Chapter 11:
MANAGERIAL DECISIONS IN COMPETITIVE
MARKETS
Multiple Choice
11-1
Which of the following is NOT a condition of a perfect competition:
a.
products produced by rival firms are perfect substitutes
b.
a single firm cannot affect market supply
c.
unrestricted entry and exit
d.
industry sales are small
e.
each firm has complete knowledge about production and prices
Answer: d
Difficulty: 01 Easy
Topic: Characteristics of Perfect Competition
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 11-01
11-2
In a perfectly competitive market
a.
a firm must lower price to attract more customers.
b.
the additional revenue from selling one more unit of output is less than price.
c.
demand facing the industry is perfectly elastic.
d.
all of the above
e.
none of the above
Answer: e
Difficulty: 01 Easy
Topic: Characteristics of Perfect Competition
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 11-01
11-3
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
Answer: e
Difficulty: 02 Medium
Topic: Demand Facing a Price-Taking Firm
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 11-02
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-4
Total cost schedule for a competitive firm:
Output
0
1
2
3
4
5
Total Cost
$ 10
60
80
110
165
245
If market price is $60, how many units of output will the firm produce?
a.
Zero units of output because the firm shuts down.
b.
1 unit of output.
c.
2 units of output.
d.
3 units of output.
e.
none of the above.
Answer: e
Difficulty: 02 Medium
Topic: Profit Maximization in the Short-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-03
11-5
Total cost schedule for a competitive firm:
Output
0
1
2
3
4
5
Total Cost
$ 10
60
80
110
165
245
If market price is $60, what is the maximum profit the firm can earn?
a.
−$10
b.
Zero profit, the firm shuts down
c.
$75
d.
$80
e.
$85
Answer: c
Difficulty: 02 Medium
Topic: Profit Maximization in the Short-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-03
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-6
Total cost schedule for a competitive firm:
Output
0
1
2
3
4
5
Total Cost
$ 10
60
80
110
165
245
If market price is $30, how many units of output will the firm produce?
a.
0, the firm shuts down
b.
1
c.
2
d.
3
e.
4
Answer: a
Difficulty: 02 Medium
Topic: Profit Maximization in the Short-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-03
11-7
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.
Answer: c
Difficulty: 01 Easy
Topic: Profit Maximization in the Short-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-03
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-8
Below, 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.
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
Answer: d
Difficulty: 01 Easy
Topic: Demand Facing a Price-Taking Firm
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 11-02
11-9
Below, 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.
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
What is the marginal revenue for the FIRM from selling the 250th unit of output?
a.
$10
b.
$8
c.
$6
d.
$4
e.
zero
Answer: b
Difficulty: 01 Easy
Topic: Demand Facing a Price-Taking Firm
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-02
11-10 The graph below 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.
What output should the firm produce?
a.
200
b.
250
c.
150
d.
300
Answer: a
Difficulty: 01 Easy
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Topic: Demand Facing a Price-Taking Firm
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-02
11-11 The graph below shows demand and marginal cost for a perfectly competitive firm. If the firm is
producing 100 units of output, increasing output by one unit would ______ the firm’s profit by
$______.
a.
increase, $3
b.
increase, $2
c.
decrease, $1
d.
increase, $1
e.
decrease, $2
Answer: d
Difficulty: 02 Medium
Topic: Profit Maximization in the Short-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-03
11-12 The graph below shows demand and marginal cost for a perfectly competitive firm. If the firm is
producing 300 units of output, decreasing output by one unit would ______ the firm’s profit by
$______.
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
a.
decrease, $2
b.
increase, $2
c.
increase, $3
d.
decrease, $5
e.
increase, $5
Answer: b
Difficulty: 02 Medium
Topic: Profit Maximization in the Short-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-03
11-13 In order to minimize losses in the short run, a perfectly competitive firm should shut down if
a.
total revenue is less than total cost.
b.
total revenue is less than total fixed cost.
c.
total revenue is less than total variable cost.
d.
total revenue is less than the difference between total fixed cost and total variable cost.
Answer: c
Difficulty: 02 Medium
Topic: Profit Maximization in the Short-Run
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-03
11-14 Below, the graph on the left shows the short−run cost curves for a firm in a perfectly competitive
market, and the graph on the right shows the current market conditions in this industry. In order
to maximize profit, how much output should the firm produce?
