# Economics Chapter 23 Determine The Profit Maximizing Rate Production Analytic

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420 Miller Economics Today, 16th Edition
12) A firm in a perfectly competitive market maximizes profits when it finds
A) the price at which total revenue minus total cost is the greatest.
B) the quantity at which total revenue minus total cost is the greatest.
C) the quantity at which total revenue equals total cost.
D) the quantity at which total revenue is maximized.
13) When a firm is operating at an output rate at which total revenue equal total costs, this is called
A) its shutdown point. B) its breakeven point.
C) a short run profit. D) a loss.
Total Total Total Total
Output Costs Output Costs
100 \$500 106 \$528
101 501 107 540
102 503 108 555
103 506 109 580
104 510 110 615
105 518 111 660
14) Refer to the above table. This firm operates in a perfectly competitive market in which the
market price is \$10 per unit. What is its profit maximizing rate of production?
A) 104 units B) 106 units C) 108 units D) 110 units
15) Refer to the above table. This firm operates in a perfectly competitive market in which the
market price is \$10/unit. What is true when the firm produces 103 units?
A) Total revenue equals \$5,060.
B) Total costs exceed total revenue by \$403.
C) Marginal revenue is less than marginal cost.
D) Its total profit is \$524.
16) Refer to the above table. This firm operates in a perfectly competitive market in which the
market price is \$5/unit. What is true when the firm produces 110 units?
A) Total revenue equals \$3,075.
B) Total costs exceed total revenue by \$65.
C) Marginal revenue is more than marginal cost.
D) Its total profit is \$65.
17) Refer to the above figure. If an individual firm wants to maximize economic profits, it should
A) charge \$5 for its product.
B) charge more than \$5 for its product since increasing the price will increase revenues.
C) charge less than \$5 for its product since a lower price will attract more customers.
D) withdraw its product from the market forcing the market price up.
18) The total amount received from the sale of output is
A) average revenue. B) marginal revenue.
C) total revenue. D) price revenue.
19) The price per unit times the total quantity sold is
A) average revenue. B) marginal revenue.
C) total revenue. D) price revenue.
20) Total revenue divided by quantity is
A) average revenue. B) marginal revenue.
C) quantity revenue. D) price revenue.
Total
Output Costs
0 \$8
1 13
2 16
3 21
4 30
5 45
21) Refer to the above table. The table represents information on the costs for Ajax Corporation.
Ajax operates in a perfectly competitive market and the price of the product is \$9. What does
total revenue equal when quantity equals 4?
A) \$4 B) \$9 C) \$30 D) \$36
22) Refer to the above table. The table represents information on the costs for Ajax Corporation.
Ajax operates in a perfectly competitive market and the price of the product is \$9. What will be
the value of total revenue when quantity sold equals 3?
A) \$27 B) \$21 C) \$3 D) \$9
23) Refer to the above table. The table represents information on the costs for Ajax Corporation.
Ajax operates in a perfectly competitive market and the price of the product is \$7. What will be
the value of total revenue when quantity sold equals 2?
A) \$7 B) \$14 C) \$21 D) \$16
24) Refer to the above table. The table represents information on the costs for Ajax Corporation.
Ajax operates in a perfectly competitive market and the price of the product is \$9. What does
profit equal when quantity equals 4?
A) \$4 B) \$6 C) \$9 D) \$36
25) Refer to the above table. The table represents information on the costs for Ajax Corporation.
Ajax operates in a perfectly competitive market and the price of the product is \$9. What does
profit equal when quantity equals 3?
A) \$13 B) \$10 C) \$6 D) \$2
26) Refer to the above table. The table represents information on the costs for Ajax Corporation.
Ajax operates in a perfectly competitive market and the price of the product is \$7. What does
profit equal when quantity equals 2?
A) \$14 B) \$2 C) \$16 D) \$2
27) We assume that firms, when they are deciding the best rate of output at which to produce,
A) try to get the highest price possible. B) want to maximize sales.
C) want to minimize costs. D) want to maximize profits.
28) The equation TR/Q is used to compute
A) total cost. B) average revenue.
C) demand. D) marginal revenue.
29) For a perfect competitor, price equals
A) marginal revenue only.
B) average revenue only.
C)
b
oth average revenue and marginal revenue.
D) neither marginal revenue nor average revenue.
30) In a perfectly competitive market, the average revenue curve of a firm is
A) the same as its total revenue curve.
B) the same as its demand curve.
C) the same its economic profits.
