Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 14 Firms in Competitive Markets
MULTIPLE CHOICE
1. A firm has market power if it can
a.
maximize profits.
b.
minimize costs.
c.
influence the market price of the good it sells.
d.
hire as many workers as it needs at the prevailing wage rate.
2. A book store that has market power can
a.
influence the market price for the books it sells.
b.
minimize costs more efficiently than its competitors.
c.
reduce its advertising budget more so than its competitors.
d.
ignore profit-maximizing strategies when setting the price for its books.
3. The analysis of competitive firms sheds light on the decisions that lie behind the
a.
demand curve.
b.
supply curve.
c.
way firms make pricing decisions in the not-for-profit sector of the economy.
d.
way financial markets set interest rates.
4. For any competitive market, the supply curve is closely related to the
a.
preferences of consumers who purchase products in that market.
b.
income tax rates of consumers in that market.
c.
firms’ costs of production in that market.
d.
interest rates on government bonds.
5. Suppose a firm in each of the two markets listed below were to increase its price by 20 percent. In which pair
would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second mar-
ket listed would not?
a.
corn and soybeans
b.
gasoline and restaurants
c.
water and cable television
d.
spiral notebooks and college textbooks
2 ❖ Chapter 14/Firms in Competitive Markets
6. Suppose a firm in each of the two markets listed below were to increase its price by 30 percent. In which pair
would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second mar-
ket listed would not?
a.
oil and natural gas
b.
cable television and gasoline
c.
restaurants and MP3 players
d.
movie theaters and ballpoint pens
WHAT IS A COMPETITIVE MARKET?
1. A key characteristic of a competitive market is that
a.
government antitrust laws regulate competition.
b.
producers sell nearly identical products.
c.
firms minimize total costs.
d.
firms have price setting power.
2. Which of the following is not a characteristic of a competitive market?
a.
Buyers and sellers are price takers.
b.
Each firm sells a virtually identical product.
c.
Entry is limited.
d.
Each firm chooses an output level that maximizes profits.
3. Which of the following is a characteristic of a competitive market?
a.
There are many buyers but few sellers.
b.
Firms sell differentiated products.
c.
There are many barriers to entry.
d.
Buyers and sellers are price takers.
4. Who is a price taker in a competitive market?
a.
buyers only
b.
sellers only
c.
both buyers and sellers
d.
neither buyers nor sellers
5. Competitive markets are characterized by
a.
a small number of buyers and sellers.
b.
unique products.
c.
the interdependence of firms.
d.
free entry and exit by firms.
Chapter 14/Firms in Competitive Markets ❖ 3
6. A market is competitive if
(i)
firms have the flexibility to price their own product.
(ii)
each buyer is small compared to the market.
(iii)
each seller is small compared to the market.
a.
(i) and (ii) only
b.
(i) and (iii) only
c.
(ii) and (iii) only
d.
(i), (ii), and (iii)
7. A firm that has little ability to influence market prices operates in a
a.
competitive market.
b.
strategic market.
c.
thin market.
d.
power market.
8. In a competitive market, the actions of any single buyer or seller will
a.
have a negligible impact on the market price.
b.
have little effect on market equilibrium quantity but will affect market equilibrium price.
c.
affect marginal revenue and average revenue but not price.
d.
adversely affect the profitability of more than one firm in the market.
9. In a competitive market, the actions of any single buyer or seller will
a.
discourage entry by competitors.
b.
influence the profits of other firms in the market.
c.
have a negligible impact on the market price.
d.
None of the above is correct.
10. Because the goods offered for sale in a competitive market are largely the same,
a.
there will be few sellers in the market.
b.
there will be few buyers in the market.
c.
only a few buyers will have market power.
d.
sellers will have little reason to charge less than the going market price.
11. Which of the following is not a characteristic of a perfectly competitive market?
a.
Firms are price takers.
b.
Firms have difficulty entering the market.
c.
There are many sellers in the market.
d.
Goods offered for sale are largely the same.
4 ❖ Chapter 14/Firms in Competitive Markets
12. Which of the following is not a characteristic of a perfectly competitive market?
a.
