Deck 11: Managerial Decisions in Competitive Markets

Question 1

In a perfectly competitive market

A) a firm must lower price to attract more customers.
B) the additional revenue from selling one more unit of output is less than price.
C) demand facing the industry is perfectly elastic.
D) all of the above
E) none of the above

Answer 1

none of the above

Question 2

Refer to the following:

The graph on the left shows the short-un cost curves for a firm in a perfectly competitive market, and the graph on the right shows the current market conditions in this industry.

-In order to maximize profit, how much output should the firm produce?

A) 20 units
B) 40 units
C) 50 units
D) 60 units
E) 80 units

Answer 2

50 units

Question 3

A competitive firm will maximize profit by producing the level of output at which:

A) the last unit of output produced adds the same amount to total revenue as to total cost.
B) the additional revenue from the last unit of output produced exceeds the additional cost of the last unit by the largest amount.
C) the firm's total revenue exceeds total cost by the largest amount.
D) both a and b
E) both a and c

Answer 3

E

Question 4

Which of the following is NOT a characteristic of long-run equilibrium for a perfectly competitive firm?

A) Price is greater than long-run average cost.
B) Price is equal to long-run marginal cost.
C) Economic profit is zero.
D) The firm produces the output level at which long-run average cost is at its minimum.

Question 5

Refer to the following:

The graph on the left shows the short-un cost curves for a firm in a perfectly competitive market, and the graph on the right shows the current market conditions in this industry.

-What is the maximum amount of profit the firm can earn?

A) $ 50
B) $ 40
C) $ 80
D) $150

Question 6

Refer to the following:

The graph on the left shows the short-run marginal cost curve for a typical firm selling in a perfectly competitive industry. The graph on the right shows current industry demand and supply.

-If the firm's demand and marginal revenue curves were drawn in the left-hand graph, what would be the elasticity of demand?

A) zero
B) -6
C) -0.6
D) infinitely elastic
E) unitary

Question 7

For a price-taking firm, marginal revenue

A) is the addition to total revenue from producing one more unit of output.
B) decreases as the firm produces more output.
C) is equal to price at any level of output.
D) both a and b
E) both a and c

Question 8

Refer to the following figure:

The graph shows demand and marginal cost for a perfectly competitive firm.

-If the firm is producing 100 units of output, increasing output by one unit would ______ the firm's profit by $______.

A) increase, $3
B) increase, $2
C) decrease, $1
D) increase, $1
E) decrease, $2

Question 9

Refer to the following:

The graph on the left shows the short-run marginal cost curve for a typical firm selling in a perfectly competitive industry. The graph on the right shows current industry demand and supply.

-What output should the firm produce?

A) 200
B) 250
C) 150
D) 300

Question 10

Which of the following is NOT a condition of a perfect competition:

A) products produced by rival firms are perfect substitutes
B) any individual firm cannot affect market supply
C) unrestricted entry and exit
D) industry sales are small
E) each firm has complete knowledge about production and prices

Question 11

Refer to the following:

The graph on the left shows the short-un cost curves for a firm in a perfectly competitive market, and the graph on the right shows the current market conditions in this industry.

-What do you expect to happen in the long-run?

A) Market supply will decrease.
B) Market price will decrease.
C) The firm's profit will decrease.
D) both b and c
E) all of the above

Question 12

Firm A and firm B both have total revenues of $200,000 and total costs of $250,000; firm A has total fixed costs of $40,000, while firm B has total fixed costs of $70,000. Which of the following statements are true in the short run?

A) Firm A should operate.
B) Firm B should operate.
C) Firm A should shut down.
D) Firm B should shut down.
E) both b and c

Question 13

In a perfectly competitive industry the market price is $25. A firm is currently producing 10,000 units of output; average total cost is $28, marginal cost is $20, and average variable cost is $20. The firm should

A) raise price because the firm is losing money.
B) keep output the same because the firm is producing at minimum average variable cost.
C) produce more because the next unit of output increases profit by $5.
D) produce less because the next unit of output decreased profit by $3.
E) shut down because the firm is losing money.

Question 14

Refer to the following:
Total cost schedule for a competitive firm:
$$\begin{array} { c c } \text { Output } & \text { Total Cost } \\\hline 0 & \$ 10 \\1 & \mathbf { 6 0 } \\\mathbf { 2 } & \mathbf { 8 0 } \\\mathbf { 3 } & 110 \\4 & 165 \\5 & \mathbf { 2 4 5 } \\\hline\end{array}$$

-If market price is $30, how many units of output will the firm produce?