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
a.
20 units
b.
40 units
c.
50 units
d.
60 units
e.
80 units
Answer: c
Difficulty: 02 Medium
Topic: Demand Facing a Price-Taking Firm
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-02
11-15 Below, the graph on the left shows the short−run cost curves for a firm in a perfectly competitive
market, and the graph on the right shows the current market conditions in this industry. What is
the maximum amount of profit the firm can earn?
a.
$ 50
b.
$ 40
c.
$ 80
d.
$150
Answer: a
Difficulty: 03 Hard
Topic: Profit Maximization in the Short-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-03
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-16 Below, the graph on the left shows the short−run cost curves for a firm in a perfectly competitive
market, and the graph on the right shows the current market conditions in this industry. What do
you expect to happen in the long-run?
a.
Market supply will decrease.
b.
Market price will decrease.
c.
The firm's profit will decrease.
d.
both b and c
e.
all of the above
Answer: d
Difficulty: 01 Easy
Topic: Characteristics of Perfect Competition
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-01
11-17 Which of the following is NOT a characteristic of long-run equilibrium for a perfectly
competitive firm?
a.
Price is greater than long-run average cost.
b.
Price is equal to long-run marginal cost.
c.
Economic profit is zero.
d.
The firm produces the output level at which long-run average cost is at its minimum.
Answer: a
Difficulty: 01 Easy
Topic: Characteristics of Perfect Competition
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 11-01
11-18 When total fixed costs increase,
a.
the profit-maximizing level of output falls.
b.
the firm may be forced to shut down if total fixed costs get too high.
c.
economic profit decreases.
d.
both a and b
e.
both b and c
Answer: c
Difficulty: 02 Medium
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Topic: Fixed costs
Topic: Profit Maximization in the Short-Run
Blooms: Understand
Learning Objective: 11-03
11-19 A competitive firm will maximize profit by producing the level of output at which
a.
the last unit of output produced adds the same amount to total revenue as to total cost.
b.
the additional revenue from the last unit of output produced exceeds the additional cost of
the last unit by the largest amount.
c.
the firm's total revenue exceeds total cost by the largest amount.
d.
both a and b
e.
both a and c
Answer: e
Difficulty: 02 Medium
Topic: Profit Maximization in the Short-Run
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-03
11-20 Firm A and firm B both have total revenues of $200,000 and total costs of $250,000; firm A has
total fixed costs of $40,000, while firm B has total fixed costs of $70,000. Which of the following
statements are true in the short run?
a.
Firm A should operate.
b.
Firm B should operate.
c.
Firm A should shut down.
d.
Firm B should shut down.
e.
both b and c
Answer: e
Difficulty: 02 Medium
Topic: Profit Maximization in the Short-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-03
11-21 When a perfect competitive industry is in long-run equilibrium,
a
firms have no incentive to enter or exit the industry.
b.
market price is equal to minimum long−run average cost.
c.
each firm earns a normal return.
d.
both a and c
e.
all of the above
Answer: e
Difficulty: 01 Easy
Topic: Characteristics of Perfect Competition
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-01
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-22 Which of the following is NOT a characteristic of an increasing cost competitive industry? As the
industry expands in the long run,
a.
the price of product remains constant.
b.
the prices of some inputs rise.
c.
the cost of production increases.
d.
the number of firms increase.
e.
none of the above
Answer: a
Difficulty: 01 Easy
Topic: Profit Maximization in the Short-Run
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-03
11-23 Which of the following is NOT a characteristic of a constant cost competitive industry? As the
industry expands in the long run,
a.
the price of the product remains constant.
b.
input prices remain constant.
c.
the cost of production remains constant.
d.
the number of firms remain constant.
e.
none of the above
Answer: d
Difficulty: 01 Easy
Topic: Profit Maximization in the Short-Run
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-03
11-24 An industry is in long-run competitive equilibrium. The price of a substitute good increases.
a.
The product price will rise.
b.
New firms will enter the market.
c.