Firms are price takers.
b.
Firms can freely enter the market.
c.
Many firms have market power.
d.
Goods offered for sale are largely the same.
13. Free entry means that
a.
the government pays any entry costs for individual firms.
b.
no legal barriers prevent a firm from entering an industry.
c.
a firm's marginal cost is zero.
d.
a firm has no fixed costs in the short run.
14. Which of the following industries is most likely to exhibit the characteristic of free entry?
a.
nuclear power
b.
municipal water and sewer
c.
dairy farming
d.
airport security
15. Which of the following industries is most likely to exhibit the characteristic of free entry?
a.
cable television
b.
satellite radio
c.
mineral mining
d.
t-shirt silkscreening
16. Which of the following industries is least likely to exhibit the characteristic of free entry?
a.
restaurants
b.
municipal water and sewer
c.
soybean farming
d.
selling running apparel
17. Which of the following industries is least likely to exhibit the characteristic of free entry?
a.
selling running apparel
b.
wheat farming
c.
yoga studios
d.
satellite radio
Chapter 14/Firms in Competitive Markets ❖ 5
18. When buyers in a competitive market take the selling price as given, they are said to be
a.
market entrants.
b.
monopolists.
c.
free riders.
d.
price takers.
19. When firms are said to be price takers, it implies that if a firm raises its price,
a.
buyers will go elsewhere.
b.
buyers will pay the higher price in the short run.
c.
competitors will also raise their prices.
d.
firms in the industry will exercise market power.
20. Which of the following statements best reflects a price-taking firm?
a.
If the firm were to charge more than the going price, it would sell none of its goods.
b.
The firm has an incentive to charge less than the market price to earn higher revenue.
c.
The firm can sell only a limited amount of output at the market price before the market price will
fall.
d.
Price-taking firms maximize profits by charging a price above marginal cost.
21. Why does a firm in a competitive industry charge the market price?
a.
If a firm charges less than the market price, it loses potential revenue.
b.
If a firm charges more than the market price, it loses all its customers to other firms.
c.
The firm can sell as many units of output as it wants to at the market price.
d.
All of the above are correct.
22. In a competitive market, no single producer can influence the market price because
a.
many other sellers are offering a product that is essentially identical.
b.
consumers have more influence over the market price than producers do.
c.
government intervention prevents firms from influencing price.
d.
producers agree not to change the price.
6 ❖ Chapter 14/Firms in Competitive Markets
23. A competitive firm would benefit from charging a price below the market price because the firm would
achieve
(i)
higher average revenue.
(ii)
higher profits.
(iii)
lower total costs.
a.
(i) only
b.
(ii) and (iii) only
c.
(i), (ii), and (iii)
d.
None of the above is correct.
24. Which of the following characteristics of competitive markets is necessary for firms to be price takers?
(i)
There are many sellers.
(ii)
Firms can freely enter or exit the market.
(iii)
Goods offered for sale are largely the same.
a.
(i) and (ii) only
b.
(i) and (iii) only
c.
(ii) only
d.
(i), (ii), and (iii)
25. Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is
likely to
a.
increase.
b.
remain unchanged.
c.
decrease by less than 20 percent.
d.
decrease by more than 20 percent.
26. The Doris Dairy Farm sells milk to a dairy broker in Prairie du Chien, Wisconsin. Because the market for milk
is generally considered to be competitive, the Doris Dairy Farm does not
a.
choose the quantity of milk to produce.
b.
choose the price at which it sells its milk.
c.
have any fixed costs of production.
d.
set marginal revenue equal to marginal cost to maximize profit.
27. The Doris Dairy Farm sells milk to a dairy broker in Prairie du Chien, Wisconsin. Because the market for milk
is generally considered to be competitive, the Doris Dairy Farm does not choose the
a.
quantity of milk to produce.
b.
price at which it sells its milk.
c.
profits it earns.
d.
All of the above are correct.
Chapter 14/Firms in Competitive Markets ❖ 7
28. In a competitive market,
a.
no single buyer or seller can influence the price of the product.
b.
there are only a small number of sellers.
c.
the goods offered by the different sellers are unique.
d.
accounting profit is driven to zero as firms freely enter and exit the market.
