each week. RRC’s fixed cost will be $250 per week.
The weekly profit (loss) at RRC in 2015 will be
a. $121
b. $320
c. $86
d. −$61
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
11-87 Sport Tee Corporation manufactures T-shirts bearing the logos of professional football teams.
The wholesale market for sport T-shirts is perfectly competitive. The manager forecasts the
wholesale price of T-shirts next year to be $7.00. The firm’s estimated marginal cost is
SMC=12 –0.005Q+0.0000008Q2
where Q is the number of T-shirts produced and sold each month. Sport Tee Corporation will
have a fixed cost of $2,000 per month. Average variable cost at Sport Tee is
a. 12 − 0.01Q + 0.0000024Q2
b. 12 − 0.0025Q + 0.000000266Q2
c. 12 − 0.0001Q + 0.000001Q2
d. 12Q − 0.0025Q2 + 0.000000266Q3
e. none of the above
11-88 Sport Tee Corporation manufactures T-shirts bearing the logos of professional football teams.
The wholesale market for sport T-shirts is perfectly competitive. The manager forecasts the
wholesale price of T-shirts next year to be $7.00. The firm’s estimated marginal cost is
SMC=12 –0.005Q+0.0000008Q2
where Q is the number of T-shirts produced and sold each month. Sport Tee Corporation will
have a fixed cost of $2,000 per month. To maximize profit how many T-shirts should be
produced and sold each month?
a. 1,000
b. 2,000
c. 3,000
d. 4,000
e. 5,000
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
11-89 Sport Tee Corporation manufactures T-shirts bearing the logos of professional football teams.
The wholesale market for sport T-shirts is perfectly competitive. The manager forecasts the
wholesale price of T-shirts next year to be $7.00. The firm’s estimated marginal cost is
SMC=12 –0.005Q+0.0000008Q2
where Q is the number of T-shirts produced and sold each month. Sport Tee Corporation will
have a fixed cost of $2,000 per month. At the profit-maximizing level of output total revenue will
be
a. $10,000
b. $15,000
c. $20,000
d. $25,000
e. $35,000
11-90 Sport Tee Corporation manufactures T-shirts bearing the logos of professional football teams.
The wholesale market for sport T-shirts is perfectly competitive. The manager forecasts the wholesale
price of T-shirts next year to be $7.00. The firm’s estimated marginal cost is
SMC=12 –0.005Q+0.0000008Q2
where Q is the number of T-shirts produced and sold each month. Sport Tee Corporation will
have a fixed cost of $2,000 per month. Monthly profit will be
a. −$2,000
b. −$1,150
c. $4,250
d. $3,400
e. $2,250