Firms will begin earning economic profit.
d.
a and b
e.
all of the above
Answer: e
Difficulty: 01 Easy
Topic: Characteristics of Perfect Competition
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-01
11-25 A typical firm in a perfectly competitive market made positive economic profits last period. This
period,
a.
market supply will increase.
b.
market price will rise.
c.
the firm will produce more.
d.
the firm's profits will increase.
Answer: a
Difficulty: 02 Medium
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Topic: Characteristics of Perfect Competition
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-01
11-26 Suppose that a perfectly competitive industry is in long-run equilibrium. The price of a
complement good decreases. What will happen?
a.
Next period a typical firm will increase output.
b.
Next period a typical firm will earn positive economic profit.
c.
Eventually firms will exit the industry.
d.
both a and b
e.
all of the above will happen
Answer: d
Difficulty: 02 Medium
Topic: Characteristics of Perfect Competition
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-01
11-27 The table below shows a competitive firm's short-run production function. Labor is the firm's
only variable input, and market price for the firm's product is $2 per unit.
Units of Labor
3
4
5
6
7
Units of Output
370
490
570
600
620
How much does the fifth unit of labor add to the firm's total revenue?
a.
$160
b.
$80
c.
$60
d.
$40
e.
$10
Answer: a
Difficulty: 01 Easy
Topic: Profit-Maximizing Input Usage
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-05
11-28 The table below shows a competitive firm's short-run production function. Labor is the firm's
only variable input, and market price for the firm's product is $2 per unit.
Units of Labor
3
4
5
Units of Output
370
490
570
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
6
7
600
620
If the wage rate is $200, how many units of labor will the firm employ?
a.
3
b.
4
c.
5
d.
6
e.
0, the firm shuts down
Answer: b
Difficulty: 02 Medium
Topic: Profit-Maximizing Input Usage
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-05
11-29 The table below shows a competitive firm's short-run production function. Labor is the firm's
only variable input, and market price for the firm's product is $2 per unit.
Units of Labor
3
4
5
6
7
Units of Output
370
490
570
600
620
If the wage rate is $200, the firm should
a.
shut down because average revenue product is $200, which is less than marginal revenue
product.
b.
shut down because average revenue product is $228, which is greater than the wage rate.
c.
produce because average revenue product is $200, which is less than marginal revenue
product.
d.
produce because average revenue product is $245, which is greater than the wage rate.
Answer: d
Difficulty: 02 Medium
Topic: Profit-Maximizing Input Usage
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-05
11-30 The table below shows a competitive firm's short-run production function. Labor is the firm's
only variable input, and market price for the firm's product is $2 per unit.
Units of Labor
3
4
5
6
7
Units of Output
370
490
570
600
620
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
If market price for the firm's product increases to $5, how many units of labor will the firm
employ at a wage rate of $200?
a.
0, the firm shuts down
b.
4
c.
5
d.
6
e.
7
Answer: c
Difficulty: 02 Medium
Topic: Profit-Maximizing Input Usage
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-05
11-31 A competitive firm will maximize profit by hiring the amount of an input at which
a.
the last unit of the input hired adds the same amount to total revenue as to total cost.
b.
the additional revenue from the last unit of the input hired exceeds the additional cost of
the last unit by the largest amount.
c.
the last unit of the input hired adds the same amount to total output as to total cost.
d.
the additional output from the last unit of the input hired exceeds the additional cost of
the last unit by the largest amount.
Answer: a
Difficulty: 02 Medium
Topic: Profit-Maximizing Input Usage
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-05
11-32 A firm in a competitive industry faces a market price for output of $25 and a wage rate of $750.
At the current level of employment (50 units of labor), the marginal product of labor is 20. In
order to maximize profit, the firm should
a.
hire less labor because the firm is suffering a loss of $12,500.
b.
hire less labor because hiring the last unit of labor decreased profit by 250.
c.
hire more labor because hiring another unit of labor would increase profit by $500.
d.
keep the level of employment the same because the firm is earning a profit of $500.
Answer: b
Difficulty: 02 Medium
Topic: Profit-Maximizing Input Usage
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-05
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-33
The graph above shows cost curves for a perfectly competitive firm. If market price is $5, how
much output will the firm produce?
a.
0 units
b.
200 units.
c.
500 units.
d.
