Profit Maximisation

Which of following is a key assumption of a perfectly competitive market?

• Firms can influence the market price.

• Commodities have few sellers.

• It is difficult for new sellers to enter the market.

• Each seller has a very small share of the market.

Use the following statements to answer this question:

I. Markets that have only a few sellers cannot be highly competitive.

II. Markets with many sellers are always perfectly competitive.

• I and II are true.

• I is true and II is false.

• II is true and I is false.

• I and II are false.

A few sellers may behave as if they operate in a perfectly competitive market if the market demand is:

• composed of many small buyers.

• unitary elastic.

• very elastic.

• highly inelastic.

If managers do not choose to maximize profit, but pursue some other goal such as revenue maximization or growth,

• they are more likely to have higher profit than if they had pursued that policy explicitly

• they are less likely to be replaced by the board of directors.

• they are less likely to be replaced by stockholders.

• they are more likely to become takeover targets of profit-maximizing firms.

If any of the assumptions of perfect competition are violated,

• graphs with downward-sloping demand curves cannot be used to study the firm.

• there may still be enough competition in the industry to make the model of perfect competition usable.

• supply-and-demand analysis cannot be used to study the industry.

• graphs with flat demand curves cannot be used to study the firm

An association of businesses that are jointly owned and operated by members for mutual benefit is a:

• joint tenancy.

• corporation.

• cooperative.

• condominium.

Marginal revenue, graphically, is:

• the vertical intercept of a line tangent to the total revenue curve at a given point.

• the slope of the total revenue curve at a given point.

• the slope of a line from the origin to the end of the total revenue curve.

• the slope of a line from the origin to a point on the total revenue curve.

At the profit-maximizing level of output, what is the relationship between the total revenue (TR) and total cost (TC) curves?

• They must be tangent to each other.

• They must intersect, with TC cutting TR from above.

• They must intersect, with TC cutting TR from below.

• They must have the same slope.

If current output is less than the profit-maximizing output, then the next unit produced

• will increase revenue without increasing cost.

• will increase revenue more than it increases cost.

• will increase cost more than it increases revenue.

• will decrease profit.

The demand curve facing a perfectly competitive firm is

• the same as the market demand curve.

• perfectly horizontal

• downward-sloping and less flat than the market demand curve.

• downward-sloping and more flat than the market demand curve.