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Economics Quiz 7: Market Analysis

The document contains multiple choice questions about perfect competition, profit maximization, and cost-benefit analysis for business decisions. It addresses the demand curve facing individual firms in a competitive market, how to determine profit-maximizing output levels by comparing marginal revenue and marginal costs, and whether a business should open during a season it is usually closed to earn revenue or remain closed.

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Arya Shekarandaz
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160 views3 pages

Economics Quiz 7: Market Analysis

The document contains multiple choice questions about perfect competition, profit maximization, and cost-benefit analysis for business decisions. It addresses the demand curve facing individual firms in a competitive market, how to determine profit-maximizing output levels by comparing marginal revenue and marginal costs, and whether a business should open during a season it is usually closed to earn revenue or remain closed.

Uploaded by

Arya Shekarandaz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

(Figure 8.3) The graph depicts the market for walnuts?a perfectly competitive market.

Which of
the following statements is TRUE?
I. The demand curve facing a walnut grower is perfectly elastic at $1.00.
II. If a walnut grower sold 80,000 pounds of walnuts, his total revenue would equal
$138,400.
III. If a walnut grower sold one more pound of walnuts, his total revenue would
increase by $1.73.
 
  I, II, and
III
  II only
  II and III
  I only

(Figure 8.7) If the market price is $6, this perfectly competitive firm will earn profits of:
 $27.
 $54.
 $18.
 $78.

To maximize profits, a firm should produce where:


 MR = MC.
 TR/Q = TC/Q.
 P = AVC.
 ATC < P < AV
C.

Stu owns an ice cream parlor that is usually closed during the winter months. This winter,
however, Stu is considering opening his business in February instead of March. If Stu opens his
store in February, he will earn total revenue of $4,000 for the month, while incurring variable
costs of $3,500 and fixed costs of $1,500. If the store remains closed during February, Stu will
earn no revenues and incur fixed costs of $1,500. What should Stu do?
 Stu should keep the ice cream parlor closed in February because he would lose $1,000 if
he opens.
 Stu should keep the ice cream parlor closed in February because the $500 of operating
profit is insufficient to cover the $1,500 of fixed costs.
 Stu should open the ice cream parlor in February because the $4,000 of total revenue
exceeds the $1,500 of fixed costs.
 Stu should open the ice cream parlor in February because the $4,000 of total revenue
exceeds the $3,500 of variable costs.
(Figure 8.9) At the profit-maximizing output level, this firm earns profit of:
 –$60.
 $48.
 $60.
 –$20.

Economists assume that firms maximize:


  the difference between marginal revenue and marginal cost.
  TR = PQ.
  π = TR – TC.
  P – ATC, the profit per unit of output.

The total revenue curve for a perfectly competitive firm is represented by curve:
 A
.
 B
.
 C
.
 D
.

(Figure 8.4) In a perfectly competitive market with 5,000 firms, the equilibrium price and
quantity are $0.70 and 3.0 million units. The demand curve facing a firm in this market is
represented by:
 panel (a).
 panel (b).
 panel (c).
 panel (d).

(Figure 8.6) This firm maximizes profit by producing _______ units of output.
  3
  7
  10
  12

1. A firm should ______ output whenever MR > MC because ______.


 reduce; revenues will rise by more than costs from producing less output, increasing the
firm's profit
 reduce; total revenues exceed total costs
 expand; revenues will rise by more than costs from selling additional units of output,
increasing the firm's profit
 leave output unchanged; selling additional units of output will cause marginal revenue to
increase by a smaller amount than marginal cost

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