600 units
Answer: d
Difficulty: 01 Easy
Topic: Demand Facing a Price-Taking Firm
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-02
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-34
The graph above shows cost curves for a perfectly competitive firm. If market price is $5, how
much profit will the firm earn?
a
$600
b.
$900
c.
$3,000
d.
−$600
Answer: a
Difficulty: 02 Medium
Topic: Demand Facing a Price-Taking Firm
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-02
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-35
The graph above shows cost curves for a perfectly competitive firm. If market price is $3, how
much profit will the firm earn?
a.
$200
b.
−$200
c.
$400
d.
−$400
Answer: d
Difficulty: 02 Medium
Topic: Profit Maximization in the Short-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-03
11-36
The graph above shows cost curves for a perfectly competitive firm. If market price is $2, how
much profit will the firm earn?
a.
$600
b.
−$600
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
c.
zero
d.
$400
Answer: b
Difficulty: 02 Medium
Topic: Profit Maximization in the Short-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-03
11-37
The graph above shows cost curves for a perfectly competitive firm. The firm will break even if
price is:
a.
$2
b.
$3.90
c.
$5
d.
$6
Answer: b
Difficulty: 01 Easy
Topic: Profit Maximization in the Short-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-03
11-38 Which of the following CANNOT be true at any output along a perfectly competitive firm's
short-run supply curve?
a.
Average total cost is greater than marginal cost.
b.
Marginal cost is greater than average total cost.
c.
Average variable cost is greater than marginal cost.
d.
Marginal cost is greater than average variable cost.
Answer: c
Difficulty: 02 Medium
Topic: Profit Maximization in the Short-Run
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-03
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-39 In a perfectly competitive market,
a.
a firm can attract more customers by lowering its price.
b.
a firm can sell as much as it wants at the existing market price.
c.
the additional revenue from selling one more unit of output is less than the market price.
d.
both a and c
e.
both b and c
Answer: b
Difficulty: 01 Easy
Topic: Characteristics of Perfect Competition
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 11-01
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-40 To answer the question, refer to the following figure, showing the marginal revenue product
(MRP) and the average revenue product (ARP) curves of a perfectly competitive firm hiring a
single variable input, labor.
If the wage is $20, how many workers will the firm hire?
a.
225
b.
175
c.
200
d.
zero
Answer: b
Difficulty: 01 Easy
Topic: Profit-Maximizing Input Usage
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-05
11-41 To answer the question, refer to the following figure, showing the marginal revenue product
(MRP) and the average revenue product (ARP) curves of a perfectly competitive firm hiring a
single variable input, labor.
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
If the wage is $15, how many workers will the firm hire?
a.
250
b.
zero
c.
100
d.
200
Answer: d
Difficulty: 01 Easy
Topic: Profit-Maximizing Input Usage
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-05
11-42 To answer the question, refer to the following figure, showing the marginal revenue product
(MRP) and the average revenue product (ARP) curves of a perfectly competitive firm hiring a
single variable input, labor.
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
If the wage is above $______, the firm will shut down and hire zero workers in the short run.
a.
$41
b.
$30
c.
$34
d.
$32
Answer: c
Difficulty: 02 Medium
Topic: Profit-Maximizing Input Usage
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-05
11-43 Economic rent
a.
is the payment to a more productive resource above its opportunity cost.
b.
cannot be earned in long-run competitive equilibrium.
c.
is competed away in the long run.
d.
both b and c
e.
all of the above
Answer: a
Difficulty: 01 Easy
Topic: Profit Maximization in the Long-Run
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 11-04
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-44 In long-run competitive equilibrium it is possible for firm owners to
a.
earn both rent and economic profit.
b.
earn rent but not economic profit.
c.
earn both economic profit and rent.
d.
both b and c
e.
both a and c
Answer: d
Difficulty: 02 Medium
Topic: Profit-Maximizing Input Usage
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-05
11-45 In a perfectly competitive market
a.
a firm faces a perfectly elastic demand because there is unrestricted entry and exit.
b.
if a firm raises its price, it will lose some, but not all, of its customers.
c.
when a firm sells another unit of output, the addition to total revenue is equal to market
price.
d.
all of the above
e.
none of the above
Answer: c
Difficulty: 01 Easy
Topic: Demand Facing a Price-Taking Firm
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-02
11-46
The figure above shows cost curves for a perfectly competitive firm. Suppose that market price is
$2.60. A firm producing 800 units of output
a.
is earning the maximum amount of profit, $880.
b.
is earning the maximum amount of profit, $2,080.
c.
should produce 500 units of output instead, to earn profits of $500.