29. Which of the following statements regarding a competitive market is not correct?
a.
There are many buyers and many sellers in the market.
b.
Because of firm location or product differences, some firms can charge a higher price than other
firms and still maintain their sales volume.
c.
Price and average revenue are equal.
d.
Price and marginal revenue are equal.
30. Which of the following statements regarding a competitive market is not correct?
a.
There are many buyers and many sellers in the market.
b.
Firms can freely enter or exit the market.
c.
Price equals average revenue.
d.
Price exceeds marginal revenue.
31. One of the defining characteristics of a perfectly competitive market is
a.
a small number of sellers.
b.
a large number of buyers and a small number of sellers.
c.
a similar product.
d.
significant advertising by firms to promote their products.
32. Which of the following firms is the closest to being a perfectly competitive firm?
a.
a hot dog vendor in New York
b.
Microsoft Corporation
c.
Ford Motor Company
d.
the campus bookstore
33. Which of the following firms is the closest to being a perfectly competitive firm?
a.
the New York Yankees
b.
Apple, Inc.
c.
DeBeers diamond wholesalers
d.
a wheat farmer in Kansas
8 ❖ Chapter 14/Firms in Competitive Markets
34. Firms that operate in perfectly competitive markets try to
a.
maximize revenues.
b.
maximize profits.
c.
equate marginal revenue with average total cost.
d.
All of the above are correct.
35. A seller in a competitive market can
a.
sell all he wants at the going price, so he has little reason to charge less.
b.
influence the market price by adjusting his output.
c.
influence the profits earned by competing firms by adjusting his output.
d.
All of the above are correct.
36. A seller in a competitive market
a.
can sell all he wants at the going price, so he has little reason to charge less.
b.
will lose all his customers to other sellers if he raises his price.
c.
considers the market price to be a “take it or leave it” price.
d.
All of the above are correct.
37. In a perfectly competitive market,
a.
no one seller can influence the price of the product.
b.
price exceeds marginal revenue for each unit sold.
c.
average revenue exceeds marginal revenue for each unit sold.
d.
All of the above are correct.
38. For a firm in a competitive market, an increase in the quantity produced by the firm will result in
a.
a decrease in the product’s market price.
b.
an increase in the product’s market price.
c.
no change in the product’s market price.
d.
either an increase or no change in the product’s market price depending on the number of firms in
the market.
39. If Cathy’s Coffee Emporium sells its product in a competitive market, then
a.
the price of that product depends on the quantity of the product that Cathy’s Coffee Emporium
produces and sells because Cathy’s Coffee Emporium’s demand curve is downward sloping.
b.
Cathy’s Coffee Emporium's total revenue must be proportional to its quantity of output.
c.
Cathy’s Coffee Emporium's total cost must be a constant multiple of its quantity of output.
d.
Cathy’s Coffee Emporium's total revenue must be equal to its average revenue.
Chapter 14/Firms in Competitive Markets ❖ 9
40. Changes in the output of a perfectly competitive firm, without any change in the price of the product, will
change the firm's
a.
total revenue.
b.
marginal revenue.
c.
average revenue.
d.
All of the above are correct.
41. If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will
a.
more than triple.
b.
less than triple.
c.
exactly triple.
d.
Any of the above may be true depending on the firm’s labor productivity.
42. When a competitive firm doubles the quantity of output it sells, its
a.
total revenue doubles.
b.
average revenue doubles.
c.
marginal revenue doubles.
d.
profits must increase.
43. If a firm in a competitive market doubles its number of units sold, total revenue for the firm will
a.
more than double.
b.
double.
c.
increase but by less than double.
d.
may increase or decrease depending on the price elasticity of demand.
10 ❖ Chapter 14/Firms in Competitive Markets
Table 14-1
Quantity
Price
0
$5
1
$5
2
$5
3
$5
4
$5
5
$5
6
$5
7
$5
8
$5
9
$5
44. Refer to Table 14-1. The price and quantity relationship in the table is most likely a demand curve faced by a
firm in a
a.
monopoly.
b.
concentrated market.
c.
competitive market.
d.
strategic market.
