13. Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business...

13. Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company’s financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger’s a. total revenues equal his total economic costs. b. marginal revenue exceeds his total cost. c. marginal revenue exceeds his marginal cost. d. marginal cost exceeds his marginal revenue.

14. Robin owns a horse stables and riding academy and gives riding lessons for children at “pony camp.” Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $100 per child. In order to maximize profits, Robin should a. give riding lessons to more than 20 children per month. b. give riding lessons to fewer than 20 children per month. c. continue to give riding lessons to 20 children per month. d. We do not have enough information to answer the question.

15. A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price falls to $18, and the firm makes whatever adjustments are necessary to maximize its profit at the now-lower price. Once the firm has adjusted, its a. quantity of output is lower than it was previously. b. average total cost is lower than it was previously. c. marginal cost is higher than it was previously. d. All of the above are correct.

Solutions

Expert Solution

13. Option C. Marginal revenue exceeds his marginal cost.

Explanation: A perfectly competitive firm maximizes profit when its marginal revenue equals the marginal cost. Therefore, it should increase its production when the marginal revenue is higher than the marginal cost.

14. Option A. Give riding lessons to more than 20 children per month

Explanation: The marginal revenue = $4,000/20 = $200. The marginal cost = $100. A perfectly competitive firm maximizes profit when its marginal revenue equals the marginal cost. Therefore, it should increase its production when the marginal revenue is higher than the marginal cost.

15. d. All of the above are correct.

Explanation: All the above options are valid in this case.

Rahul Sunny answered 2 years ago

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