Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 14/Firms in Competitive Markets ❖ 21
13. Max sells maps. The map industry is competitive. Max hires a business consultant to analyze his company’s
financial records. The consultant recommends that Max increase his production. The consultant must have
concluded that Max’s
a.
total revenues exceed his total accounting costs.
b.
marginal revenue exceeds his total cost.
c.
marginal revenue exceeds his marginal cost.
d.
marginal cost exceeds his marginal revenue.
14. Christopher is a professional tennis player who gives tennis lessons. The industry is competitive. Christopher
hires a business consultant to analyze his financial records. The consultant recommends that Christopher give
fewer tennis lessons. The consultant must have concluded that Christopher’s
a.
total revenues exceed his total accounting costs.
b.
marginal revenue exceeds his total cost.
c.
marginal revenue exceeds his marginal cost.
d.
marginal cost exceeds his marginal revenue.
15. Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in
making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The
marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should
a.
make more than 20 wedding cakes per month.
b.
make fewer than 20 wedding cakes per month.
c.
continue to make 20 wedding cakes per month.
d.
We do not have enough information with which to answer the question.
16. Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in
making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The
marginal cost of making a wedding cake is $200. In order to maximize profits, Laura should
a.
make more than 20 wedding cakes per month.
b.
make fewer than 20 wedding cakes per month.
c.
continue to make 20 wedding cakes per month.
d.
We do not have enough information with which to answer the question.
17. Marcia is a fashion designer who runs a small clothing business in a competitive industry. Marcia specializes
in making designer dresses. Marcia sells 10 dresses per month. Her monthly total revenue is $5,000. The
marginal cost of making a dress is $400. In order to maximize profits, Marcia should
a.
make more than 10 dresses per month.
b.
make fewer than 10 dresses per month.
c.
continue to make 10 dresses per month.
d.
We do not have enough information with which to answer the question.
22 ❖ Chapter 14/Firms in Competitive Markets
18. Marcia is a fashion designer who runs a small clothing business in a competitive industry. Marcia specializes
in making designer dresses. Marcia sells 10 dresses per month. Her monthly total revenue is $5,000. The
marginal cost of making a dress is $500. In order to maximize profits, Marcia should
a.
make more than 10 dresses per month.
b.
make fewer than 10 dresses per month.
c.
continue to make 10 dresses per month.
d.
We do not have enough information with which to answer the question.
19. Marcia is a fashion designer who runs a small clothing business in a competitive industry. Marcia specializes
in making designer dresses. Marcia sells 10 dresses per month. Her monthly total revenue is $5,000. The
marginal cost of making a dress is $600. In order to maximize profits, Marcia should
a.
make more than 10 dresses per month.
b.
make fewer than 10 dresses per month.
c.
continue to make 10 dresses per month.
d.
We do not have enough information with which to answer the question.
20. A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is
positive. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its
profit at the now-higher price. Once the firm has adjusted, its
a.
quantity of output is higher than it was previously.
b.
average total cost is higher than it was previously.
c.
marginal revenue is higher than it was previously.
d.
All of the above are correct.
21. A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is
positive. Then, the price falls to $18, and the firm makes whatever adjustments are necessary to maximize its
profit at the now-lower price. Once the firm has adjusted, its
a.
quantity of output is lower than it was previously.
b.
average total cost is lower than it was previously.
c.
marginal cost is higher than it was previously.
d.
All of the above are correct.
22. A competitive firm has been selling its output for $10 per unit and has been maximizing its profit. Then, the
price rises to $14, and the firm makes whatever adjustments are necessary to maximize its profit at the now-
higher price. Once the firm has adjusted, its
a.
marginal revenue is lower than it was previously.
b.
marginal cost is lower than it was previously.
c.
quantity of output is higher than it was previously.
d.
All of the above are correct.
Chapter 14/Firms in Competitive Markets ❖ 23
23. When profit-maximizing firms in competitive markets are earning profits,
a.
market demand must exceed market supply at the market equilibrium price.
b.
market supply must exceed market demand at the market equilibrium price.
c.
new firms will enter the market.
d.
the most inefficient firms will be encouraged to leave the market.