A) 0, the firm shuts down
B) 1
C) 2
D) 3
E) 4

Question 15

Refer to the following:

The graph on the left shows the short-run marginal cost curve for a typical firm selling in a perfectly competitive industry. The graph on the right shows current industry demand and supply.

-What is the marginal revenue for the FIRM from selling the 250th unit of output?

A) $10
B) $8
C) $6
D) $4
E) zero

Question 16

When total fixed costs increase,

A) the profit-maximizing level of output falls.
B) the firm may be forced to shut down if total fixed costs get too high.
C) economic profit decreases.
D) both a and b
E) both b and c

Question 17

Refer to the following:
Total cost schedule for a competitive firm:
$$\begin{array} { c c } \text { Output } & \text { Total Cost } \\\hline 0 & \$ 10 \\1 & \mathbf { 6 0 } \\\mathbf { 2 } & \mathbf { 8 0 } \\\mathbf { 3 } & 110 \\4 & 165 \\5 & \mathbf { 2 4 5 } \\\hline\end{array}$$

-If market price is $60, how many units of output will the firm produce?

A) Zero units of output because the firm shuts down.
B) 1 unit of output.
C) 2 units of output.
D) 3 units of output.
E) none of the above.

Question 18

Refer to the following figure:

The graph shows demand and marginal cost for a perfectly competitive firm.

-If the firm is producing 300 units of output, decreasing output by one unit would ______ the firm's profit by $______.

A) decrease, $2
B) increase, $2
C) increase, $3
D) decrease, $5
E) increase, $5

Question 19

Refer to the following:
Total cost schedule for a competitive firm:
$$\begin{array} { c c } \text { Output } & \text { Total Cost } \\\hline 0 & \$ 10 \\1 & \mathbf { 6 0 } \\\mathbf { 2 } & \mathbf { 8 0 } \\\mathbf { 3 } & 110 \\4 & 165 \\5 & \mathbf { 2 4 5 } \\\hline\end{array}$$

-If market price is $60, what is the maximum profit the firm can earn?

A) -$10
B) Zero profit, the firm shuts down
C) $75
D) $80
E) $85

Question 20

Refer to the following figure:

The graph shows demand and marginal cost for a perfectly competitive firm.

-In order to minimize losses in the short run, a perfectly competitive firm should shut down if

A) total revenue is less than total cost.
B) total revenue is less than total fixed cost.
C) total revenue is less than total variable cost.
D) total revenue is less than the difference between total fixed cost and total variable cost.

Question 21

An industry is in long-run competitive equilibrium. The price of a substitute good increases.

A) The product price will rise.
B) New firms will enter the market.
C) Firms will begin earning economic profit.
D) a and b
E) all of the above

Question 22

Refer to the following figure:

These are the cost curves for a perfectly competitive firm.

-If market price is $2, how much profit will the firm earn?

A) $600
B) -$600
C) zero
D) $400

Question 23

Refer to the following figure:

These are the cost curves for a perfectly competitive firm.

-If market price is $3, how much profit will the firm earn?

A) $200
B) -$200
C) $400
D) -$400

Question 24

Suppose that a perfectly competitive industry is in long-run equilibrium. Then the price of a complement good decreases. What will happen?

A) Next period a typical firm will increase output.
B) Next period a typical firm will earn positive economic profit.
C) Eventually firms will exit the industry.
D) both a and b
E) all of the above will happen

Question 25

Refer to the following:
The table below shows a competitive firm's short-run production function. Labor is the firm's only variable input, and market price for the firm's product is $2 per unit.
$\begin{array}{ll} \text {Units of Labor }& \text {Units of Output }\\3 & 370 \\4 & 490 \\5 & 570 \\6 & 600 \\7 & 620\end{array}$

-If the wage rate is $200, how many units of labor will the firm employ?

A) 3
B) 4
C) 5
D) 6
E) 0, the firm shuts down

Question 26

Refer to the following:
The table below shows a competitive firm's short-run production function. Labor is the firm's only variable input, and market price for the firm's product is $2 per unit.
$\begin{array}{ll} \text {Units of Labor }& \text {Units of Output }\\3 & 370 \\4 & 490 \\5 & 570 \\6 & 600 \\7 & 620\end{array}$

-How much does the fifth unit of labor add to the firm's total revenue?

