Exam 11: Costs and Profit Maximization Under Competition

Figure: Entry Exit Refer to the figure. This competitive firm operates in a constant cost industry. The current market price is $15. What is the long-run market price?

Figure: Profit Maximization 6 At any price above $60 in this diagram, firms already in this market will be making an economic:

Use the following to answer questions: Figure: Two-Firm Industry -(Figure: Two-Firm Industry) Refer to the figures. At a market price of $20, the total quantity supplied in the industry is:

Which of the following statements is TRUE? I. If a competitive firm sells its product at a price of $80, the firm should increase production from 100 to 101 units if the total cost rises from $2,000 to $2,066. II. If the marginal cost of the tenth unit is $14 and the marginal revenue is $10, the firm should produce the tenth unit to increase profits by $4. III. For competitive firms, profits are maximized at MR = MC or P = MC, since P = MR.

Which of the following best illustrates a product sold in a perfectly competitive market?

The electricity industry is an example of:

If marginal cost is less than average cost, average cost is rising.

An industry is said to be perfectly competitive when:

Profit is positive whenever:

For a small firm in an extremely competitive industry, marginal revenue is always equal to price because:

If Tom sells 500 sandwiches for $7 and has an average cost of $5, what is his total revenue?

In the short run, if price is less than average cost, a firm:

Price equals marginal revenue for a competitive firm because:

Firms should exit the market if:

Figure: World Market for Maple Syrup Refer to the figure. If you are one of literally thousands of maple syrup producers and you wanted to increase your maple syrup production from 100 gallons to 110 gallons, what price would you charge?

Firms have less pricing power if their firm-level product is more unique.

To maximize profits, a firm in a highly competitive industry should set its price:

The more and better substitutes a good has, the more elastic the demand for that good will be.

The table shows the TR and TC schedules for a competitive firm. Using your knowledge of cost and profit structures, fill in all the missing blanks. Table: Cost Schedules

Average cost is equal to total cost divided by quantity.