D) the difference between its total revenue curve and its marginal revenue curve.
31) Under perfect competition, the firm must decide
A) the best price to charge for its product.
B) the best rate of output it should produce.
C) the optimal level of advertising to engage in.
D) the optimal level of quality and the packaging that will maximize profits.
32) Refer to the above figure. Profits for this firm are positive
A) only for all points less than B.
B) only at points B and C.
C) for points between B and C.
D) for all points less than B and greater than C.
33) Refer to the above figure. Profits for this firm will be maximized at
A) point B. B) point C.
C) a quantity greater than point C. D) a quantity between points B and C.
34) Refer to the above figure. Profits for this firm are equal to zero
A) only for all points less than B.
B) only at points B and C.
C) for points between B and C.
D) for all points less than B and greater than C.
35) Refer to the above figure. Profits for this firm are negative
A) only for all points less than B.
B) only at points B and C.
C) for points between B and C.
D) for all points less than B and greater than C.
36) Which of the following equals the ratio of the change in total revenues over the change in
output?
A) Total cost B) Average revenue
C) Demand D) Marginal revenue
37) For the perfectly competitive firm, price
A) equals average revenue and marginal revenue.
B) equals average total cost.
C) changes as output changes.
D) depends on the fixed cost for the firm.
38) Total revenues
A) are defined as the quantity sold divided by price.
B) are not the same as total receipts from the sale of output.
C) equal gross revenues minus all expenses of the firm.
D) equal the price per unit times the total quantity sold.
39) The perfectly competitive firm s total revenue curve
A) is linear and upward sloping. B) has a constant slope.
C) has a positive slope. D) all of the above
40) The goal of the perfectly competitive firm is to
A) maximize total revenue. B) maximize total profits.
C) minimize AFC. D) minimize ATC.
41) The vertical distance between the horizontal axis and any point on a perfect competitor s
demand curve measures
A) total cost.
B) total revenues.
C) product price, marginal revenue, and average revenue.
D) supply curve for the product.
42) The rate of production that maximizes the positive difference between total revenues and total
costs is the
A) profit maximizing rate of production.
B) rate of production at which marginal revenue equals marginal product.
C) rate of production at which marginal revenue equals average revenue.
D) rate of production at which average revenue equals average total cost.
43) A perfect competitor should maximize total revenues. Do you agree or disagree? Explain.
428 Miller Economics Today, 16th Edition
23.4 Using Marginal Analysis to Determine the Profit Maximizing Rate of Production
1) Which is always true at a firm s profit maximizing rate of production?
A) Total Revenue Total Costs
B) The total revenue curve lies below the total cost curve.
C) Marginal Revenue Marginal Cost
D) Marginal Revenue Marginal Cost
2) The perfectly competitive, profit maximizing rate of production
A) occurs at the point at which marginal revenue is equal to marginal cost.
B) occurs at the point at which the difference between marginal revenue and marginal cost is
maximized.
C) is not measurable for a perfectly competitive firm.
D) ignores the relation of total revenues and total costs.
3) Which of the following is true for the perfectly competitive firm?
A) Price and MR are always equal. B) AR is less than price.
C) AR is more than price. D) Price elasticity of demand is equal to 1.
4) The profit maximizing output for the perfectly competitive firm occurs at the point at which
A) TR MR is at a maximum. B) TR TC is at a minimum.
C) MR MC. D) TR ATC is at a maximum.
5) When MR MC for a firm, the firm should
A) reduce its level of output. B) stay at the same level of output.
C) stop producing. D) increase output, unless P AVC.
6) A firm seeking to maximize economic profits should produce at the output at which
A) total revenue equals total cost.
B) marginal revenue equals marginal cost.
C) average revenue equals average cost.
D) marginal revenue equals average revenue.
7) A perfectly competitive firm will maximize profits when
A) average cost is greater than marginal revenue.
B) marginal cost is greater than marginal revenue.
C) marginal cost is equal to marginal revenue.
D) average cost is equal to average revenue.
8) For a perfectly competitive firm, profit maximization occurs when
A) marginal revenue equals average total cost.
B) marginal revenue equals marginal cost.
C) marginal cost is equal to average total cost.
D) average total cost is at its minimum.
9) When price and marginal cost are equal for a perfectly competitive firm, the firm is
A) minimizing average total cost. B) maximizing total revenue.
C) maximizing economic profit. D) earning negative economic profit.
10) When price is greater than both marginal cost and average variable cost, the perfectly
competitive firm
A) is maximizing economic profit. B) should increase its level of output.
