03 Jun Question 1 For a price-taking firm, marginal reven
Question
1 For a price-taking firm, marginal revenue
a. is the addition to total revenue from producing one more unit of output.
b. decreases as the firm produces more output.
c. is equal to price at any level of output.
d. both a and b
e. both a and c
2 In a perfectly competitive industry the market price is $25. A firm is currently producing 10,000 units of output; average total cost is $28, marginal cost is $20, and average variable cost is $20. The firm should
a. raise price because the firm is losing money.
b. keep output the same because the firm is producing at minimum average variable cost.
c. produce more because the next unit of output increases profit by $5.
d. produce less because the next unit of output decreased profit by $3.
e. shut down because the firm is losing money.
The next three questions refer to the following:
The graph on the left shows the short-run marginal cost curve for a typical firm selling in a perfectly competitive industry. The graph on the right shows current industry demand and supply.
3 If the firm’s demand and marginal revenue curves were drawn in the left-hand graph, what would be the elasticity of demand?
a. zero
b. ?6
c. ?0.6
d. infinitely elastic
e. unitary
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