Mic Tut 7

A key characteristic of a competitive market is that

• government antitrust laws regulate competition.

• producers sell nearly identical products.

• firms minimize total costs.

• firms have price setting power.

The Wheeler Wheat Farm sells wheat to a grain broker in Seattle, Washington. Since the market for wheat is generally considered to be competitive, the Wheeler Farm does not

• choose the quantity of wheat to produce.

• choose the price at which it sells its wheat.

• have any fixed costs of production.

• set marginal revenue equal to marginal cost to maximize profit.

Which of the following statements regarding a competitive market is not correct?

• There are many buyers and many sellers in the market.

• Because of firm location or product differences, some firms can charge a higher price than other firms and still maintain their sales volume.

• Price and average revenue are equal.

• Price and marginal revenue are equal.

Firms operating in competitive markets produce output levels where marginal revenue equals

• price.

• average revenue.

• total revenue divided by output.

• All of the above are correct.

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

• total revenue is equal to variable cost.

• total revenue is equal to fixed cost.

• total revenue is equal to total cost.

• profit is maximized.

Christopher is a professional tennis player who gives tennis lessons. The industry is competitive. Christopher hires a business consultant to analyze his financial records. The consultant recommends that Christopher give fewer tennis lessons. The consultant must have concluded that Christopher’s

• total revenues exceed his total accounting costs.

• marginal revenue exceeds his total cost.

• marginal revenue exceeds his marginal cost.

• marginal cost exceeds his marginal revenue.

Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost

equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit.

At Q = 999, the firm's profits equal

• $4,990.

• $5,000.

• $5,020.

• $5,030.

Mrs. Smith operates a business in a competitive market. The current market price is $8.50, and at her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Which of the following statements about Mrs. Smith’s firm is correct?

• Mrs. Smith should shut down her business in the short run but continue to operate in the long run.

• Mrs. Smith should continue to operate in the short run but shut down in the long run.

• Mrs. Smith should continue to operate in both the short run and long run.

• Mrs. Smith should shut down in both the short run and long run.

We can measure the profits earned by a firm in a competitive industry as

• (P - ATC) × Q.

• (P - MC) × Q.

• MR × MC.

• (MC - ATC) × Q.

When a profit-maximizing firm is earning profits, those profits can be identified by

• P × Q.

• (MC - AVC) × Q.

• (P - ATC) × Q.

• (P - AVC) × Q.