45. Refer to Table 14-1. Over which range of output is average revenue equal to price?
a.
1 to 5 units
b.
3 to 7 units
c.
5 to 9 units
d.
Average revenue is equal to price over the entire range of output.
46. Refer to Table 14-1. Over what range of output is marginal revenue declining?
a.
1 to 6 units
b.
3 to 7 units
c.
7 to 9 units
d.
Marginal revenue is constant over the entire range of output.
47. Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will
a.
increase by less than $15.
b.
increase by exactly $15.
c.
increase by more than $15.
d.
Total revenue cannot be determined from the information provided.
Chapter 14/Firms in Competitive Markets ❖ 11
Table 14-2
The table represents a demand curve faced by a firm in a competitive market.
Price
Quantity
$4
0
$4
1
$4
2
$4
3
$4
4
$4
5
48. Refer to Table 14-2. A firm operating in a competitive market maximizes total revenue by producing
a.
2 units.
b.
3 units.
c.
4 units.
d.
as many units as possible.
49. Refer to Table 14-2. For a firm operating in a competitive market, the average revenue from selling 3 units is
a.
$12.
b.
$4.
c.
$3.
d.
$1.25.
50. Refer to Table 14-2. For a firm operating in a competitive market, the marginal revenue from selling the 3rd
unit is
a.
$12.
b.
$4.
c.
$3.
d.
$1.25.
Table 14-3
Quantity
Total Revenue
0
$0
1
$7
2
$14
3
$21
4
$28
51. Refer to Table 14-3. For a firm operating in a competitive market, the price is
a.
$0.
b.
$7.
c.
$14.
d.
$21.
12 ❖ Chapter 14/Firms in Competitive Markets
52. Refer to Table 14-3. For a firm operating in a competitive market, the marginal revenue is
a.
$0.
b.
$7.
c.
$14.
d.
$21.
53. Refer to Table 14-3. For a firm operating in a competitive market, the average revenue is
a.
$21.
b.
$14.
c.
$7.
Table 14-4
Quantity
Total Revenue
0
$0
1
$15
2
$30
3
$45
4
$60
54. Refer to Table 14-4. For a firm operating in a competitive market, the price is
a.
$45.
b.
$30.
c.
$15.
d.
$0.
55. Refer to Table 14-4. For a firm operating in a competitive market, the marginal revenue is
a.
$45.
b.
$30.
c.
$15.
d.
$0.
56. Refer to Table 14-4. For a firm operating in a competitive market, the average revenue is
a.
$45.
b.
$30.
c.
$15.
d.
$0.
Chapter 14/Firms in Competitive Markets ❖ 13
Table 14-5
Quantity
Total Revenue
12
$132
13
$143
14
$154
15
$165
16
$176
57. Refer to Table 14-5. The price of the product is
a.
$9.
b.
$11.
c.
$13.
d.
$15.
58. Refer to Table 14-5. The average revenue when 14 units are produced and sold is
a.
$9.
b.
$11.
c.
$13.
d.
$15.
59. Refer to Table 14-5. The marginal revenue of the 12th unit is
a.
$9.
b.
$10.
c.
$11
d.
The marginal revenue cannot be determined without knowing the total revenue when 11 units are
sold.
14 ❖ Chapter 14/Firms in Competitive Markets
Table 14-6
The following table presents cost and revenue information for a firm operating in a competitive industry.
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
60. Refer to Table 14-6. What is the total revenue from selling 7 units?
a.
$120
b.
$490
c.
$562
d.
$840
61. Refer to Table 14-6. What is the total revenue from selling 4 units?
a.
$120
b.
$257
c.
$317
d.
$480
62. Refer to Table 14-6. What is the marginal revenue from selling the 3rd unit?
a.
$55
b.
$120
c.
$137
d.
$140
63. Refer to Table 14-6. What is the average revenue when 4 units are sold?
a.
$60
b.
$120
c.
$125
d.
