Question

1.Perfectly competitive firms achieve allocative efficiency when they produce such that:

Multiple Choice

a.P = MC.

b.P = AC.

c.MR = P.

d.TR = TC.

2. In Sam's greenhouse operation, labor is the only short term variable input. After completing a cost analysis, if the marginal product of labor is the same for each unit of labor, this will imply that:

Multiple Choice

a.the average product of labor is always equal to the marginal product of labor.

b.the average product of labor is always greater that the marginal product of labor.

c.the average product of labor is always less than the marginal product of labor.

d.as more labor inputs are used, the average product of labor inputs will fall.

3. For a perfectly competitive firm, if MC = minimum ATC, then:

Multiple Choice

a.price is determining production at a level where P = MC.

b.TR is exactly equal to TC, so profits equal zero.

c.price is above average cost of production.

d.the leftover rectangle is the profit earned.

4. At the profit-maximizing level of output of 100 units, the price shown along the demand curve is $10, the MR is $7.50, and the average cost is $7.00. After maximizing profits, what are the firm’s costs?

Multiple Choice

a.$700

b.$750

c.$1,000

d.$500

5. At the profit-maximizing level of output of 100 units, the price shown along the demand curve is $10, the MR is $7.50, and the average cost is $7.00. After maximizing profits, what is the firm’s profit?

Multiple Choice

a.$300

b.$700

c.$500

d.$1,000

Answer 1

1. Perfectly competitive firms achieve allocative efficiency when they produce such that P=MC. Hence,option(A) is correct.

2. If marginal product of labor is the same for each unit of labor,this will imply that the average product of labor is always equal to the marginal product of labor. Hence,option(A) is correct.

3. For a perfectly competitive firm , if MC=minimum ATC , then TR is exactly equal to TC , so profits equal zero. Hence,option(B) is correct.

4. The firm's cost = ATC(Q)= ($7)(100)= $700. Hence,option(A) is correct.

5. Firm's profit = TR-TC = $(10)(100)- (700) = $300. Hence,option(A) is correct.