Table 14-7
Suppose that a firm in a competitive market faces the following revenues and costs:
Marginal
Marginal
Quantity
Cost
Revenue
12
$5
$9
13
$6
$9
14
$7
$9
15
$8
$9
16
$9
$9
17
$10
$9
24. Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the own-
ers?
a.
decrease quantity to 13 units
b.
increase quantity to 17 units
c.
continue to operate at 14 units
d.
increase quantity to 16 units
25. Refer to Table 14-7. If the firm is maximizing profit, how much profit is it earning?
a.
$0
b.
$1
c.
$10
d.
There is insufficient data to determine the firm’s profit.
24 ❖ Chapter 14/Firms in Competitive Markets
Table 14-8
Suppose that a firm in a competitive market faces the following revenues and costs:
Quantity
Total Revenue
Total Cost
0
$0
$3
1
$7
$5
2
$14
$8
3
$21
$12
4
$28
$17
5
$35
$23
6
$42
$30
7
$49
$38
26. Refer to Table 14-8. The firm will not produce an output level beyond
a.
4 units.
b.
5 units.
c.
6 units.
d.
7 units.
27. Refer to Table 14-8. The firm will produce a quantity greater than 4 because at 4 units of output, marginal
cost
a.
is less than marginal revenue.
b.
equals marginal revenue.
c.
is greater than marginal revenue.
d.
is minimized.
28. Refer to Table 14-8. In order to maximize profits, the firm will produce
a.
1 unit of output because marginal cost is minimized.
b.
4 units of output because marginal revenue exceeds marginal cost.
c.
6 units of output because marginal revenue equals marginal cost.
d.
8 units of output because total revenue is maximized.
Chapter 14/Firms in Competitive Markets ❖ 25
Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:
Quantity
Total Revenue
Total Cost
0
$0
$10
1
$9
$14
2
$18
$19
3
$27
$25
4
$36
$32
5
$45
$40
6
$54
$49
7
$63
$59
8
$72
$70
9
$81
$82
29. Refer to Table 14-9. If the firm produces 4 units of output,
a.
marginal cost is $4.
b.
total revenue is greater than variable cost.
c.
marginal revenue is less than marginal cost.
d.
the firm is maximizing profit.
30. Refer to Table 14-9. At which quantity of output is marginal revenue equal to marginal cost?
a.
3 units
b.
6 units
c.
8 units
d.
9 units
31. Refer to Table 14-9. In order to maximize profit, the firm will produce a level of output where marginal reve-
nue is equal to
a.
$6.
b.
$7.
c.
$8.
d.
$9.
32. Refer to Table 14-9. In order to maximize profit, the firm will produce a level of output where marginal cost
is equal to
a.
$5.
b.
$7.
c.
$9.
d.
$10.
26 ❖ Chapter 14/Firms in Competitive Markets
33. Refer to Table 14-9. The maximum profit available to the firm is
a.
$2.
b.
$3.
c.
$4.
d.
$5.
34. Refer to Table 14-9. If the firm’s marginal cost is $11, it should
a.
increase production to maximize profit.
b.
increase the price of the product to maximize profit.
c.
advertise to attract additional buyers to maximize profit.
d.
reduce production to increase profit.
35. Refer to Table 14-9. If the firm’s marginal cost is $5, it should
a.
reduce fixed costs by lowering production.
b.
increase production to maximize profit.
c.
decrease production to maximize profit.
d.
maintain its current level of production to maximize profit.
Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs:
Quantity
Total Revenue
Total Cost
0
$0
$3
1
$7
$5
2
$14
$9
3
$21
$15
4
$28
$23
5
$35
$33
6
$42
$45
7
$49
$59
36. Refer to Table 14-10. The marginal cost of producing the 4th unit is
a.
$7.
b.
$8.
c.
$10.
d.
$23.
37. Refer to Table 14-10. At which level of production will the firm maximize profit?
a.
3 units
b.
4 units
c.
5 units
d.
6 units
Chapter 14/Firms in Competitive Markets ❖ 27
38. Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will
the firm earn?
a.
$2
b.
$4
c.
$6
d.