A) $160
B) $80
C) $60
D) $40
E) $10

Question 27

A competitive firm will maximize profit by hiring the amount of an input at which

A) the last unit of the input hired adds the same amount to total revenue as to total cost.
B) the additional revenue from the last unit of the input hired exceeds the additional cost of the last unit by the largest amount.
C) the last unit of the input hired adds the same amount to total output as to total cost.
D) the additional output from the last unit of the input hired exceeds the additional cost of the last unit by the largest amount.

Question 28

A firm in a competitive industry faces a market price for output of $25 and a wage rate of $750. At the current level of employment (50 units of labor), the marginal product of labor is 20. In order to maximize profit, the firm should

A) hire less labor because the firm is suffering a loss of $12,500.
B) hire less labor because hiring the last unit of labor decreased profit by 250.
C) hire more labor because hiring another unit of labor would increase profit by $500.
D) keep the level of employment the same because the firm is earning a profit of $500.

Question 29

Refer to the following:
The table below shows a competitive firm's short-run production function. Labor is the firm's only variable input, and market price for the firm's product is $2 per unit.
$\begin{array}{ll} \text {Units of Labor }& \text {Units of Output }\\3 & 370 \\4 & 490 \\5 & 570 \\6 & 600 \\7 & 620\end{array}$

-If market price for the firm's product increases to $5, how many units of labor will the firm employ at a wage rate of $200?

A) 0, the firm shuts down
B) 4
C) 5
D) 6
E) 7

Question 30

Refer to the following figure:

These are the cost curves for a perfectly competitive firm.

-The firm will break even if price is:

A) $2
B) $3.80
C) $5
D) $6

Question 31

Which of the following CANNOT be true at any output along a perfectly competitive firm's short-run supply curve?

A) Average total cost is greater than marginal cost.
B) Marginal cost is greater than average total cost.
C) Average variable cost is greater than marginal cost.
D) Marginal cost is greater than average variable cost.

Question 32

A typical firm in a perfectly competitive market made positive economic profits last period. This period,

A) market supply will increase.
B) market price will rise.
C) the firm will produce more.
D) the firm's profits will increase.

Question 33

Which of the following is NOT a characteristic of an increasing cost competitive industry-As the industry expands in the long run,

A) the price of product remains constant.
B) the prices of some inputs rise.
C) the cost of production increases.
D) the number of firms increase.
E) none of the above

Question 34

Which of the following is NOT a characteristic of a constant cost competitive industry-As the industry expands in the long run,

A) the price of the product remains constant.
B) inputs prices remain constant.
C) the cost of production remains constant.
D) the number of firms remain constant.
E) none of the above

Question 35

When a perfect competitive industry is in long-run equilibrium,

A) firms have no incentive to enter or exit the industry.
B) market price is equal to minimum long-run average cost.
C) each firm earns a normal return.
D) both a and c
E) all of the above

Question 36

Refer to the following:
The table below shows a competitive firm's short-run production function. Labor is the firm's only variable input, and market price for the firm's product is $2 per unit.
$\begin{array}{ll} \text {Units of Labor }& \text {Units of Output }\\3 & 370 \\4 & 490 \\5 & 570 \\6 & 600 \\7 & 620\end{array}$

-If the wage rate is $200, the firm should

A) shut down because average revenue product is $200, which is less than marginal revenue product.
B) shut down because average revenue product is $228, which is greater than the wage rate.
C) produce because average revenue product is $200, which is less than marginal revenue product.
D) produce because average revenue product is $245, which is greater than the wage rate.

Question 37

In a perfectly competitive market,

A) a firm can attract more customers by lowering its price.
B) a firm can sell as much as it wants at the existing market price.
C) the additional revenue from selling one more unit of output is less than the market price.
D) both a and c
E) both b and c

Question 38

Refer to the following figure:

These are the cost curves for a perfectly competitive firm.

-If market price is $5, how much output will the firm produce?

A) 0 units
B) 200 units.
C) 500 units.
D) 600 units

Question 39

Refer to the following figure, showing the marginal revenue product (MRP) and the average revenue product (ARP) curves of a perfectly competitive firm hiring a single variable input, labor.


-If the wage is $20, how many workers will the firm hire?

A) 225
B) 175
C) 200
D) zero

Question 40

Refer to the following figure:

These are the cost curves for a perfectly competitive firm.

-If market price is $5, how much profit will the firm earn?

A)$600
B) $900
C) $3,000
D) -$600

Question 41

Economic rent

A) is the payment to a more productive resource above its opportunity cost.
B) cannot be earned in long-run competitive equilibrium.
C) is competed away in the long run.
D) both b and c
E) all of the above

Question 42

Refer to the following figure:

The graph on the left shows long-run average and marginal cost for a typical firm in a perfectly competitive industry. The graph on the right shows demand and long-run supply for an increasing-cost industry.