$197
Chapter 14/Firms in Competitive Markets ❖ 15
64. Which of the following statements is correct?
a.
For all firms, marginal revenue equals the price of the good.
b.
Only for competitive firms does average revenue equal the price of the good.
c.
Marginal revenue can be calculated as total revenue divided by the quantity sold.
d.
Only for competitive firms does average revenue equal marginal revenue.
65. 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?
a.
$5 and 50 units
b.
$5 and 100 units
c.
$10 and 50 units
d.
$10 and 100 units
66. Which of the following statements regarding a competitive firm is correct?
a.
Because demand is downward sloping, if a firm increases its level of output, the firm will have to
charge a lower price to sell the additional output.
b.
If a firm raises its price, the firm may be able to increase its total revenue even though it will sell
fewer units.
c.
By lowering its price below the market price, the firm will benefit from selling more units at the
lower price than it could have sold by charging the market price.
d.
For all firms, average revenue equals the price of the good.
67. Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total reve-
nue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be
a.
less than $12.
b.
more than $12.
c.
$12.
d.
Any of the above may be correct depending on the price elasticity of demand for the product.
68. Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total reve-
nue from the sales. If the firm increases its output to 200 units, total revenue will be
a.
$2,000.
b.
$2,400.
c.
$4,200.
d.
We do not have enough information to answer the question.
16 ❖ Chapter 14/Firms in Competitive Markets
69. Firms operating in competitive markets produce output levels where marginal revenue equals
a.
price.
b.
average revenue.
c.
total revenue divided by output.
d.
All of the above are correct.
70. For a competitive firm,
a.
total revenue equals average revenue.
b.
total revenue equals marginal revenue.
c.
total cost equals marginal revenue.
d.
average revenue equals marginal revenue.
71. Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from
the sale are $500. Which of the following statements is correct?
(i)
Marginal revenue equals $5.
(ii)
Average revenue equals $5.
(iii)
Price equals $5.
a.
(i) only
b.
(iii) only
c.
(i) and (ii) only
d.
(i), (ii), and (iii)
72. Suppose that a firm operating in perfectly competitive market sells 200 units of output at a price of $3 each.
Which of the following statements is correct?
(i)
Marginal revenue equals $3.
(ii)
Average revenue equals $600.
(iii)
Average revenue exceeds marginal revenue, but we don’t know by how much.
a.
(i) only
b.
(iii) only
c.
(i) and (ii) only
d.
(i), (ii), and (iii)
73. Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each.
Which of the following statements is correct?
(i)
Marginal revenue equals $3.
(ii)
Average revenue equals $100.
(iii)
Total revenue equals $300.
a.
(i) only
b.
(iii) only
c.
(i) and (ii) only
d.
(i), (ii), and (iii)
Chapter 14/Firms in Competitive Markets ❖ 17
74. Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each.
Which of the following statements is correct?
(i)
Marginal revenue equals $4.
(ii)
Average revenue equals $100.
(iii)
Total revenue equals $1,600.
a.
(i) only
b.
(iii) only
c.
(i) and (iii) only
d.
(i), (ii), and (iii)
75. For a firm operating in a competitive industry, which of the following statements is not correct?
a.
Price equals average revenue.
b.
Price equals marginal revenue.
c.
Total revenue is constant.
d.
Marginal revenue is constant.
76. For a firm in a perfectly competitive market, the price of the good is always
a.
equal to marginal revenue.
b.
equal to total revenue.
c.
greater than average revenue.
d.
equal to the firm’s efficient scale of output.
77. Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of
$8.00. What would be the firm's total revenue if it instead produced and sold 4 units of output?
a.
$4
b.
$8
c.
$32
d.
$64
78. Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue
a.
increases if MR < ATC and decreases if MR > ATC.
b.
does not change.
c.
increases.
d.
decreases.
18 ❖ Chapter 14/Firms in Competitive Markets
79. Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit
sold by the typical firm in this market?
a.
less than $2.50
b.
more than $2.50
c.
exactly $2.50
d.
The marginal revenue cannot be determined without knowing the actual quantity sold by the typical
firm.
