Q: Which of the following equations is consistent for a competitive firm?

$$ ext{Total revenue} = ext{Average revenue} \times ext{Quantity}$$

Question 1

In a perfectly competitive market, which of the following is true about the relationship between price ($$P$$), marginal revenue ($$MR$$), and average revenue ($$AR) $$for an individual firm?

Accepted Answer

$$P = MR = AR$$

Question 2

Suppose the market demand is given by $$Q^D = 220 - 4P$$ and the market supply is $$Q^S = 2P + 40. $$What is the equilibrium price in this market?

Accepted Answer

$$P = 30$$

Question 3

A firm in a competitive market faces a market price of $$P = 20. $$Its marginal cost is given by $$MC = 10Q$$ and its average total cost is $$ATC = 5Q. $$What is the firm's profit when it produces at the profit-maximizing output?

Accepted Answer

$$	ext{Profit} = 0$$

Question 4

If a profit-maximizing firm in a competitive market is producing 100 units of output, has an average revenue of $$10, and an average total cost of 8$$, what is the firm's profit or loss?

Accepted Answer

The firm has a profit of $200

Question 5

Which of the following equations is consistent for a competitive firm?

Accepted Answer

$$	ext{Total revenue} = 	ext{Average revenue} 	imes 	ext{Quantity}$$

Question 6

A firm in a competitive market receives $$500 in total revenue, has marginal revenue of 10. $$What is the average revenue, and how many units were sold?

Accepted Answer

Average revenue is $10, 50 units sold

Question 7

Suppose the market demand is $$Q^D = 140 - 5P$$ and the market supply is $$Q^S = 2P. $$What is the equilibrium quantity in the market?

Accepted Answer

$$Q = 100$$

Question 8

Which of the following best describes the shutdown point for a competitive firm?

Accepted Answer

The price at which $$P = AVC$$

Question 9

If the market price falls below a competitive firm's average variable cost, what will the firm do in the short run?

Accepted Answer

Shut down and incur only fixed costs

Question 10

Which of the following is the competitive firm's supply curve?

Accepted Answer

The marginal cost curve above average variable cost

Question 11

A wheat farmer in Saskatchewan is considered to be operating in a competitive market. Which of the following is the best explanation for this?

Accepted Answer

The farmer produces a product that is identical to that of many other farmers, and cannot influence the market price

Question 12

Suppose a competitive firm faces the following costs: Output: 0, 1, 2, 3, 4, 5; Total Cost: 10, 14, 21, 30, 41, 59. If the market price is $12 per unit, what is the firm's profit-maximizing output?

Accepted Answer

4 units

Question 13

Which of the following would decrease a competitive firm's average revenue?

Accepted Answer

A decrease in the market price of the good

Question 14

If a competitive firm is producing at a level where $$MC \u003e MR$$, what should the firm do to maximize profit?

Accepted Answer

Decrease output

Question 15

Suppose the market demand is $$Q^D = 80 - 2P$$ and the market supply is $$Q^S = 2P + 10. $$What is the equilibrium price?

Accepted Answer

$$P = 17.5$$

Question 16

Which of the following best describes the profit-maximizing rule for a competitive firm?

Accepted Answer

Produce the quantity where $$P = MC$$

Question 17

If a competitive firm is earning zero economic profit, which of the following must be true?

Accepted Answer

$$P = ATC$$

Question 18

Which of the following statements about marginal cost ($$MC) $$and average total cost ($$ATC) is $$correct?

Accepted Answer

$$MC$$ intersects $$ATC at $$the minimum point of $$ATC$$

Question 19

Suppose a competitive firm faces a market price of $$P = 25$$, marginal cost $$MC = 0.5Q$$, and average total cost $$ATC = 0.25Q. $$What is the firm's profit at the profit-maximizing output?

Accepted Answer

$$	ext{Profit} = 625$$

Microeconomics: week 8 Perfect Competition, Firm Behavior, and Market Equilibrium Study Guide

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