-How much profit will the firm earn?

A) zero
B) $2,600
C) $3,100
D) $3,750
E) $6,000

Question 43

In a competitive market characterized by increasing costs, the

A) long-run industry supply curve gives the minimum long-run average cost of production at various levels of industry output.
B) long-run industry supply curve gives the long-run marginal cost of production at various levels of industry output.
C) long-run industry supply curve is upward sloping.
D) both a and b
E) all of the above

Question 44

In a competitive industry the market-determined price is $12. A firm is currently producing 50 units of output; average total cost is $10, marginal cost is $15, and average variable cost is $7. In order to maximize profit, the firm should:

A) produce more because the firm is earning a profit of $100.
B) keep output the same because the firm is earning a profit of $100
C) produce more because the next unit of output increases profit by $2
D) produce less because the last unit of output decreased profit by $3

Question 45

Refer to the following figure:

The graph on the left shows long-run average and marginal cost for a typical firm in a perfectly competitive industry. The graph on the right shows demand and long-run supply for an increasing-cost industry.

-What output will the firm produce?

A) 250
B) 300
C) 350
D) 400

Question 46

Suits Only, a dry cleaning firm that specializes in cleaning men's and women's business suits, operates in a perfectly competitive market. Robin Smith, an exceptionally talented manager, has been hired to manage Suits Only. In the dry cleaning business, a manager typically makes a salary of $400 per week. Suits Only faces the long-run average and marginal costs shown in the figure below. In long-run competitive equilibrium, the market price for cleaning a business suit is $4.50.
The typical dry-cleaning firm has a minimum long-run average cost of cleaning a business suit equal to $________ and the typical dry cleaning firm earns economic profit equal to $______.

A) $4.50, $0
B) $2, $2.50 per suit cleaned
C) $3, $1.50 per suit cleaned
D) $2, $0

Question 47

Refer to the following figure:

The figure above shows cost curves for a perfectly competitive firm.

-If market price is $0.70, a profit-maximizing firm will produce _____ units of output and earn profits of _____.

A) 500, -$450
B) 500, -$50
C) zero, -$450
D) zero, -$400

Question 48

Refer to the following figure:

The graph on the left shows long-run average and marginal cost for a typical firm in a perfectly competitive industry. The graph on the right shows demand and long-run supply for an increasing-cost industry.

-If this were a constant-cost industry, what would be the price when the industry gets to long-run competitive equilibrium?

A) between $35 and $20
B) $35
C) $20
D) below $20
E) above $35

Question 49

Consider the short-run supply curve for a perfectly competitive industry. In general, which of the following statements are true?

A) The short-run industry supply is obtained by horizontally summing the supply curves of all the individual firms in the industry.
B) The industry supply curve tends to be flatter (more elastic) than the horizontal sum of all the industrial firms' supply curves.
C) Short-run supply for a perfectly competitive industry is flat for constant cost industries.
D) both a and b
E) none of the above are true in general

Question 50

Refer to the following figure:

The graph on the left shows long-run average and marginal cost for a typical firm in a perfectly competitive industry. The graph on the right shows demand and long-run supply for an increasing-cost industry.

-If this were an increasing cost industry, what would be the price when the industry gets to long-run competitive equilibrium?

A) between $35 and $15
B) $35
C) $15
D) below $15
E) above $35

Question 51

Suits Only, a dry cleaning firm that specializes in cleaning men's and women's business suits, operates in a perfectly competitive market. Robin Smith, an exceptionally talented manager, has been hired to manage Suits Only. In the dry cleaning business, a manager typically makes a salary of $400 per week. Suits Only faces the long-run average and marginal costs shown in the figure below. In long-run competitive equilibrium, the market price for cleaning a business suit is $4.50.
Robin Smith is probably going to negotiate a salary of $______ per week, $______ of which is economic rent.

A) $400, $0
B) $475, $75
C) $500, $100
D) $500, $500

Question 52

Refer to the following figure:

The figure above shows cost curves for a perfectly competitive firm.

