Question

In: Economics

11. A perfectly competitive firm is producing at the point where its marginal cost equals its marginal revenue. If the firm boosts its output, its total revenue will

A) rise and its total variable cost will rise even more.

B) rise and its total variable cost will rise, but not by as much.

C) fall but its total variable cost will rise.

D) fall and its total variable cost will fall, but not by as much.

12. Bob's Lawn Care Services is a perfectly competitive firm that currently mows 22 lawns a week. Bob's marginal cost exceeds the price he charges. Bob can increase his profit if he

A) charges a higher price.

B) charges a lower price.

C) moves fewer than 22 lawns a week.

D) moves more than 22 lawns a week.

Solutions

Expert Solution

11.

The profit-maximising condition of the perfectly competitive firm is

P=MC

MR and Price are same in this form market.

As it has been given that, a perfectly competitive firm is producing at the point where its marginal cost equals its marginal revenue. If the firm boosts its output, its total revenue will increase because TR is product of P and Q and quantity is increasing. Hence TR will definitely increase.

TR=P*Q

Here only Q is increasing, therefore the TR will increase.

Since the firm is producing more than the profit-maximising quantity, therefore MC will increase as well as the quantity. Therefore the total variable cost will increase.

TVC=MC*Q

Since Q is same in both case but in case of TVC, the MC is also rising.

Here Q and MC both the increasing therefore TVC will increase more compare to the TR.

Hence both TR and TVC will increase but TVC will increase by greater amount.

Hence option a is the correct answer.

12.

The profit-maximising condition of the perfectly competitive firm is

P=MC

MR and Price are same in this form market.

As it has been given that Bob's Lawn Care Services is a perfectly competitive firm that currently mows 22 lawns a week. Bob's marginal cost exceeds the price he charges. It means firm is not maximising its profit at current output, therefore it can be said that IBob can increase his profit if he moves fewer than 22 lawns a week.

Hence option c is the correct answer.

Rahul Sunny answered 1 year ago

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