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
d.
should produce 1100 units of output instead, to earn profits of $1,100.
e.
should shut down
Answer: d
Difficulty: 02 Medium
Topic: Profit Maximization in the Short-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-03
11-47
The figure above shows cost curves for a perfectly competitive firm. A profit-maximizing firm
will break even when market price is:
a.
$0.60
b.
$0.80
c.
$1.50
d.
$1.60
Answer: c
Difficulty: 01 Easy
Topic: Profit Maximization in the Short-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-03
11-48
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
The figure above shows cost curves for a perfectly competitive firm. If market price is $0.70, a
profit-maximizing firm will produce _____ units of output and earn profits of _____.
a.
500, −$450
b.
500, −$50
c.
zero, −$450
d.
zero, −$400
Answer: d
Difficulty: 02 Medium
Topic: Profit Maximization in the Short-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-03
11-49 In a competitive industry the market-determined price is $12. A firm is currently producing 50
units of output; average total cost is $10, marginal cost is $15, and average variable cost is $7. In
order to maximize profit, the firm should:
a.
produce more because the firm is earning a profit of $100.
b.
keep output the same because the firm is earning a profit of $100.
c.
produce more because the next unit of output increases profit by $2.
d.
produce less because the last unit of output decreased profit by $3.
Answer: d
Difficulty: 02 Medium
Topic: Profit Maximization in the Short-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-03
11-50 Consider the short-run supply curve for a perfectly competitive industry. In general, which of the
following statements are true?
a.
The short-run industry supply is obtained by horizontally summing the supply curves of
all the individual firms in the industry.
b.
The industry supply curve tends to be flatter (more elastic) than the horizontal sum of all
the industrial firms' supply curves.
c.
Short-run supply for a perfectly competitive industry is flat for constant cost industries.
d.
both a and b
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
e.
none of the above are true in general
Answer: d
Difficulty: 02 Medium
Topic: Profit Maximization in the Long-Run
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-04
11-51 In a competitive market characterized by increasing costs, the
a.
long-run industry supply curve gives the minimum long-run average cost of production at
various levels of industry output.
b.
long-run industry supply curve gives the long-run marginal cost of production at various
levels of industry output.
c.
long-run industry supply curve is upward sloping.
d.
both a and b
e.
all of the above
Answer: e
Difficulty: 02 Medium
Topic: Profit Maximization in the Long-Run
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-04
11-52 Firms that employ exceptionally productive resources
a.
have lower costs than other firms in the industry and are able to earn positive economic
profit in the long run.
b.
earn zero economic profit.
c.
will typically have to pay the exceptional resource economic rent equal to the reduction
in cost due to employing the exceptionally productive resource.
d.
both a and b
e.
both b and c
Answer: e
Difficulty: 02 Medium
Topic: Profit Maximization in the Long-Run
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-04
11-53 Suits Only, a dry cleaning firm that specializes in cleaning business suits, operates in a perfectly
competitive market. Robin Smith, an exceptionally talented manager, has been hired to manage
Suits Only. In the dry cleaning business, a manager typically makes a salary of $400 per week.
Suits Only faces the long-run average and marginal costs shown in the figure below. In long-run
competitive equilibrium, the market price for cleaning a business suit is $4.50.
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Given the above, the typical dry-cleaning firm has a minimum long-run average cost of cleaning a
business suit equal to $________ and the typical dry cleaning firm earns economic profit equal to
$______.
a.
$4.50, $0
b.
$2, $2.50 per suit cleaned
c.
$3, $1.50 per suit cleaned
d.
$2, $0
Answer: a
Difficulty: 02 Medium
Topic: Profit Maximization in the Long-Run
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-04
11-54 Suits Only, a dry cleaning firm that specializes in cleaning business suits, operates in a perfectly
competitive market. Robin Smith, an exceptionally talented manager, has been hired to manage
Suits Only. In the dry cleaning business, a manager typically makes a salary of $400 per week.