-Suppose that market price is $2.60. A firm producing 800 units of output

A) is earning the maximum amount of profit, $880.
B) is earning the maximum amount of profit, $2,080.
C) should produce 500 units of output instead, to earn profits of $500.
D) should produce 1100 units of output instead, to earn profits of $1,100.
E) should shut down

Question 53

In a perfectly competitive market

A) a firm faces a perfectly elastic demand because there is unrestricted entry and exit.
B) if a firm raises its price, it will lose some, but not all, of its customers.
C) when a firm sells another unit of output, the addition to total revenue is equal to market price.
D) all of the above
E) none of the above

Question 54

Firms that employ exceptionally productive resources

A) have lower costs than other firms in the industry and are able to earn positive economic profit in the long run.
B) earn zero economic profit.
C) will typically have to pay the exceptional resource economic rent equal to the reduction in cost attributable to employing the exceptionally productive resource.
D) both a and b
E) both b and c

Question 55

In long-run competitive equilibrium it is possible for firm owners to

A) earn both rent and economic profit.
B) earn rent but not economic profit.
C) earn both economic profit and rent.
D) both b and c
E) both a and c

Question 56

Refer to the following figure, showing the marginal revenue product (MRP) and the average revenue product (ARP) curves of a perfectly competitive firm hiring a single variable input, labor.


-If the wage is above $______, the firm will shut down and hire zero workers in the short run.

A) $41
B) $30
C) $35
D) $32

Question 57

Suits Only, a dry cleaning firm that specializes in cleaning men's and women's business suits, operates in a perfectly competitive market. Robin Smith, an exceptionally talented manager, has been hired to manage Suits Only. In the dry cleaning business, a manager typically makes a salary of $400 per week. Suits Only faces the long-run average and marginal costs shown in the figure below. In long-run competitive equilibrium, the market price for cleaning a business suit is $4.50.

-If Robin Smith buys Suits Only and continues to manage it herself, she will

A) earn zero economic profit.
B) earn $75 in economic rent per week.
C) earn $75 in economic profit each week.
D) both a and B

Question 58

Refer to the following figure, showing the marginal revenue product (MRP) and the average revenue product (ARP) curves of a perfectly competitive firm hiring a single variable input, labor.


-If the wage is $15, how many workers will the firm hire?

A) 250
B) zero
C) 100
D) 200

Question 59

Refer to the following figure:

The figure above shows cost curves for a perfectly competitive firm.

-A profit-maximizing firm will break even when market price is:

A) $ 0.60
B) $ 0.80
C) $1.50
D) $1.60

Question 60

The short-run market supply in a perfectly competitive market is the horizontal summation of the firms' marginal cost curves when

A) increases in industry output do not affect input prices.
B) increases in industry output lead to increases in input prices.
C) increases in industry output lead to increases in market price.
D) increases in industry output do not affect market price.

Question 61

Use the following data for a competitive industry and a price-taking firm that operates in this market.
Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts product price to be $28 in 2015. Bartech's average variable cost function is estimated to be $A V C = 10 - 0.003 Q + 0.0000005 Q ^ { 2 }$ Bartech expects to face fixed costs of $12,000 in 2015.

-The profit-maximizing (or loss-minimizing) output for Bartech is

A) 0 units
B) 500 units
C) 1,000 units
D) 2,000 units
E) 6,000 units

Question 62

Refer to the following:
A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:
$$\mathrm { Q } _ { \mathrm { d } } = 25,000 - 5,000 P + 25 M$$
$$Q _ { 5 } = 240,000 + 5,000 P - 2,000 P _ { I }$$
where P is price, M is income, and
$P _ { I }$ is the price of a key input. The forecasts for the next year are
$\hat { M }$ = $15,000 and
$\hat { P } _ { I }$ = $20. Average variable cost is estimated to be
$A V C = 14 - 0.008 Q + 0.000002 Q ^ { 2 }$
Total fixed cost will be $6,000 next year.

-Suppose that income for next year is forecasted to be $9,000 instead. What will the firm's profit (loss) be?

A) zero
B) -$6,000
C) -$7,934
D) -$8,000
E) none of the above

Question 63

Refer to the following:
A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:
$$\mathrm { Q } _ { \mathrm { d } } = 25,000 - 5,000 P + 25 M$$
$$Q _ { 5 } = 240,000 + 5,000 P - 2,000 P _ { I }$$
where P is price, M is income, and
$P _ { I }$ is the price of a key input. The forecasts for the next year are
$\hat { M }$ = $15,000 and
$\hat { P } _ { I }$ = $20. Average variable cost is estimated to be
$A V C = 14 - 0.008 Q + 0.000002 Q ^ { 2 }$
Total fixed cost will be $6,000 next year.

-Suppose that income for next year is forecasted to be $9,000 instead. What is the revised price forecast for next year?

