Costs and Purely Competitive Firms
ECO 561 Week 2 Quiz
ECO561 Week 2 …FREE…Quiz with Answers…
One Phoenix helping another…
1. Purely competitive firms increase total revenue by
Hint : Total revenue equals price times quantity sold. A purely competitive firm has control over one of these two variables.
A. increasing production
B. decreasing production
C. increasing price
D. decreasing price
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?
Hint : If the additional cost of producing another unit is greater than the additional revenue generated by selling that additional unit, the firm reduces its total profit.
A. Comparing total revenue to total cost or marginal revenue to marginal costs
B. Comparing average revenue to average costs or marginal revenue to marginal costs
C. Comparing average variable costs to price or marginal revenue to price
D. Comparing total revenue to average variable costs or price to average variable costs
3. Suppose that a firm determines that its marginal revenue is greater than its marginal cost, it would be better to
Hint : Remember, marginal revenue is the change in revenue received from producing an additional unit, while marginal cost is the additional cost of producing another unit.
A. increase production
B. decrease production
C. keep production the same
D. increase price
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.
ECO561 Week 2 …FREE…Quiz with Answers…
One Phoenix helping another…
1. Purely competitive firms increase total revenue by
Hint : Total revenue equals price times quantity sold. A purely competitive firm has control over one of these two variables.
A. increasing production
B. decreasing production
C. increasing price
D. decreasing price
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?
Hint : If the additional cost of producing another unit is greater than the additional revenue generated by selling that additional unit, the firm reduces its total profit.
A. Comparing total revenue to total cost or marginal revenue to marginal costs
B. Comparing average revenue to average costs or marginal revenue to marginal costs
C. Comparing average variable costs to price or marginal revenue to price
D. Comparing total revenue to average variable costs or price to average variable costs
3. Suppose that a firm determines that its marginal revenue is greater than its marginal cost, it would be better to
Hint : Remember, marginal revenue is the change in revenue received from producing an additional unit, while marginal cost is the additional cost of producing another unit.
A. increase production
B. decrease production
C. keep production the same
D. increase price
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.