$8
39. Refer to Table 14-10. Which level of production in the table has the lowest average variable cost?
a.
1 unit
b.
2 units
c.
3 units
d.
4 units
40. Refer to Table 14-10. At which level of output in the table is average variable cost equal to $6?
a.
2 units
b.
3 units
c.
4 units
d.
5 units
41. Refer to Table 14-10. This firm should continue to produce and sell units as long as the marginal cost of pro-
duction is less than or equal to
a.
$3.
b.
$5.
c.
$7.
Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:
Price
Quantity
Total
Cost
$5
0
$3
$5
1
$5
$5
2
$8
$5
3
$12
$5
4
$17
$5
5
$23
42. Refer to Table 14-11. In order to maximize profits, the firm should stop producing after it makes the
a.
first unit.
b.
second unit.
c.
fourth unit.
d.
fifth unit.
28 ❖ Chapter 14/Firms in Competitive Markets
43. Refer to Table 14-11. Marginal revenue equals marginal cost when the firm produces
a.
2 units.
b.
3 units.
c.
4 units.
d.
5 units.
44. Refer to Table 14-11. The marginal revenue from producing the 3rd unit equals
(i) $5.
(ii) the price.
(iii) the marginal cost.
a.
(i) only
b.
(i) and (ii) only
c.
(ii) only
d.
(i), (ii), and (iii)
45. Refer to Table 14-11. The marginal revenue from producing the 4th unit equals
(i) $5.
(ii) the price.
(iii) the marginal cost.
a.
(i) only
b.
(i) and (ii) only
c.
(ii) only
d.
(i), (ii), and (iii)
46. Refer to Table 14-11. If the firm is producing 2 units of output, it should
a.
produce more units of output because its marginal revenue is greater than its marginal cost.
b.
fewer units of output because its marginal revenue is less than its marginal cost.
c.
produce more units of output because its marginal revenue is less than its marginal cost.
d.
produce fewer units of output because its marginal revenue is greater than its marginal cost.
47. Refer to Table 14-11. If the firm is producing 5 units of output, it should produce
a.
more units of output because its marginal revenue is greater than its marginal cost.
b.
fewer units of output because its marginal revenue is less than its marginal cost.
c.
more units of output because its marginal revenue is less than its marginal cost.
d.
fewer units of output because its marginal revenue is greater than its marginal cost.
Chapter 14/Firms in Competitive Markets ❖ 29
Table 14-12
Bill’s Birdhouses
COSTS
REVENUES
Quantity
Produced
Total
Cost
Marginal
Cost
Quantity
Demanded
Price
Total
Revenue
Marginal
Revenue
0
$0
--
0
$80
--
1
$50
1
$80
2
$102
2
$80
3
$157
3
$80
4
$217
4
$80
5
$285
5
$80
6
$365
6
$80
7
$462
7
$80
8
$582
8
$80
48. Refer to Table 14-12. What is the marginal cost of the 5th unit?
a.
$55
b.
$60
c.
$68
d.
$80
49. Refer to Table 14-12. What is the marginal cost of the 8th unit?
a.
$0
b.
$72.75
c.
$120
d.
$502
50. Refer to Table 14-12. What is the total revenue from selling 4 units?
a.
$80
b.
$137
c.
$320
d.
$480
51. Refer to Table 14-12. What is the total revenue from selling 7 units?
a.
$80
b.
$382
c.
$540
d.
$560
30 ❖ Chapter 14/Firms in Competitive Markets
52. Refer to Table 14-12. What is the marginal revenue from selling the 1st unit?
a.
$30
b.
$50
c.
$80
d.
$160
53. Refer to Table 14-12. What is the marginal revenue from selling the 5th unit?
a.
$12
b.
$68
c.
$80
d.
$480
54. Refer to Table 14-12. What is the average revenue when 4 units are sold?
a.
$0
b.
$68
c.
$80
d.
$400
55. Refer to Table 14-12. At what quantity does Bill maximize profits?
a.
3
b.
6
c.
7
d.
8
56. Refer to Table 14-12. What is Bill's economic profit at the profit-maximizing output level?
a.
$25
b.
