Section 8: Market Structure

A firm finds that its MR=MC output, and TC=$1000, VC= $800, FC=$200 and TR= $900. This firm should:

• 1. Close down in the short run

• 1. Produce because the resulting loss is less than its FC

• 1. Produce because it will release an economic profit

• 1. Shut down the firm

A firm in a competitive market is producing at the level of output that maximizes profit at this output level:

• 1. Marginal revenue equals price 

• 1. Average revenue equals marginal cost

• 1. None of the above.

• 1. Marginal revenue equals marginal cost

For a monopoly firm, which of the following equalities is always true?

• 1. price = marginal revenue

• 1. price = average revenue

• 1. price = total revenue

• 1. marginal revenue = marginal cost

Which of the following is true of a monopolistically competitive firm in long-run equilibrium? 

• 1. Price equals ATC but is greater than MC.

• 1. Price equals MC and is greater than ATC.

• 1. The firm earns positive economic profits by producing at minimum AC. 

• 1. Price equals MC  and ATC.

For a monopoly, the industry demand curve is the firm’s

• profit function.

• marginal revenue curve.

• supply curve.

• demand curve.

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $6 and a marginal cost of $9. It follows that the:

• Production of the 100th unit of output increases the firm's profit by $1.

• Production of the 100th unit of output increases the firm's average total cost by $1.

• Firm's profit-maximizing level of output is less than 100 units.

• Production of the 110th unit of output must increase the firm’s profit by less than $1.

  
  

When price exceeds average variable cost in the short run, a competitive firm's MC curve is regarded as its supply curve because:

• Among the various cost curves, the marginal cost curve is the only one that slopes upward

• The position of the marginal cost curve determines the price for which the firm should sell its product

• The firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized

• The marginal cost curve determines the quantity of output the firm is willing to supply at any price.

Which of the following factors is NOT a characteristic of perfect competition?

• A large number of buyers and sellers

• No restrictions on entry into or exit from the industry

• Well-informed buyers and sellers about product prices

• Individual firms spend a considerable amount on advertising

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then:

• Average revenue exceeds marginal cost.

• A one-unit decrease in output will increase the firm's profit.

• The firm is earning a positive profit.

• All of the above are correct.

Suppose that a firm operating in a perfectly competitive market sells 200 units of output at a price of $3 each. Which of the following statements is CORRECT?

• a. Marginal revenue equals $3.

• b. Average revenue equals $600.

• c. Average revenue exceeds marginal revenue, but we don't know by how much