Suits Only faces the long-run average and marginal costs shown in the figure below. In long-run
competitive equilibrium, the market price for cleaning a business suit is $4.50.
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Given the above, Robin Smith is probably going to negotiate a salary of $______ per week,
$______ of which is economic rent.
a.
$400, $0
b.
$475, $75
c.
$500, $100
d.
$500, $500
Answer: b
Difficulty: 02 Medium
Topic: Profit Maximization in the Long-Run
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-04
11-55 Suits Only, a dry cleaning firm that specializes in cleaning business suits, operates in a perfectly
competitive market. Robin Smith, an exceptionally talented manager, has been hired to manage
Suits Only. In the dry cleaning business, a manager typically makes a salary of $400 per week.
Suits Only faces the long-run average and marginal costs shown in the figure below. In long-run
competitive equilibrium, the market price for cleaning a business suit is $4.50.
Given the above, if Robin Smith buys Suits Only and continues to manage it herself, she will
a.
earn zero economic profit.
b.
earn $75 in economic rent per week.
c.
earn $75 in economic profit each week.
d.
both a and b.
Answer: d
Difficulty: 02 Medium
Topic: Profit Maximization in the Long-Run
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-04
11-56 The short-run market supply in a perfectly competitive market is the horizontal summation of the
firms' marginal cost curves when
a.
increases in industry output do not affect input prices.
b.
increases in industry output lead to increases in input prices.
c.
increases in industry output lead to increases in market price.
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
d.
increases in industry output do not affect market price.
Answer: a
Difficulty: 02 Medium
Topic: Profit Maximization in the Short-Run
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-03
11-57 Below, the graph on the left shows long-run average and marginal cost for a typical firm in a
perfectly competitive industry. The graph on the right shows demand and long-run supply for an
increasing-cost industry.
What output will the firm produce?
a.
250
b.
300
c.
350
d.
400
Answer: d
Difficulty: 01 Easy
Topic: Profit Maximization in the Long-Run
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 11-04
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-58 Below, the graph on the left shows long-run average and marginal cost for a typical firm in a
perfectly competitive industry. The graph on the right shows demand and long-run supply for an
increasing-cost industry.
How much profit will the firm earn?
a.
zero
b.
$2,600
c.
$3,100
d.
$3,750
e.
$6,000
Answer: e
Difficulty: 02 Medium
Topic: Profit Maximization in the Long-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-04
11-59 Below, the graph on the left shows long-run average and marginal cost for a typical firm in a
perfectly competitive industry. The graph on the right shows demand and long-run supply for an
increasing-cost industry.
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
If this were a constant-cost industry, what would be the price when the industry gets to long-run
competitive equilibrium?
a.
between $35 and $20
b.
$35
c.
$20
d.
below $20
e.
above $35
Answer: c
Difficulty: 02 Medium
Topic: Profit Maximization in the Long-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-04
11-60 Below, the graph on the left shows long-run average and marginal cost for a typical firm in a
perfectly competitive industry. The graph on the right shows demand and long-run supply for an
increasing-cost industry.
If this were an increasing cost industry, what would be the price when the industry gets to longrun competitive equilibrium?
a.
between $35 and $15
b.
$35
c.
$15
d.
below $15
e.
above $35
Answer: a
Difficulty: 01 Easy
Topic: Profit Maximization in the Long-Run
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-04
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-61 A consulting company estimated market demand and supply in a perfectly competitive industry
and obtained the following results:
Qd = 25,000 - 5,000P + 25M
Qs = 240,000 + 5,000P - 2,000PI
where P is price, M is income, and PI is the price of a key input. The forecasts for the next year
are M̂ = $15,000 and P̂I = $20. Average variable cost is estimated to be
AVC = 14 - 0.008Q + 0.000002Q2
Total fixed cost will be $6,000 next year. What is the price forecast for next year?
a.
$12
b.
$20
c.
$60
d.