$75
c.
$115
d.
$225
Chapter 14/Firms in Competitive Markets ❖ 31
Table 14-13
Diana’s Dress Emporium
COSTS
REVENUES
Quantity
Produced
Total
Cost
Marginal
Cost
Quantity
Demanded
Price
Total
Revenue
Marginal
Revenue
0
$100
--
0
$120
--
1
$150
1
$120
2
$202
2
$120
3
$257
3
$120
4
$317
4
$120
5
$385
5
$120
6
$465
6
$120
7
$562
7
$120
8
$682
8
$120
57. Refer to Table 14-13. What is the marginal cost of the 1st unit?
a.
$50
b.
$75
c.
$80
d.
$150
58. Refer to Table 14-13. What is the marginal cost of the 8th unit?
a.
$0
b.
$100
c.
$120
d.
$140
59. Refer to Table 14-13. In order to maximize profits, how many units should Diana’s Dress Emporium pro-
duce?
a.
5
b.
6
c.
7
d.
8
60. Refer to Table 14-13. What is Diana’s economic profit at the profit maximizing point?
a.
$78
b.
$243
c.
$278
d.
$375
32 ❖ Chapter 14/Firms in Competitive Markets
Table 14-14
The following table presents cost and revenue information for Bob’s bakery production and sales.
Quantity
Total Cost
Marginal
Cost
Price
Total
Revenue
Marginal
Revenue
0
$5.00
---
$3.25
---
1
$5.50
$3.25
2
$6.50
$3.25
3
$8.00
$3.25
4
$10.00
$3.25
5
$12.50
$3.25
6
$15.50
$3.25
7
$19.00
$3.25
8
$23.00
$3.25
61. Refer to Table 14-14. What is Bob’s total fixed cost?
a.
$0
b.
$3
c.
$5
d.
$9
62. Refer to Table 14-14. What is the total revenue from selling 5 units?
a.
$2.50
b.
$3.25
c.
$12.50
d.
$16.25
63. Refer to Table 14-14. What is the marginal revenue of the 4th unit?
a.
$2.00
b.
$3.25
c.
$10.00
d.
$13.00
64. Refer to Table 14-14. At what quantity will Bob maximize his profit?
a.
5 units
b.
6 units
c.
7 units
d.
8 units
Chapter 14/Firms in Competitive Markets ❖ 33
65. Refer to Table 14-14. When Bob produces and sells the profit-maximizing quantity, how much profit does he
earn?
a.
$0.25
b.
$2.75
c.
$4.00
d.
$5.25
66. Refer to Table 14-14. Suppose that due to a decrease in the market demand for bread the market price of
bread drops to $2.75 per loaf. At this new price, what is Bob’s profit-maximizing quantity?
a.
5 units
b.
6 units
c.
7 units
d.
8 units
67. Refer to Table 14-14. Suppose that due to a decrease in the market demand for bread the market price of
bread drops to $2.75. At this new price, if Bob produces and sells the profit-maximizing quantity, how much
profit will he earn?
a.
$0.25
b.
$1.25
c.
$2.25
d.
The firm will lose $6.25.
68. Which of the following statements best expresses a firm’s profit-maximizing decision rule?
a.
If marginal revenue is greater than marginal cost, the firm should increase its output.
b.
If marginal revenue is less than marginal cost, the firm should decrease its output.
c.
If marginal revenue equals marginal cost, the firm should continue producing its current level of
output.
d.
All of the above are correct.
69. Which of the following statements best expresses a firm’s profit-maximizing decision rule?
a.
If marginal revenue is greater than marginal cost, the firm should increase its output.
b.
If marginal revenue is less than marginal cost, the firm should shut down in the short run.
c.
If marginal revenue equals marginal cost, the firm should produce exactly one more unit of output.
d.
All of the above are correct.
34 ❖ Chapter 14/Firms in Competitive Markets
70. If marginal cost exceeds marginal revenue, the firm
a.
is most likely to be at a profit-maximizing level of output.
b.
should increase the level of production to maximize its profit.
c.
should reduce its average fixed cost in order to lower its marginal cost.
d.
may still be earning a positive accounting profit.
