Knowledge Check Week 2Results
Concepts Marginal Revenue, Marginal Cost, and Production Marginal Productivity Mastery 100% Questions
Average Total Cost
Fixed and Variable Costs
Concept: Marginal Revenue, Marginal Cost, and Production
Concepts Marginal Revenue, Marginal Cost, and Production Mastery 100% Questions
1.Purely competitive firms increase total revenue by A. B. C. D. increasing production decreasing production increasing price decreasing price
Correct! To increase revenue, firms look to increase price or quantity, as price multiplied by quantity equals total revenue. Purely competitive firms can sell as much as they want at the market price. Adding additional units of the product does not result in a change in the market price. Therefore, since purely competitive firms do not influence price, they increase total revenue by increasing quantity.
2.What are two ways for a competitive firm to determine the optimal level of production, that is, the level of production that will maximize profit or minimize losses? A. B. C. D. Comparing total revenue to total cost or marginal revenue to marginal costs Comparing average revenue to average costs or marginal revenue to marginal costs Comparing average variable costs to price or marginal revenue to price Comparing total revenue to average variable costs or price to average variable costs
Correct! A firm can look at two factors when considering whether it is maximizing profit or minimizing losses. First, it can find the maximum difference between total revenue and total cost. Second, a firm can look at the additional revenue gained from selling one more unit and at the additional cost from producing that additional unit. As long as the additional revenue from selling one more unit is greater than the cost of producing that unit, the firm will continue to increase its revenue. If the additional cost of producing another unit is greater than the additional revenue generated by selling that additional unit, the firm takes away from its total profit; this is the difference between revenue and cost. Thus, a firm maximizes its profit by producing at the point where marginal revenue equals marginal cost. Before that, additional profit can be generated, while after that, the firm reduces it overall profit.
3.Suppose that a firm determines that its marginal revenue is greater than its marginal cost, it would be better to A. B. C. D. increase production decrease production keep production the same increase price
Correct! Inelastic goods are necessities that consumers continue to purchase even when the price increases. This increases the revenue, as more is paid for each good. The percentage change in price increases faster than the change in quantity, which may remain constant. When more is paid for a good or a service, revenue increases.
7.Marginal cost can be defined as the addition to _____ of one more unit of output. A. B. C. D. total variable costs average total costs average variable costs total fixed costs
Correct! Marginal cost measures the cost of producing the next unit. Because fixed costs do not change with additional output, they do not add to total fixed costs. In addition, while average costs—both total and fixed—change with additional levels of output, as average costs are divided by the quantity produced, they do not reflect the full addition to the cost. Thus, the cost of producing an additional unit reflects the additional cost of inputs needed for production (variable costs).
Concept: Marginal Productivity
Concepts Marginal Productivity Mastery 100% Questions
4.It is profitable for a firm to continue employing additional resources as long as A. B. C. D. Marginal Revenue Product >= Marginal Resource Cost Marginal Revenue Product = Marginal cost Marginal Revenue...
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