$68
Answer: b
Difficulty: 01 Easy
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-62 A consulting company estimated market demand and supply in a perfectly competitive industry
and obtained the following results:
Qd = 25,000 - 5,000P + 25M
Qs = 240,000 + 5,000P - 2,000PI
where P is price, M is income, and PI is the price of a key input. The forecasts for the next year
are M̂ = $15,000 and P̂I = $20. Average variable cost is estimated to be
AVC = 14 - 0.008Q + 0.000002Q2
Total fixed cost will be $6,000 next year. What is the firm's minimum average variable cost?
a.
$2
b.
$6
c.
$8
d.
$20
Answer: b
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-63 A consulting company estimated market demand and supply in a perfectly competitive industry
and obtained the following results:
Qd = 25,000 - 5,000P + 25M
Qs = 240,000 + 5,000P - 2,000PI
where P is price, M is income, and PI is the price of a key input. The forecasts for the next year
are M̂ = $15,000 and P̂I = $20. Average variable cost is estimated to be
AVC = 14 - 0.008Q + 0.000002Q2
Total fixed cost will be $6,000 next year. What is the profit-maximizing output choice for the
firm?
a.
3,000 units
b.
4,000 units
c.
5,000 units
d.
6,000 units
Answer: a
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-64 A consulting company estimated market demand and supply in a perfectly competitive industry
and obtained the following results:
Qd = 25,000 - 5,000P + 25M
Qs = 240,000 + 5,000P - 2,000PI
where P is price, M is income, and PI is the price of a key input. The forecasts for the next year
are M̂ = $15,000 and P̂I = $20. Average variable cost is estimated to be
AVC = 14 - 0.008Q + 0.000002Q2
Total fixed cost will be $6,000 next year. What will the firm's profit (loss) be?
a.
$20,000
b.
$26,000
c.
$30,000
d.
$36,000
e.
−$6,000, the firm shuts down and loses only its fixed costs.
Answer: c
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-65 A consulting company estimated market demand and supply in a perfectly competitive industry
and obtained the following results:
Qd = 25,000 - 5,000P + 25M
Qs = 240,000 + 5,000P - 2,000PI
where P is price, M is income, and PI is the price of a key input. The forecasts for the next year
are M̂ = $15,000 and P̂I = $20. Average variable cost is estimated to be
AVC = 14 - 0.008Q + 0.000002Q2
Total fixed cost will be $6,000 next year. Suppose that income next year is forecasted to be
$10,000 instead. What is the revised price forecast for next year?
a.
$5.00
b.
$7.50
c.
$15.75
d.
$10.50
e.
$12.00
Answer: b
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-66 A consulting company estimated market demand and supply in a perfectly competitive industry
and obtained the following results:
Qd = 25,000 - 5,000P + 25M
Qs = 240,000 + 5,000P - 2,000PI
where P is price, M is income, and PI is the price of a key input. The forecasts for the next year
are M̂ = $15,000 and P̂I = $20. Average variable cost is estimated to be
AVC = 14 - 0.008Q + 0.000002Q2
Total fixed cost will be $6,000 next year. Suppose income next year is forecasted to be $10,000
instead. What is the profit-maximizing output choice for the firm?
a.
8,000
b.
5,548
c.
3,480
d.
2,167
e.
zero
Answer: d
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-67 A consulting company estimated market demand and supply in a perfectly competitive industry
and obtained the following results:
Qd = 25,000 - 5,000P + 25M
Qs = 240,000 + 5,000P - 2,000PI
where P is price, M is income, and PI is the price of a key input. The forecasts for the next year
are M̂ = $15,000 and P̂I = $20. Average variable cost is estimated to be
AVC = 14 - 0.008Q + 0.000002Q2
Total fixed cost will be $6,000 next year. Suppose that income next year is forecasted to be
$10,000 instead. What will the firm’s profit (loss) be?
a.
zero
b.
$2,500
c.
−$3,550
d.
−$2,856
e.
−$6,000
Answer: d
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-68 A consulting company estimated market demand and supply in a perfectly competitive industry
and obtained the following results:
Qd = 25,000 - 5,000P + 25M
Qs = 240,000 + 5,000P - 2,000PI
where P is price, M is income, and PI is the price of a key input. The forecasts for the next year
are M̂ = $15,000 and P̂I = $20. Average variable cost is estimated to be
AVC = 14 - 0.008Q + 0.000002Q2
Total fixed cost will be $6,000 next year. Suppose that income for next year is forecasted to be
$9,000 instead. What is the revised price forecast for next year?
a.