80. For an individual firm operating in a competitive market, marginal revenue equals
a.
average revenue and the price for all levels of output.
b.
average revenue, which is greater than the price for all levels of output.
c.
average revenue, the price, and marginal cost for all levels of output.
d.
marginal cost, which is greater than average revenue for all levels of output.
81. If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market, then the individual
farmer's elasticity of demand
a.
will also be -0.3.
b.
depends on how large a crop the farmer produces.
c.
will range between -0.3 and -1.0.
d.
will be infinite.
PROFIT MAXIMIZATION AND THE COMPETITIVE FIRM'S SUPPLY CURVE
1. If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost,
then
a.
a one-unit increase in output will increase the firm's profit.
b.
a one-unit decrease in output will increase the firm's profit.
c.
total revenue exceeds total cost.
d.
total cost exceeds total revenue.
2. If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue,
then
a.
a one-unit increase in output will increase the firm's profit.
b.
a one-unit decrease in output will increase the firm's profit.
c.
total revenue exceeds total cost.
d.
total cost exceeds total revenue.
Chapter 14/Firms in Competitive Markets ❖ 19
3. If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue,
then
a.
average revenue exceeds marginal cost.
b.
the firm is earning a positive profit.
c.
decreasing output would increase the firm's profit.
d.
All of the above are correct.
4. Comparing marginal revenue to marginal cost
(i)
reveals the contribution of the last unit of production to total profit.
(ii)
is helpful in making profit-maximizing production decisions.
(iii)
tells a firm whether its fixed costs are too high.
a.
(i) only
b.
(i) and (ii) only
c.
(ii) and (iii) only
d.
(i) and (iii) only
5. At the profit-maximizing level of output,
a.
marginal revenue equals average total cost.
b.
marginal revenue equals average variable cost.
c.
marginal revenue equals marginal cost.
d.
average revenue equals average total cost.
6. The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which
a.
total revenue is equal to variable cost.
b.
total revenue is equal to fixed cost.
c.
total revenue is equal to total cost.
d.
profit is maximized.
7. For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $10 and a margin-
al cost of $7. It follows that the
a.
production of the 100th unit of output increases the firm's profit by $3.
b.
production of the 100th unit of output increases the firm's average total cost by $7.
c.
firm's profit-maximizing level of output is less than 100 units.
d.
production of the 99th unit of output must increase the firm’s profit by less than $3.
20 ❖ Chapter 14/Firms in Competitive Markets
8. For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $10 and a margin-
al cost of $11. It follows that the
a.
production of the 100th unit of output increases the firm's profit by $1.
b.
production of the 100th unit of output increases the firm's average total cost by $1.
c.
firm's profit-maximizing level of output is less than 100 units.
d.
production of the 110th unit of output must increase the firm’s profit but by less than $1.
9. A certain competitive firm sells its output for $20 per unit. The 50th unit of output that the firm produces has a
marginal cost of $22. Production of the 50th unit of output does not necessarily
a.
increase the firm's total revenue by $20.
b.
increase the firm's total cost by $22.
c.
decrease the firm's profit by $2.
d.
increase the firm’s average variable cost by $0.44.
10. Sam sells soybeans to a broker in Chicago, Illinois. Because the market for soybeans is generally considered
to be competitive, Sam maximizes his profit by choosing
a.
to produce the quantity at which average variable cost is minimized.
b.
to produce the quantity at which average fixed cost is minimized.
c.
to sell at a price where marginal cost is equal to average total cost.
d.
the quantity at which market price is equal to Sam's marginal cost of production.
11. If a competitive firm is selling 1,000 units of its product at a price of $9 per unit and earning a positive profit,
then
a.
its total cost is less than $9,000.
b.
its marginal revenue is less than $9.
c.
its average revenue is greater than $9.
d.
the firm cannot be a competitive firm because competitive firms cannot earn positive profits.
12. If a competitive firm is selling 1,000 units of its product at a price of $8 per unit and earning a positive profit,
then
a.
its average revenue is greater than $8.
b.
its marginal revenue is less than $8.
c.
its total cost is less than $8,000.
d.
All of the above are correct.