71. When marginal revenue equals marginal cost, the firm
a.
should increase the level of production to maximize its profit.
b.
may be minimizing its losses rather than maximizing its profit.
c.
must be generating positive economic profits.
d.
must be generating positive accounting profits.
72. In order to maximize profits in the short run, a firm should produce where
a.
marginal revenue exceeds marginal cost by the greatest amount.
b.
marginal cost is minimized.
c.
average total cost is minimized.
d.
marginal cost equals marginal revenue.
73. Profit-maximizing firms in a competitive market produce an output level where
a.
marginal cost equals marginal revenue.
b.
marginal cost equals average total cost.
c.
marginal revenue is increasing.
d.
price is less than marginal revenue.
74. A profit-maximizing firm in a competitive market will always make marginal adjustments to production as
long as
a.
average revenue is greater than average total cost.
b.
average revenue is equal to marginal cost.
c.
marginal cost is greater than average total cost.
d.
price is above or below marginal cost.
75. When price is greater than marginal cost for a firm in a competitive market,
a.
marginal cost must be falling.
b.
the firm must be minimizing its losses.
c.
there are opportunities to increase profit by increasing production.
d.
the firm should decrease output to maximize profit.
Chapter 14/Firms in Competitive Markets ❖ 35
76. Profit-maximizing firms enter a competitive market when existing firms in that market have
a.
total revenues that exceed fixed costs.
b.
total revenues that exceed total variable costs.
c.
average total costs that exceed average revenue.
d.
average total costs less than market price.
77. If a profit-maximizing firm in a competitive market discovers that, at its current level of production, price is
greater than marginal cost, it should
a.
shut down.
b.
reduce its output but continue operating.
c.
continue to produce at the current levels.
d.
increase its output.
78. For any given price, a firm in a competitive market will maximize profit by selecting the level of output at
which price intersects the
a.
average total cost curve.
b.
average variable cost curve.
c.
marginal cost curve.
d.
marginal revenue curve.
79. By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production
to the level that achieves its objective, which we assume to be
a.
maximizing total revenue.
b.
maximizing profit.
c.
minimizing variable cost.
d.
minimizing average total cost.
80. A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has average
revenue of $9 and average total cost of $7. It follows that the firm's
a.
average total cost curve intersects the marginal cost curve at an output level of less than 200 units.
b.
average variable cost curve intersects the marginal cost curve at an output level of less than 200
units.
c.
profit is $400.
d.
All of the above are correct.
36 ❖ Chapter 14/Firms in Competitive Markets
81. If a competitive firm is currently producing a level of output at which profit is not maximized, then it must be
true that
a.
marginal revenue exceeds marginal cost.
b.
marginal cost exceeds marginal revenue.
c.
total cost exceeds total revenue.
d.
None of the above is correct.
82. Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business.
She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her
business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment.
For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for
the past several months she has earned $4,500 in monthly revenue.
a.
In the short run, Susan should shut down her business, and in the long run she should exit the
industry.
b.
In the short run, Susan should continue to operate her business, but in the long run she should exit
the industry.
c.
In the short run, Susan should continue to operate her business, but in the long run she will
probably face competition from newly entering firms.
d.
In the short run, Susan should continue to operate her business, and she is also in long-run
equilibrium.
83. A firm in a competitive market has the following cost structure:
Output
Total Cost
0
$5
1
$10
2
$12
3
$15
4
$24
5
$40
If the market price is $16, this firm will
a.
produce 4 units of output in the short run and exit in the long run.
b.
produce 5 units of output in the short run and exit in the long run.
c.
produce 5 units of output in the short run and face competition from new market entrants in the
long run.
d.
shut down in the short run and exit in the long run.
Chapter 14/Firms in Competitive Markets ❖ 37
84. A firm in a competitive market has the following cost structure:
Output
Total Costs
0
$10
1
$12
2
$15
3
$19
4
$24
5
$30
6
$37
7
$46
8
$55
9
$65
If the market price is $8, how many units of output should the firm produce to maximize profit?
a.
5 units
b.
6 units
c.
7 units
d.