A) $ 3
B) $ 5
C) $15
D) $18
E) none of the above

Question 64

Refer to the following:
A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:
$$\mathrm { Q } _ { \mathrm { d } } = 25,000 - 5,000 P + 25 M$$
$$Q _ { 5 } = 240,000 + 5,000 P - 2,000 P _ { I }$$
where P is price, M is income, and
$P _ { I }$ is the price of a key input. The forecasts for the next year are
$\hat { M }$ = $15,000 and
$\hat { P } _ { I }$ = $20. Average variable cost is estimated to be
$A V C = 14 - 0.008 Q + 0.000002 Q ^ { 2 }$
Total fixed cost will be $6,000 next year.

-Suppose that income for next year is forecasted to be $9,000 instead. What is the profit-maximizing output choice for the firm?

A) 1,000 units
B) 1,860 units
C) 2,000 units
D) 2,860 units
E) none of the above

Question 65

Use the following data for a competitive industry and a price-taking firm that operates in this market.
Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts product price to be $28 in 2015. Bartech's average variable cost function is estimated to be $A V C = 10 - 0.003 Q + 0.0000005 Q ^ { 2 }$ Bartech expects to face fixed costs of $12,000 in 2015.

-At what level of output will Bartech's average variable cost reach its minimum value?

A) 2,000 units
B) 3,000 units
C) 4,000 units
D) 5,000 units
E) 6,000 units

Question 66

Refer to the following:
A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:
$$\mathrm { Q } _ { \mathrm { d } } = 25,000 - 5,000 P + 25 M$$
$$Q _ { 5 } = 240,000 + 5,000 P - 2,000 P _ { I }$$
where P is price, M is income, and
$P _ { I }$ is the price of a key input. The forecasts for the next year are
$\hat { M }$ = $15,000 and
$\hat { P } _ { I }$ = $20. Average variable cost is estimated to be
$A V C = 14 - 0.008 Q + 0.000002 Q ^ { 2 }$
Total fixed cost will be $6,000 next year.

-Suppose income next year is forecasted to be $10,000 instead. What is the profit-maximizing output choice for the firm?

A) 8,000
B) 5,548
C) 3,480
D) 2,167
E) zero

Question 67

Refer to the following:
A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:
$$\mathrm { Q } _ { \mathrm { d } } = 25,000 - 5,000 P + 25 M$$
$$Q _ { 5 } = 240,000 + 5,000 P - 2,000 P _ { I }$$
where P is price, M is income, and
$P _ { I }$ is the price of a key input. The forecasts for the next year are
$\hat { M }$ = $15,000 and
$\hat { P } _ { I }$ = $20. Average variable cost is estimated to be
$A V C = 14 - 0.008 Q + 0.000002 Q ^ { 2 }$
Total fixed cost will be $6,000 next year.

-What is the profit-maximizing output choice for the firm?

A) 3,000 units
B) 4,000 units
C) 5,000 units
D) 6,000 units

Question 68

Refer to the following:
A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:
$$\mathrm { Q } _ { \mathrm { d } } = 25,000 - 5,000 P + 25 M$$
$$Q _ { 5 } = 240,000 + 5,000 P - 2,000 P _ { I }$$
where P is price, M is income, and
$P _ { I }$ is the price of a key input. The forecasts for the next year are
$\hat { M }$ = $15,000 and
$\hat { P } _ { I }$ = $20. Average variable cost is estimated to be
$A V C = 14 - 0.008 Q + 0.000002 Q ^ { 2 }$
Total fixed cost will be $6,000 next year.

-What is the price forecast for next year?

A) $12
B) $20
C) $60
D) $68

Question 69

Refer to the following:
A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:
$$\mathrm { Q } _ { \mathrm { d } } = 25,000 - 5,000 P + 25 M$$
$$Q _ { 5 } = 240,000 + 5,000 P - 2,000 P _ { I }$$
where P is price, M is income, and
$P _ { I }$ is the price of a key input. The forecasts for the next year are
$\hat { M }$ = $15,000 and
$\hat { P } _ { I }$ = $20. Average variable cost is estimated to be
$A V C = 14 - 0.008 Q + 0.000002 Q ^ { 2 }$
Total fixed cost will be $6,000 next year.

-What will the firm's profit (loss) be:

A) $20,000
B) $26,000
C) $30,000
D) $36,000
E) -$6,000, the firm shuts down and loses only its fixed costs.