C) should reduce its level of output. D) should stop production.
11) If a firm is producing an output rate at which marginal cost is greater than price, the firm
A) is sustaining economic loss. B) should increase its output level.
C) should reduce its output level. D) will not be covering its fixed cost.
12) If a firm is producing an output rate at which marginal cost is equal price, the firm
A) is maximizing profits. B) should increase its output level.
C) should reduce its output level. D) will not be covering its fixed cost.
13) For a firm in a perfectly competitive industry, which of the following is TRUE?
A) MR P B) MR P C) AVC ATC D) MR P
14) When demand is perfectly elastic, marginal revenue is
A) zero. B) equal to price. C) declining. D) increasing.
15) Which of the following conditions is TRUE for a profit maximizing firm in a perfectly
competitive industry?
A) MR TC B) ATC AFC C) MR MC D) MC AVC
16) Suppose that at the current level of output, price \$10, MC \$4, AVC \$7, and ATC \$11.
Which of the following is true?
A) The firm should decrease output.
B) The firm should shut down.
C) The firm should increase output.
D) The firm should maintain the current level of output.
17) Suppose that at the current level of output, price \$10, MC \$14, AVC \$7, and ATC \$9.
Which of the following is true?
A) The firm should decrease output.
B) The firm should shut down.
C) The firm should increase output.
D) The firm should maintain the current level of output.
18) Suppose that at the current level of output, price \$10, MC \$10, AVC \$7, and ATC \$9.
Which of the following is true?
A) The firm should decrease output.
B) The firm should shut down.
C) The firm should increase output.
D) The firm should maintain the current level of output.
19) For a firm in a perfectly competitive industry
A) the demand curve is unitary elastic throughout.
B) marginal revenue and product price are equal at every level of output.
C) the price elasticity of demand is zero.
D) more output can be sold only if the firm unilaterally lowers its product price.
20) The marginal revenue curve of a perfectly competitive firm
A) has a vertical intercept equal to exactly one half of the vertical intercept for the demand
curve.
B) lies below the demand curve and above the average revenue curve.
C) intersects the average revenue curve from above at the maximum point of the average
revenue curve.
D) is also the demand curve faced by the firm.
21) In a perfectly competitive industry, the firm s marginal revenue curve is
A) downward sloping. B) upward sloping.
C) vertical. D) horizontal.
22) In the above figure, what happens to the firm s optimal level of output if the price it receives for
its product increases from P2to P3?
A) Output stays the same.
B) Output decreases.
C) Output increases.
D) There is not enough information provided to know what happens to output.
23) In the above figure, what happens to the firm s optimal level of output if the price it receives for
its product decreases from P4to P3?
A) Output stays the same.
B) Output decreases.
C) Output increases.
D) There is not enough information provided to know what happens to output.
24) Marginal revenue equals
A) total revenue divided by output.
B) price times quantity, divided by average revenue.
C) total revenue divided by average revenue.
D) the change in total revenue from selling one more unit.
25) The change in total revenues resulting from a change in output of one unit is
A) average revenue. B) marginal revenue.
C) quantity revenue. D) price revenue.
26) For a perfect competitor, marginal revenue equals
A) the slope of the demand curve. B) average revenue divided by price.
C) price divided by average revenue. D) the market price.
27) Which of the following is not true for a perfectly competitive firm?
A) P MR B) AR MR C) MR TR D) P AR
28) For a perfect competitor, the marginal revenue curve will be
A) horizontal. B) vertical.
C) positively sloped. D) negatively sloped.
29) Refer to the above figure. Line C in Panel B does not represent
A) the equilibrium price. B) average revenue.
C) total revenue. D) marginal revenue.
30) The perfectly competitive firm maximizes profits when
A) it produces and sells the quantity at which the difference between marginal revenue and
marginal cost is the greatest.
B) it produces and sells the quantity at which marginal revenue and marginal cost are equal.
C) it produces and sells the quantity at which the difference between average revenue and
average cost is the greatest.
D) it produces and sells the quantity at which the difference between price and average cost is
the greatest.
31) The rate of production at which marginal revenue equals marginal cost is
A) a point of negative profits for the firm.
B) what determines the equilibrium price in the market.
C) the firm s shutdown point.
D) the point where profits are maximized.
32) If marginal revenue is less than marginal cost, the firm should
A) raise price. B) raise marginal revenue.
C) increase its rate of output. D) decrease its rate of output.
33) If marginal revenue is greater than marginal cost, the firm should
A) raise price. B) raise marginal revenue.
