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(a) Explain the difference between average, total, and marginal revenue? What is the shape of the total and marginal revenue curves for the individual perfectly competitive firm? [5marks]

(b) Why does price equal marginal revenue for the perfectly competitive firm? What is the relationship to the demand curve for the firm? [5marks]

(c) Why is the level of output at which marginal revenue equals marginal cost the profitmaximizing output? [5marks]

(d) What conditions are necessary to determine if the purely competitive firm should produce in the short run? State the marginal revenue and marginal cost conditions and the total revenue and total cost conditions.

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Samantha Balando
Samantha BalandoLv7
28 Sep 2019
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Related questions

1.Profit maximizing firms should increase output to the point where:

a.Total revenue is largest

b.Total revenue just exceeds total costs

c.An increase in revenue is just offset by an increase in cost.

d.Fixed costs are covered

e.Total cost is minimized

2.The Golden Rule of Output Determination for a perfectly competitive firm is to:

a.Choose the output rate at which price is greatest.

b.Choose the output rate at which marginal revenue equals marginal cost.

c.Produce to the point of diminishing marginal returns

d.Produce until total revenue exceeds total cost.

e.Choose the output rate at which total cost is the lowest.

3.Which of the following conditions would indicate that a perfectly competitive firm should expand output to increase its profit?

a.Marginal cost equals average cost

b.Total cost exceeds marginal cost

c.Price exceeds marginal cost

d.Total revenue exceeds total costs

e.Total revenue equal price

4. It would not pay a firm to produce anything in the short run if the price were:

a.Above average total costs

b.Equal to marginal cost and above the average variable cost.

c.Equal to total revenue divided by output

d.Below average variable cost

e.Below marginal average cost

32. Which of the following is not a difference between monopolies and perfectly competitive markets?

A. Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.

B. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost.

C. Monopolies can earn profits in the long run while perfectly competitive firms break even.

D. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.

40. Which of the following statements is not correct?

A. Both monopolies and monopolistically competitive firms can earn economic profits in the long run.

B. Both monopolistically competitive and perfectly competitive firms can earn economic profits in the short run.

C. Only competitive firms produce the welfare-maximizing level of output.

D. Firms in perfect competition, monopolistic competition, and monopoly maximize profits by producing where marginal revenue equals marginal cost.

43. A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that

A. the profits of the firm are negative.

B. firms are likely to leave this market in the long run.

C. the firm is currently maximizing its profit.

D. All of the above are correct.

To maximize profits, the perfectly competitive firm should produce output at an output where:

A. the difference between price and marginal cost is at its maximum
B. total cost equals total revenue
C. price equals marginal cost
D. total revenue equals variable cost

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