Question 70

Refer to the following:
Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:
Demand:
$$Q _ { d } = 10,000 - 10,000 P + 1.0 \mathrm { M }$$
Supply:
$$Q _ { s } = 80,000 + 10,000 P - 4,000 P _ { I }$$
where Q is quantity, P is the price of the product, M is income, and
$P _ { I }$ is the input price. The manager of the perfectly competitive firm uses time-series data to obtain the following forecasted values of M and
$P _ { I }$ for 2015:
$\hat { M } = \$ 50,000 \text { and } \hat { P } _ { I } = \$ 20$
The manager also estimates the average variable cost function to be
$$A V C = 3.0 - 0.0027 Q + 0.0000009 Q ^ { 2 }$$
Total fixed costs will be $2,000 in 2015.

-The marginal cost function is:

A) SMC = 3.0 -0.0027Q + 0.0000009Q²
B) SMC = 3.0 - 0.00135Q + 0.00000045Q²
C) SMC = 3.0Q -0.0027Q² + 0.0000009Q³
D) SMC = 3.0 -0.0054Q + 0.0000018Q²
E) none of the above

Question 71

Refer to the following:
Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:
Demand:
$$Q _ { d } = 10,000 - 10,000 P + 1.0 \mathrm { M }$$
Supply:
$$Q _ { s } = 80,000 + 10,000 P - 4,000 P _ { I }$$
where Q is quantity, P is the price of the product, M is income, and
$P _ { I }$ is the input price. The manager of the perfectly competitive firm uses time-series data to obtain the following forecasted values of M and
$P _ { I }$ for 2015:
$\hat { M } = \$ 50,000 \text { and } \hat { P } _ { I } = \$ 20$
The manager also estimates the average variable cost function to be
$$A V C = 3.0 - 0.0027 Q + 0.0000009 Q ^ { 2 }$$
Total fixed costs will be $2,000 in 2015.

-The manager _____ produce since _____________.

A) should; $3 > $0.975
B) should; $2.75 > $0.75
C) should not; $2 < $2.15
D) should not; $0.50 < $1.00

Question 72

Refer to the following:
A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:
$$\mathrm { Q } _ { \mathrm { d } } = 25,000 - 5,000 P + 25 M$$
$$Q _ { 5 } = 240,000 + 5,000 P - 2,000 P _ { I }$$
where P is price, M is income, and
$P _ { I }$ is the price of a key input. The forecasts for the next year are
$\hat { M }$ = $15,000 and
$\hat { P } _ { I }$ = $20. Average variable cost is estimated to be
$A V C = 14 - 0.008 Q + 0.000002 Q ^ { 2 }$
Total fixed cost will be $6,000 next year.

-Suppose that income next year is forecasted to be $10,000 instead. What is the revised price forecast for next year?

A) $5.00
B) $7.50
C) $15.75
D) $10.50
E) $12.00

Question 73

Refer to the following:
Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:
Demand:
$$Q _ { d } = 10,000 - 10,000 P + 1.0 \mathrm { M }$$
Supply:
$$Q _ { s } = 80,000 + 10,000 P - 4,000 P _ { I }$$
where Q is quantity, P is the price of the product, M is income, and
$P _ { I }$ is the input price. The manager of the perfectly competitive firm uses time-series data to obtain the following forecasted values of M and
$P _ { I }$ for 2015:
$\hat { M } = \$ 50,000 \text { and } \hat { P } _ { I } = \$ 20$
The manager also estimates the average variable cost function to be
$$A V C = 3.0 - 0.0027 Q + 0.0000009 Q ^ { 2 }$$
Total fixed costs will be $2,000 in 2015.

-What is the price forecast for 2015?

A) $2
B) $2.50
C) $2.75
D) $3
E) none of the above

Question 74

Use the following data for a competitive industry and a price-taking firm that operates in this market.
Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts product price to be $28 in 2015. Bartech's average variable cost function is estimated to be $A V C = 10 - 0.003 Q + 0.0000005 Q ^ { 2 }$ Bartech expects to face fixed costs of $12,000 in 2015.

-What is the minimum average variable cost?

A) $0
B) $5.50
C) $6.00
D) $6.50
E) $7.00

Question 75

Refer to the following:
Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:
Demand:
$$Q _ { d } = 10,000 - 10,000 P + 1.0 \mathrm { M }$$
Supply:
$$Q _ { s } = 80,000 + 10,000 P - 4,000 P _ { I }$$
where Q is quantity, P is the price of the product, M is income, and
$P _ { I }$ is the input price. The manager of the perfectly competitive firm uses time-series data to obtain the following forecasted values of M and
$P _ { I }$ for 2015:
$\hat { M } = \$ 50,000 \text { and } \hat { P } _ { I } = \$ 20$
The manager also estimates the average variable cost function to be
$$A V C = 3.0 - 0.0027 Q + 0.0000009 Q ^ { 2 }$$
Total fixed costs will be $2,000 in 2015.