C) increase its rate of output. D) decrease its rate of output.
34) Which of the following is always true for a perfectly competitive firm?
A) P d MR B) P d AVC
C) MC MR AVC D) AVC ATC P
35) Which of the following is always true in the short run for a perfectly competitive firm that is
maximizing economic profits?
A) P d MR MC AVC B) P d MR MC
C) P d MR Q D) MR MC Q
36) Marginal revenue is
A) change in total revenue/change in output.
B) total revenue/output.
C) change in total revenue/output.
D) total revenue/change in output.
37) For a perfectly competitive firm,
A) price is greater than marginal revenue.
B) price equals marginal revenue.
C) price is less than marginal revenue.
D) there is no relationship between price and marginal revenue.
38) The profit maximizing level of output for a firm occurs at the point at which
A) P ATC. B) P AVC. C) MR MC. D) MR ATC.
39) Marginal revenue
A) cannot be used to determine the profit maximizing rate of production.
B) is the change in total revenues resulting from a change in output.
C) is a change in revenue that is immeasurable and non quantifiable.
D) cannot be effectively utilized when analyzing the perfect competitor.
40) Under what condition are profits maximized?
A) at the rate of output at which marginal revenue equals marginal cost
B) at the output rate where marginal cost is greater than marginal revenue
C) at the point at which the difference between total revenues and total costs is negative
D) at the point at which the difference between price and quantity demanded is greatest
41) The loss minimizing output for the perfectly competitive firm occurs at the point at which
A) TR MR minimum. B) TR TC maximum.
C) MR MC. D) TC ATC maximum.
42) A perfectly competitive firm is selling 300 units of output at \$4 each. At this output level, total
fixed cost is \$100 and total variable cost is \$500. The firm
A) is maximizing its profit.
B) is earning a profit, but not necessarily the maximum profit.
C) is experiencing an economic loss.
D) should shut down.
43) Economic profits are maximized at the point at which
A) marginal revenues equal marginal costs.
B) accounting profit exceeds economic profit.
C) total revenues are greater than total costs.
D) accounting profits are equal to zero.
44) For a perfectly competitive firm, when MC is less than MR,
A) the producer has an incentive to expand output.
B) the producer has an incentive to decrease output.
C) the producer has no incentive to change production.
D) economic profits must be positive.
45) If a perfectly competitive firm is producing at an output at which marginal cost exceeds
marginal revenue,
A) price will be at the profit maximizing level.
B) sales will be at the profit maximizing level.
C) the firm should expand production.
D) the firm should reduce production.
46) A firm in a competitive industry faces the following short run cost and revenue conditions:
ATC \$8; AVC \$4; and MR MC \$6. This firm should
A) expand production and keep price constant.
B) decrease production and raise its price.
C) shut down.
D) continue to operate at the same price and output level in the short run.
47) Suppose a perfectly competitive firm faces the following short run cost and revenue conditions:
ATC \$12.00; AVC \$8.00; MC \$12.00; MR \$10.00. The firm should
A) decrease output. B) increase output.
C) increase price. D) change nothing.
48) Suppose a perfectly competitive firm faces the following short run cost and revenue conditions:
ATC \$7.00; AVC \$5.00; MC \$6.50; MR \$6.50. The firm should
A) increase output. B) decrease output.
C) continue to produce its current output. D) shut down.
49) Suppose a perfectly competitive firm faces the following cost and revenue conditions: ATC
\$25.00; AVC \$20.00; MC \$25.00; MR \$28.00. The firm should
A) decrease output. B) increase output.
C) shut down. D) continue to produce its current output.
50) Suppose a perfectly competitive firm faces the following short run cost and revenue conditions:
ATC \$8.00; AVC \$5.00; MC \$8.00; MR \$9.00. The firm should
A) decrease output. B) increase output.
C) increase price. D) continue to produce its current output.
51) A firm should continue producing until
A) the cost of producing the output equals the revenues obtainable from selling the output.
B) the cost of increasing output by one more unit equals the revenues obtainable from selling
the extra unit.
C) average costs are at a minimum.
D) the average cost when another unit is produced equals the average revenue obtainable
from selling the extra unit.
52) For a perfectly competitive firm, which of the following is NOT true?
A) The average revenue curve, the demand and the marginal revenue curves are identical.
B) The total revenue curve begins at the origin and slopes upward as output increases.
C) The slope of the total revenue curve is equal to the product price.
D) The total revenue curve is horizontal.

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