Microeconomics Ch. 9

Harry Smith sells wheat in a price-taker market. With regard to Smith's price and output choices, which of the following is true?

It would be senseless for Smith to try to increase sales by lowering the price of his product.

If a competitive price-taker firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then

a one-unit increase in output will increase the firm's profit.

If price is above average variable cost and below average total cost, a profit-maximizing price taker should

continue producing as long as it expects the market price to rise above average total cost in the near future.

"I'm losing money, but having invested so much in equipment, I simply cannot afford to shut down." If the firm were attempting to maximize profit, this decision may be

correct if the firm is covering its variable costs and expects the price of its product to rise in the near future.

When we say that a firm is a price taker, we are indicating that the

firm can change output levels without having any significant effect on price.

Competitive price-taker markets are characterized by

firms that all produce the same product.

If a single firm in a price-taker market lowers its price below the market equilibrium price,

it will lose revenue without increasing the quantity it can sell.

In a competitive price-taker market,

many other sellers are offering a product that is essentially identical.

To maximize profits, a firm should always produce the level of output where

marginal cost equals marginal revenue.

In the short run, a profit-maximizing price taker will expand output as long as the market price exceeds

marginal cost.

In general, firms will produce at a rate of output such that marginal revenue equals marginal cost because this output rate will

maximize the firm's profit.

If marginal revenue exceeds marginal cost at the current level of output, profit will increase when output is expanded because

producing and selling an additional unit will add more to total revenue than it adds to total cost.

The usefulness of the price-taker model requires that the firm's decision makers

seek to maximize the profits of the firm

At a firm's profit-maximizing level of output, its price is $200 and its short-run average total cost is $225. The firm

should shut down if its short-run average fixed cost is less than $25.

Claude's Copper Clappers sells clappers for $40 each in a competitive price-taker market. At its present rate of output, Claude's marginal cost is $40, average variable cost is $45, and average total cost is $60. Claude should

shut down

For a certain firm, the 100th unit of output that the firm produces has marginal revenue equal to $10 and a marginal cost of $7. It follows that

the production of the 100th unit of output increases the firm's profit by $3.