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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.
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 $7 and a marginal cost of
$10. 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 the101st unit of output must increase the firm’s profit by more than $3.
8. For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $11 and a marginal cost of
$10. 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 101st unit of output must increase the firm’s profit by more 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. If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then
a.
its total cost is more than $9,000.
b.
its marginal revenue is less than $10.
c.
its average total cost is less than $10.
d.
the firm cannot be a competitive firm because competitive firms cannot earn positive profits.
11. If a competitive firm is selling 500 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 $4,000.
d.
All of the above are correct.
12. 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.
to produce the quantity at which average variable cost is minimized.
b.
to produce the quantity at which average fixed cost is minimized.
c.
the quantity at which market price is equal to Mr. McDonald's marginal cost of production.
d.
the quantity at which market price exceeds Mr. McDonald's marginal cost of production by the greatest
amount.
13. Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to
analyze his company’s financial records. The consultant recommends that Mr. Rogers increase his production. The
consultant must have concluded that Mr. Roger’s
a.
total revenues equal his total economic costs.
b.
marginal revenue exceeds his total cost.
c.
marginal revenue exceeds his marginal cost.
d.
marginal cost exceeds his marginal revenue.
14. Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a
business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The
consultant must have concluded that Kate’s
a.
total revenues exceed her total accounting costs.
b.
marginal revenue exceeds her total cost.
c.
marginal revenue exceeds her marginal cost.
d.
marginal cost exceeds her 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 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 to answer the question.
17. Robin owns a horse stables and riding academy and gives riding lessons for children at “pony camp.” Her business
operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is
$4,000. The marginal cost of pony camp is $100 per child. In order to maximize profits, Robin should
a.
give riding lessons to more than 20 children per month.
b.
give riding lessons to fewer than 20 children per month.
c.
continue to give riding lessons to 20 children per month.
d.
We do not have enough information to answer the question.
18. Robin owns a horse stables and riding academy and gives riding lessons for children at “pony camp.” Her business
operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is
$4,000. The marginal cost of pony camp is $200 per child. In order to maximize profits, Robin should
a.
give riding lessons to more than 20 children per month.
b.
give riding lessons to fewer than 20 children per month.
c.
continue to give riding lessons to 20 children per month.
d.
We do not have enough information to answer the question.
19. Robin owns a horse stables and riding academy and gives riding lessons for children at “pony camp.” Her business
operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is
$4,000. The marginal cost of pony camp is $250 per child. In order to maximize profits, Robin should
a.
give riding lessons to more than 20 children per month.
b.
give riding lessons to fewer than 20 children per month.
c.
continue to give riding lessons to 20 children per month.
d.
We do not have enough information 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.
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
$7.50
13
$6
$7.50
14
$7
$7.50
15
$8
$7.50
16
$9
$7.50
17
$10
$7.50
24. Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners?
a.
decrease quantity to 13 units
b.
increase quantity to 15 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.
$0.50
b.
$7.50
c.
$10
d.
There is insufficient data to determine the firm’s profit.
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
$6
$5
2
$12
$8
3
$18
$12
4
$24
$17
5
$30
$23
6
$36
$30
7
$42
$38
26. Refer to Table 14-8. The firm should 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 3 because at 3 units of output, marginal cost
a.
is greater than marginal revenue.
b.
equals marginal revenue.
c.
is less 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.
5 units of output because marginal revenue equals marginal cost.
d.
7 units of output because total revenue is maximized.
Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:
Quantity
Total Revenue
Total Cost
0
$0
$5
1
$8
$9
2
$16
$14
3
$24
$20
4
$32
$27
5
$40
$35
6
$48
$44
7
$56
$54
8
$64
$65
9
$72
$72
29. Refer to Table 14-9. If the firm produces 3 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.
5 units
c.
7 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 revenue 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.
$6.
b.
$7.
c.
$8.
d.
$9.
33. 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.
34. 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
35. Refer to Table 14-10. The marginal cost of producing the 4th unit is
a.
$7.
b.
$8.
c.
$10.
d.
$23.
36. 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
37. 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
38. 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
39. 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
40. Refer to Table 14-10. This firm should continue to produce and sell units as long as the marginal cost of production is
less than or equal to
a.
$3.
b.
$5.
c.
$7.
d.
$9.
Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:
Price
Quantity
Total
Cost
$6
0
$4
$6
1
$6
$6
2
$9
$6
3
$13
$6
4
$18
$6
5
$24
$6
6
$31
41. 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.
42. 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.
43. Refer to Table 14-11. The marginal revenue from producing the 3rd unit equals
(i) $6.
(ii) the price.
(iii) the marginal cost.
a.
(i) only
b.
(i) and (ii) only
c.
(iii) only
d.
(i), (ii), and (iii)
44. Refer to Table 14-11. The marginal revenue from producing the 5th unit equals
(i) $6.
(ii) the price.
(iii) the marginal cost.
a.
(i) only
b.
(i) and (ii) only
c.
(iii) only
d.
(i), (ii), and (iii)
45. Refer to Table 14-11. If the firm is producing 3 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.
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
46. Refer to Table 14-12. What is the marginal cost of the 5th unit?
a.
$55
b.
$60
c.
$68
d.
$80
47. Refer to Table 14-12. What is the marginal cost of the 8th unit?
a.
$0
b.
$72.75
c.
$120
d.
$502
48. Refer to Table 14-12. What is the total revenue from selling 4 units?
a.
$80
b.
$137
c.
$320
d.
$480
49. Refer to Table 14-12. What is the total revenue from selling 7 units?
a.
$80
b.
$382
c.
$540
d.
$560
50. Refer to Table 14-12. What is the marginal revenue from selling the 1st unit?
a.
$30
b.
$50
c.
$80
d.
$160
51. Refer to Table 14-12. What is the marginal revenue from selling the 5th unit?
a.
$12
b.
$68
c.
$80
d.
$480
52. Refer to Table 14-12. What is the average revenue when 4 units are sold?
a.
$0
b.
$68
c.
$80
d.
$400
53. Refer to Table 14-12. At what quantity does Bill maximize profits?
a.
3
b.
6
c.
7
d.
8
54. 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
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
55. Refer to Table 14-13. What is the marginal cost of the 1st unit?
a.
$50
b.
$75
c.
$80
d.
$150
56. Refer to Table 14-13. What is the marginal cost of the 8th unit?
a.
$0
b.
$100
c.
$120
d.
$140
57. Refer to Table 14-13. In order to maximize profits, how many units should Diana’s Dress Emporium produce?
a.
5
b.
6
c.
7
d.
8
58. Refer to Table 14-13. What is Diana’s economic profit at the profit maximizing point?
a.
$78
b.
$243
c.
$278
d.
$375
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
59. Refer to Table 14-14. What is Bob’s total fixed cost?
a.
$0
b.
$3
c.
$5
d.
$9
60. 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
61. 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
62. 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
