21) Refer to Table 11-3. If this firm continues to produce, what is likely to happen to the product’s price in the long run?
A) It will fall.
B) It will increase
C) It will remain constant.
D) It cannot be determined without information on its long run demand curve.
22) Assume price exceeds average variable cost over the relevant range of demand. If a monopolistically competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19, then to maximize profits the firm should
A) continue to produce the same quantity.
B) increase output.
C) decrease output.
D) shutdown.
Figure 11-5
23) Refer to Figure 11-5. The candy store represented in the diagram is currently selling Qa units of candy at a price of Pa. Is this candy store maximizing its profit and if it is not, what would you recommend to the firm?
A) Yes, it is maximizing its profit by charging the highest price possible.
B) No, it is not; since its marginal cost is constant, it should produce and sell as much candy as it can. It should sell Qd units at a price of Pd.
C) No, it is not; it should lower its price to Pc and sell Qc units.
D) No, it is not; it should lower its price to Pb and sell Qb units.
24) Both monopolistically competitive firms and perfectly competitive firms maximize profits
A) by producing where price equals average total cost.
B) by producing where marginal revenue equals average revenue.
C) by producing where marginal revenue is equal to marginal cost.
D) by producing where price equals average variable cost.
25) A monopolistically competitive firm maximizes profit in the short run by producing where
A) price is less than marginal cost.
B) price is less than marginal revenue.
C) price is less than average revenue.
D) price is greater than marginal cost.
26) A monopolistically competitive firm chooses
A) both the quantity of output to produce and the price at which it will sell its output.
B) the price of the product it sells but market forces determine the quantity it will be able to sell.
C) the quantity of output to produce but the price of the product it sells is determined collectively by all firms in the industry.
D) the price of the product it sells but the quantity of output to produce is agreed upon by all firms in the industry.
Figure 11-6
27) Refer to Figure 11-6. Suppose Dell finds the relationship between the average total cost of producing notebook computers and the quantity of notebook computers produced is as shown by Figure 13-2. Dell will maximize profits if it produces ________ notebook computers per month.
A) 100,000
B) 200,000
C) 300,000
D) Not enough information is given to determine the profit-maximizing quantity.
28) After selling 1,000 three-ring binders Tony DiFulvio realizes that the marginal revenue from selling the last binder was less than the marginal cost. From this we can conclude that
A) Tony’s business earns a short-run economic profit.
B) Tony should shut down his business temporarily.
C) Tony’s profit fell after selling his 1,000th three-ring binder.
D) Tony’s profit would be greater if he sold an additional three-ring binder.
Table 11-4
Quantity Sold
Price
Total Revenue
Marginal Revenue
Total
Cost
Marginal Cost
Profit
0
$10
$0
—–
$2
—–
-$2
1
9
9
8
2
8
16
13
3
7
21
17
4
6
24
20
5
5
25
22
6
4
24
26
Table 11-4 lists estimated revenues and costs (per week) for plastic vials (100 vials per box) for the Victoria Biological Supplies Company. Victoria sells plastic vials to university and private research laboratories.
29) Refer to Table 11-4. Based on the data in the table, which of the following statements is true?
A) The table summarizes Victoria’s short-run, rather than long-run, market for plastic vials.
B) Victoria could be either a monopolistically competitive or a perfectly competitive firm.
C) Victoria should shut down temporarily.
D) Victoria should advertise more in order to increase the demand for plastic vials.
A) Q = 3; P = $7.
B) Q = 4; P = $6.
C) Q = 5; P = $5.
D) Q = 6; P = $4.
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