8 units
85. A firm in a competitive market has the following cost structure:
Output
ATC
0
--
1
$10
2
$8
3
$7
4
$8
5
$10
If the firm's fixed cost of production is $3, and the market price is $10, how many units should the firm
produce to maximize profit?
a.
1 unit
b.
2 units
c.
3 units
d.
4 units
38 ❖ Chapter 14/Firms in Competitive Markets
86. Consider a competitive market with 50 identical firms. Suppose the market demand is given by the equation
QD = 200 - 10P and the market supply is given by the equation QS = 10P. In addition, suppose the following
table shows the marginal cost of production for various levels of output for firms in this market.
Output
Marginal Cost
0
--
1
$5
2
$10
3
$15
4
$20
5
$25
How many units should a firm in this market produce to maximize profit?
a.
1 unit
b.
2 units
c.
3 units
d.
4 units
87. Mrs. Smith operates a business in a competitive market. The current market price is $8.50. 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
a.
shut down her business in the short run but continue to operate in the long run.
b.
continue to operate in the short run but shut down in the long run.
c.
continue to operate in both the short run and long run.
d.
shut down in both the short run and long run.
88. 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
a.
shut down her business in the short run but continue to operate in the long run.
b.
continue to operate in the short run but shut down in the long run.
c.
continue to operate in both the short run and long run.
d.
shut down in both the short run and long run.
89. Mrs. Smith operates a business in a competitive market. The current market price is $8.10. 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
a.
shut down her business in the short run but continue to operate in the long run.
b.
continue to operate in the short run but shut down in the long run.
c.
continue to operate in both the short run and long run.
d.
shut down in both the short run and long run.
Chapter 14/Firms in Competitive Markets ❖ 39
90. Suppose a firm operates in the short run at a price above its average total cost of production. In the long run
the firm should expect
a.
new firms to enter the market.
b.
the market price to fall.
c.
its profits to fall.
d.
All of the above are correct.
91. Suppose a firm operates in the short run at a price above its average total cost of production. In the long run
the firm should expect
a.
new firms to enter the market.
b.
the market price to rise.
c.
its profits to rise.
d.
Both b) and c) are correct.
92. 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 $145,000. Because of this information, in the short run,
the Brookside Racquet Club should
a.
shut down.
b.
exit the industry.
c.
stay open because shutting down would be more expensive.
d.
stay open because the firm is making an economic profit.
93. 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
a.
shut down because staying open would be more expensive.
b.
lower their prices to increase their profits.
c.
stay open because shutting down would be more expensive.
d.
stay open because the firm is making an economic profit.
94. Cold Duck Airlines flies between Tacoma and Portland. The company leases planes on a year-long contract at
a cost that averages $600 per flight. Other costs (fuel, flight attendants, etc.) amount to $550 per flight. Cur-
rently, Cold Duck's revenues are $1,000 per flight. All prices and costs are expected to continue at their pre-
sent levels. If it wants to maximize profit, Cold Duck Airlines should
a.
drop the flight immediately.
b.
continue the flight.
c.
continue flying until the lease expires and then drop the run.
d.
drop the flight now but renew the lease if conditions improve.
40 ❖ Chapter 14/Firms in Competitive Markets
95. Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the mar-
ginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr.
Raiman to do?
a.
shut down the business
b.
produce more custom-made shoes
c.
decrease the price
d.
produce fewer custom-made shoes
96. 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.
is less than 1,000 pounds.
b.
is still 1,000 pounds.
c.
is more than 1,000 pounds.
d.
becomes zero.
97. The firm will make the most profits if it produces the quantity of output at which
a.
marginal cost equals average cost.
b.
profit per unit is greatest.
c.
marginal revenue equals total revenue.
d.
marginal revenue equals marginal cost.
98. A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob.
Which of the following events would decrease the firm's average revenue?
a.
The firm increases its output above 500 doorknobs.
b.
The firm decreases its output below 500 doorknobs.
c.
The market price of doorknobs rises above $10.
d.
The market price of doorknobs falls below $10.
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.
99. Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal
a.
$-200.
b.
$1,000.
c.
$3,000.
d.
$4,000.
