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A monopolistic competitor is currently producing 2,000 units of output; price is $100, marginal revenue is $80, the average total cost is $130, marginal cost is $60, and average variable cost is $60. The firm should:

a. raise the price because the firm is losing money.

b. keep the price the same because the firm is producing at minimum average variable cost.

c. raise the price because the last unit of output decreased profit by $30.

d. lower the price because the next unit of output increases profit by $20.

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Related questions

1. A competitive firm operating in the short run is producing at the output level at which ATC is at a minimum. If ATC = $8 and MR = $9, in order to maximize profits (or minimize losses), this firm should:

a) reduce output.

b) increase output.

c) shut down.

d) do nothing; the firm is already maximizing profits.

2. Zoe's Bakery operates in a perfectly competitive industry. The variable costs at Zoe's Bakery increase, so all of the cost curves (with the exception of fixed cost) shift leftward. The demand for Zoe's pastries does not change, nor does the firm shut down. To maximize profits after the variable cost increases, Zoe's Bakery will ________ its price and ________ its level of production.

a) raise; increase

b) decrease; increase

c) raise; decrease

d) do nothing to; decrease

3. The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost of $38, the marginal cost is $30, and the average variable cost is $30. Our firm should:

a) raise the price of guidebooks, because the firm is losing money.

b) keep output the same, because the firm is producing at minimum average variable cost.

c) shut down because the firm is losing money.

d) produce more guidebooks, because the next guidebook produced increases profit by $5.

A firm is producing where its marginal costs are at the lowest level. What can one most likely infer from this? a. there is either lost opportunity for further profits by producing more, or the firm should shut-down if it is competitive and price is at that low level. b. It is a price-taker who is producing too much. c. It is a monopolist who is producing the socially optimal quantity. d. The firm is producing rationally.

6. A single-price monopolist sets price a. where MR=demand. b. where supply=demand c. from the demand curve at the quantity for which MC=MR. d. where MR=MC.

7. Assume that the Law of Diminishing Marginal Product applies at the current output level of a competitive firm. The price is $20 and, at the current output level, marginal cost is $16 and average total cost is $20. To maximize profits the firm should: a. produce the current output level, since average revenue (price) = average cost. b. produce more since marginal revenue exceeds marginal cost at current output. c. produce less since marginal revenue is always below average revenue. d. any of the above is possible, without further information.

8. Which of the following statements is true? (i) When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price. (ii) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price. (iii) Average revenue is the same as price for both competitive and monopoly firms. a. (i) only b. (iii) only c. (i) and (ii) d. (ii) and (iii)

9. If a firm in a 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.

10. When a competitive firm makes a decision to shut down, it is most likely that a. marginal cost is above average variable cost. b. marginal cost is above average total cost. c. price is below the minimum of average variable cost. d. fixed costs exceed variable costs.

In a perfectly competitive industry, the market price is $25. A firm is currently producing 10,000 units of output, its average total cost is $28, its marginal cost is
$20, and its average variable cost is $20. Given these facts, explain whether the following statements are true or false:
a. The firm is currently producing at the minimum average variable cost.
b. The firm should produce more output to maximize its profit.
c. Average total cost will be less than $28 at the level of output that maximizes the firm's profit.
(Hint: You should assume normal U-shaped cost curves for this problem.)

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