Profit-maximizing Output Chapter 10

27 Questions | Total Attempts: 107

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Profit-maximizing Output Chapter 10

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Questions and Answers
  • 1. 
    A purely competitive seller is:
    • A. 

      Both a "price maker" and a "price taker."

    • B. 

      Neither a "price maker" nor a "price taker."

    • C. 

      A "price taker."

    • D. 

      A "price maker."

  • 2. 
    Which of the following is not a characteristic of pure competition? 
    • A. 

      Price strategies by firms.

    • B. 

      A standardized product.

    • C. 

      No barriers to entry.

    • D. 

      A larger number of sellers.

  • 3. 
    In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis.Refer to the information. For a purely competitive firm, total revenue graphs as a:
    • A. 

      Straight, upsloping line.

    • B. 

      Straight line, parallel to the vertical axis.

    • C. 

      Straight line, parallel to the horizontal axis.

    • D. 

      Straight, downsloping line.

  • 4. 
    • A. 

      Straight, upsloping line.

    • B. 

      Straight line, parallel to the vertical axis.

    • C. 

      Straight line, parallel to the horizontal axis.

    • D. 

      Straight, downsloping line.

  • 5. 
    In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis.Refer to the information. For a purely competitive firm:
    • A. 

      Marginal revenue will graph as an upsloping line.

    • B. 

      The demand curve will lie above the marginal revenue curve.

    • C. 

      The marginal revenue curve will lie above the demand curve.

    • D. 

      The demand and marginal revenue curves will coincide.

  • 6. 
    If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue:
    • A. 

      May be either greater or less than $5.

    • B. 

      Will also be $5.

    • C. 

      Will be less than $5.

    • D. 

      Will be greater than $5.

  • 7. 
    For a purely competitive seller, price equals:
    • A. 

      Average revenue.

    • B. 

      Marginal revenue.

    • C. 

      Total revenue divided by output.

    • D. 

      All of these.

  • 8. 
    The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in that industry is ______.
    • A. 

      Perfectly inelastic; perfectly elastic

    • B. 

      Downsloping; perfectly elastic

    • C. 

      Downsloping; perfectly inelastic

    • D. 

      Perfectly elastic; downsloping

  • 9. 
    • A. 

      total revenue and marginal revenue.

    • B. 

      Marginal revenue only.

    • C. 

      Total revenue and average revenue.

    • D. 

      Total revenue only.

  • 10. 
    Marginal revenue is the:
    • A. 

      Change in product price associated with the sale of one more unit of output.

    • B. 

      Change in average revenue associated with the sale of one more unit of output.

    • C. 

      Difference between product price and average total cost.

    • D. 

      Change in total revenue associated with the sale of one more unit of output.

  • 11. 
    Refer to the short-run data. The profit-maximizing output for this firm is:
    • A. 

      Above 440 units.

    • B. 

      440 units.

    • C. 

      320 units.

    • D. 

      100 units.

  • 12. 
    A firm reaches a break-even point (normal profit position) where:
    • A. 

      Marginal revenue cuts the horizontal axis.

    • B. 

      Marginal cost intersects the average variable cost curve.

    • C. 

      Total revenue equals total variable cost.

    • D. 

      Total revenue and total cost are equal.

  • 13. 
    The MR = MC rule applies:
    • A. 

      To firms in all types of industries.

    • B. 

      Only when the firm is a "price taker."

    • C. 

      Only to monopolies.

    • D. 

      Only to purely competitive firms.

  • 14. 
    • A. 

      Should close down in the short run.

    • B. 

      Is maximizing its profits.

    • C. 

      Is realizing a loss of $60.

    • D. 

      Is realizing an economic profit of $40.

  • 15. 
    Suppose you find that the price of your product is less than minimum AVC. You should:
    • A. 

      Minimize your losses by producing where P = MC.

    • B. 

      Maximize your profits by producing where P = MC.

    • C. 

      Close down because, by producing, your losses will exceed your total fixed costs.

    • D. 

      Close down because total revenue exceeds total variable cost.

  • 16. 
    If a purely competitive firm shuts down in the short run:
    • A. 

      Its loss will be zero.

    • B. 

      It will realize a loss equal to its total variable costs.

    • C. 

      It will realize a loss equal to its total fixed costs.

    • D. 

      It will realize a loss equal to its explicit costs.

  • 17. 
    Answer the question on the basis of the following data confronting a firm:Refer to the data. This firm is selling its output in a(n):
    • A. 

      Monopolistically competitive market.

    • B. 

      Monopolistic market.

    • C. 

      Purely competitive market.

    • D. 

      Oligopolistic market.

  • 18. 
    Answer the question on the basis of the following data confronting a firm:Refer to the data. At the profit-maximizing output, the firm's total revenue is:
    • A. 

      $48

    • B. 

      $32.

    • C. 

      $80.

    • D. 

      $64

  • 19. 
    In the short run, a purely competitive firm will always make an economic profit if:
    • A. 

      P = ATC.

    • B. 

      P > AVC.

    • C. 

      P = MC.

    • D. 

      P > ATC.

  • 20. 
    Refer to the diagram for a purely competitive producer. The firm will produce at a loss at all prices:
    • A. 

      Above P1.

    • B. 

      Above P3.

    • C. 

      Above P4.

    • D. 

      Between P2 and P3.

  • 21. 
    Refer to the diagram for a purely competitive producer. If product price is P3:
    • A. 

      The firm will maximize profit at point d.

    • B. 

      The firm will earn an economic profit.

    • C. 

      Economic profits will be zero.

    • D. 

      New firms will enter this industry.

  • 22. 
    Refer to the diagram. To maximize profit or minimize losses, this firm will produce:
    • A. 

      K units at price C.

    • B. 

      D units at price J.

    • C. 

      E units at price A.

    • D. 

      E units at price B.

  • 23. 
    Refer to the diagram. At the profit-maximizing output, total variable cost is equal to:
    • A. 

      0AHE.

    • B. 

      0CFE.

    • C. 

      0BGE.

    • D. 

      ABGH.

  • 24. 
    Refer to the diagram. At the profit-maximizing output, the firm will realize:
    • A. 

      A loss equal to BCFG.

    • B. 

      A loss equal to ACFH.

    • C. 

      An economic profit of ACFH.

    • D. 

      An economic profit of ABGH.

  • 25. 
    Refer to the diagram. The profit-maximizing output:
    • A. 

      Is n.

    • B. 

      Is k.

    • C. 

      Is h.

    • D. 

      Cannot be determined from the information given.

  • 26. 
    In the short run, a purely competitive seller will shut down if product price: 
    • A. 

      Equals average revenue.

    • B. 

      Is greater than MC.

    • C. 

      Is less than AVC.

    • D. 

      Is less than ATC.

  • 27. 
    Refer to the diagram. At P1, this firm will produce:
    • A. 

      47 units and break even.

    • B. 

      47 units and realize an economic profit.

    • C. 

      66 units and earn only a normal profit.

    • D. 

      24 units and earn only a normal profit.