Chapter 14(sample exercise)

Chapter 14(sample exercise) - Chapter 14Firms in...

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Chapter 14—Firms in Competitive Markets Use the information in the table below to answer the following questions. Table 14-1 Quantity Price 1 13 2 13 3 13 4 13 5 13 6 13 7 13 8 13 9 13 1. Refer to Table 14-1 . Over which range of output is average revenue equal to price? a. 1 to 5 b. 3 to 7 c. 5 to 9 d. Average revenue is equal to price over the whole range of output. 2. Refer to Table 14-1 . If the firm doubles its output from 3 to 6 units, total revenue will a. increase by less than $39. b. increase by exactly $39. c. increase by more than $39. d. It cannot be determined from the information provided. 3. If a firm in a perfectly competitive market triples the number of units of output sold, then total revenue will a. more than triple. b. less than triple. c. exactly triple. d. All of the above are potentially true. 4. Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's a. total revenue. b. marginal revenue. c. average revenue. d. All of the above are correct. Scenario 14-1 As part of an estate settlement Mary received $1 million. She decided to use the money to purchase a small business in Anywhere, USA. If Mary would have invested the $1 million in a risk-free bond fund she could have made $100,000 each year. She also quit her job with Lucky.Com Inc. to devote all of her time to her new business; her salary at Lucky.Com Inc. was $75,000 per year. 5. Refer to Scenario 14-1 . What are Mary's opportunity costs of operating her new business? a. $25,000 b. $75,000 c. $100,000 d. $175,000
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6. Refer to Scenario 14-1 . How large would Mary's accounting profits need to be to allow her to attain zero economic profit? a. $100,000 b. $125,000 c. $175,000 d. $225,000 Table 14-2 Quantity Total Revenue Total Cost 0 $0 $10 1 9 14 2 18 19 3 27 25 4 36 32 5 45 40 6 54 49 7 63 59 8 72 70 9 81 82 7. Refer to Table 14-2 . At which quantity of output is marginal revenue equal to marginal cost? a. 3 b. 6 c. 8 d. All of the above are correct. 8. Refer to Table 14-2 . If the firm finds that its marginal cost is $5, it should a. reduce fixed costs by lowering production. b. increase production to maximize profit. c. decrease production to maximize profit. d. maintain its current level of production to maximize profit. 9. As a general rule, profit-maximizing producers in a competitive market produce output at a point where a. marginal cost is increasing. b. marginal cost is decreasing. c. marginal revenue is increasing. d. price is less than marginal revenue. The graph below depicts the cost structure for a firm in a competitive market. Use the graph to answer the following questions. Figure 14-1 Note: On the above diagram, change the vertical-axis labels from MC 1 to P 1 , MC 2 to P 2 , etc.
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10. Refer to Figure 14-1 . When price is equal to P 3 , the profit-maximizing firm will produce what level of output? a.
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This note was uploaded on 01/07/2010 for the course ECO eco1104 taught by Professor Davidgray during the Fall '09 term at University of Ottawa.

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Chapter 14(sample exercise) - Chapter 14Firms in...

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