-The profit (loss) is

A) $2,600
B) $2,000
C) $4,000
D) $3,250
E) none of the above

Question 76

Refer to the following:
Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:
Demand:
$$Q _ { d } = 10,000 - 10,000 P + 1.0 \mathrm { M }$$
Supply:
$$Q _ { s } = 80,000 + 10,000 P - 4,000 P _ { I }$$
where Q is quantity, P is the price of the product, M is income, and
$P _ { I }$ is the input price. The manager of the perfectly competitive firm uses time-series data to obtain the following forecasted values of M and
$P _ { I }$ for 2015:
$\hat { M } = \$ 50,000 \text { and } \hat { P } _ { I } = \$ 20$
The manager also estimates the average variable cost function to be
$$A V C = 3.0 - 0.0027 Q + 0.0000009 Q ^ { 2 }$$
Total fixed costs will be $2,000 in 2015.

-The minimum value of average variable cost is $_____.

A) $0.50
B) $0.75
C) $0.975
D) $1.00
E) $2.15

Question 77

Refer to the following:
A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:
$$\mathrm { Q } _ { \mathrm { d } } = 25,000 - 5,000 P + 25 M$$
$$Q _ { 5 } = 240,000 + 5,000 P - 2,000 P _ { I }$$
where P is price, M is income, and
$P _ { I }$ is the price of a key input. The forecasts for the next year are
$\hat { M }$ = $15,000 and
$\hat { P } _ { I }$ = $20. Average variable cost is estimated to be
$A V C = 14 - 0.008 Q + 0.000002 Q ^ { 2 }$
Total fixed cost will be $6,000 next year.

-What is the firm's minimum average variable cost?

A) $ 2
B) $ 6
C) $ 8
D) $20

Question 78

Refer to the following:
Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:
Demand:
$$Q _ { d } = 10,000 - 10,000 P + 1.0 \mathrm { M }$$
Supply:
$$Q _ { s } = 80,000 + 10,000 P - 4,000 P _ { I }$$
where Q is quantity, P is the price of the product, M is income, and
$P _ { I }$ is the input price. The manager of the perfectly competitive firm uses time-series data to obtain the following forecasted values of M and
$P _ { I }$ for 2015:
$\hat { M } = \$ 50,000 \text { and } \hat { P } _ { I } = \$ 20$
The manager also estimates the average variable cost function to be
$$A V C = 3.0 - 0.0027 Q + 0.0000009 Q ^ { 2 }$$
Total fixed costs will be $2,000 in 2015.

-The optimal level of production for the firm is

A) 1,000
B) 1,500
C) 2,000
D) 2,500
E) none of the above

Question 79

Refer to the following:
A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:
$$\mathrm { Q } _ { \mathrm { d } } = 25,000 - 5,000 P + 25 M$$
$$Q _ { 5 } = 240,000 + 5,000 P - 2,000 P _ { I }$$
where P is price, M is income, and
$P _ { I }$ is the price of a key input. The forecasts for the next year are
$\hat { M }$ = $15,000 and
$\hat { P } _ { I }$ = $20. Average variable cost is estimated to be
$A V C = 14 - 0.008 Q + 0.000002 Q ^ { 2 }$
Total fixed cost will be $6,000 next year.

-Suppose that income next year is forecasted to be $10,000 instead. What will the firm's profit (loss) be?

A) zero
B) $2,500
C) -$3,550
D) -$2,856
E) -$6,000

Question 80

Refer to the following:
Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:
Demand:
$$Q _ { d } = 10,000 - 10,000 P + 1.0 \mathrm { M }$$
Supply:
$$Q _ { s } = 80,000 + 10,000 P - 4,000 P _ { I }$$
where Q is quantity, P is the price of the product, M is income, and
$P _ { I }$ is the input price. The manager of the perfectly competitive firm uses time-series data to obtain the following forecasted values of M and
$P _ { I }$ for 2015:
$\hat { M } = \$ 50,000 \text { and } \hat { P } _ { I } = \$ 20$
The manager also estimates the average variable cost function to be
$$A V C = 3.0 - 0.0027 Q + 0.0000009 Q ^ { 2 }$$
Total fixed costs will be $2,000 in 2015.

-Average variable cost reaches its minimum value of _____ units of output.

A) 1,000
B) 1,500
C) 2,000
D) 2,500