Homework 4

____________ refers to the additional revenue gained from selling one more unit. A. Marginal revenue B. Total revenue C. Economic profit D. Accounting profit

Answer: A. Marginal revenue

If marginal cost is rising in a competitive firm's short-run production process and its average variable cost is falling as output is increased, then A. marginal cost is above average variable cost. B. marginal cost is below average fixed cost. C. marginal cost is below average variable cost. D. average fixed cost is constant.

Answer: A. marginal cost is above average variable cost.

If a perfectly competitive firm is a price taker, then A. pressure from competing firms will force acceptance of the prevailing market price. B. it must be a relatively small player compared to its competitors in the overall market. C. it can increase or decrease its output without affecting overall quantity supplied in the market. D. quality differences will be very perceptible and will play a major role in purchasers' decisions.

Answer: A. pressure from competing firms will force acceptance of the prevailing market price.

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice? A. what quantity to produce B. what price to charge C. what quantity of labor is needed D. what quality to produce

Answer: A. what quantity to produce

Economic profit can be derived from calculating total revenues minus all of the firm's costs, A. excluding its opportunity costs. B. including its opportunity costs. C. including its marginal revenue. D. excluding its marginal revenue.

Answer: B. including its opportunity costs.

I'maSolarPanelCo. manufactures and distributes solar panels in the US market. Two years ago, it had 5 US competitors, but government stimulus in the industry has encouraged 7 new US competitors to enter the market. In these circumstances, I'maSolarPanelCo.'s price for its output A. can be tailored to exceed the price of its inputs. B. is dictated by the forces of demand and supply. C. can be tailored to meet the price of its inputs. D. can be set by management to maximize profits.

Answer: B. is dictated by the forces of demand and supply.

Under perfect competition, any profit-maximizing producer faces a market price equal to its A. average costs B. marginal costs C. total costs D. variable costs

Answer: B. marginal costs

In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect ____________ and ________________. A. total revenue; total cost B. marginal revenue; marginal cost C. total revenue; marginal cost D. marginal revenue; total cost

Answer: B. marginal revenue; marginal cost

Firms operating in a market situation that creates ______________________, sell their product in a market with other firms who produce identical or extremely similar products. A. a perfect monopoly B. perfect competition C. an oligopoly D. a free-market

Answer: B. perfect competition

Idaho farmers can sell as large a quantity of their potato crop as they wish, A. if they set their own price in the short run, but in the long run, the market sets the price. B. provided each is willing to accept the prevailing market price. C. if they set their own price in the long run, but in the short run, the market sets the price. D. provided quality is perceptible and determines the market price.

Answer: B. provided each is willing to accept the prevailing market price.

If a firm's revenues do not cover its average variable costs, then that firm has reached its ________________. A. price taking point B. shutdown point C. marginal point D. opportunity margin

Answer: B. shutdown point

For a perfectly competitive firm, the marginal cost curve is identical to the firm's ____________________. A. demand curve B. supply curve C. average total cost curve D. average variable cost curve

Answer: B. supply curve

If the price that a firm charges is higher than its _______________ cost of production for that quantity produced, then the firm will earn profits. A. marginal B. variable C. average D. fixed

Answer: C. average

It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $199.00, ________________________. A. will likely cause the firm to reach its shutdown point immediately B. will cause the firm to recover some of its opportunity costs C. could likely result in a notable loss of sales to competitors D. is a sure sign the firm is raising the given price in the market

Answer: C. could likely result in a notable loss of sales to competitors

Why are some producers forced to sell their products at the prevailing market price? A. price takers find market analysis is too costly B. they are very small players in the overall market C. high degree of similarity to competitor's products D. they can increase output without affecting quality

Answer: C. high degree of similarity to competitor's products

A perfectly competitive industry is a A. realistic extreme. B. hypothetical assumption. C. hypothetical extreme. D. realistic assumption.

Answer: C. hypothetical extreme.

The term _______________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product. A. price setter B. business entity C. price taker D. trend setter

Answer: C. price taker

If a graph is used to compare total revenue and total cost of a perfectly competitive firm, then the horizontal axis of the graph will represent the __________ and the vertical axis will represent ________________________________. A. price, measured in dollars; quantity of goods produced B. total costs measured in dollars; quantity of goods produced C. quantity produced; both total revenue and total costs, measured in dollars. D. quantity produced; total revenue and total variable costs, measured in dollars.

Answer: C. quantity produced; both total revenue and total costs, measured in dollars.

In economics, the term "shutdown point" refers to the point where the A. marginal cost curve crosses the total revenue curve. B. average variable cost curve crosses the total revenue curve. C. average variable cost curve crosses the marginal cost curve. D. marginal cost curve crosses the average variable cost curve.

Answer: D. marginal cost curve crosses the average variable cost curve.