$3
b.
$5
c.
$15
d.
$18
e.
none of the above
Answer: b
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Learning Objective: 11-06
11-69 A consulting company estimated market demand and supply in a perfectly competitive industry
and obtained the following results:
Qd = 25,000 - 5,000P + 25M
Qs = 240,000 + 5,000P - 2,000PI
where P is price, M is income, and PI is the price of a key input. The forecasts for the next year
are M̂ = $15,000 and P̂I = $20. Average variable cost is estimated to be
AVC = 14 - 0.008Q + 0.000002Q2
Total fixed cost will be $6,000 next year. Suppose that income for next year is forecasted to be
$9,000 instead. What is the profit-maximizing output choice for the firm?
a.
1,000 units
b.
1,860 units
c.
2,000 units
d.
2,860 units
e.
none of the above
Answer: e
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-70 A consulting company estimated market demand and supply in a perfectly competitive industry
and obtained the following results:
Qd = 25,000 - 5,000P + 25M
Qs = 240,000 + 5,000P - 2,000PI
where P is price, M is income, and PI is the price of a key input. The forecasts for the next year
are M̂ = $15,000 and P̂I = $20. Average variable cost is estimated to be
AVC = 14 - 0.008Q + 0.000002Q2
Total fixed cost will be $6,000 next year. Suppose that income for next year is forecasted to be
$9,000 instead. What will the firm's profit (loss) be?
a.
zero
b.
−$6,000
c.
−$7,934
d.
−$8,000
e.
none of the above
Answer: b
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-71 Consider a competitive industry and a price-taking firm that produces in that industry. The market
demand and supply functions are estimated to be:
Demand: Qd = 10,000 -10,000P +1.0 M
Supply: Qs = 80,000 +10,000P - 4,000PI
where Q is quantity, P is the price of the product, M is income, and PI is the input price. The
manager of the perfectly competitive firm uses time−series data to obtain the following forecasted
values of M and PI for 2015:
M̂ = $50,000 and P̂I = $20
The manager also estimates the average variable cost function to be
AVC = 3.0 - 0.0027Q + 0.0000009Q2
Total fixed costs will be $2,000 in 2015. What is the price forecast for 2015?
a.
$2
b.
$2.50
c.
$2.75
d.
$3
e.
none of the above
Answer: d
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-72 Consider a competitive industry and a price-taking firm that produces in that industry. The market
demand and supply functions are estimated to be:
Demand: Qd = 10,000 -10,000P +1.0 M
Supply: Qs = 80,000 +10,000P - 4,000PI
where Q is quantity, P is the price of the product, M is income, and PI is the input price. The
manager of the perfectly competitive firm uses time−series data to obtain the following forecasted
values of M and PI for 2015:
M̂ = $50,000 and P̂I = $20
The manager also estimates the average variable cost function to be
AVC = 3.0 - 0.0027Q + 0.0000009Q2
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Total fixed costs will be $2,000 in 2015. Average variable cost reaches its minimum value of
_____ units of output.
a.
1,000
b.
1,500
c.
2,000
d.
2,500
Answer: b
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-73 Consider a competitive industry and a price-taking firm that produces in that industry. The market
demand and supply functions are estimated to be:
Demand: Qd = 10,000 -10,000P +1.0 M
Supply: Qs = 80,000 +10,000P - 4,000PI
where Q is quantity, P is the price of the product, M is income, and PI is the input price. The
manager of the perfectly competitive firm uses time−series data to obtain the following forecasted
values of M and PI for 2015:
M̂ = $50,000 and P̂I = $20
The manager also estimates the average variable cost function to be
AVC = 3.0 - 0.0027Q + 0.0000009Q2
Total fixed costs will be $2,000 in 2015. The minimum value of average variable cost is $_____.
a.
$0.50
b.
$0.75
c.
$0.975
d.
$1.00
e.
$2.15
Answer: c
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-74 Consider a competitive industry and a price-taking firm that produces in that industry. The market
demand and supply functions are estimated to be:
Demand: Qd = 10,000 -10,000P +1.0 M
Supply: Qs = 80,000 +10,000P - 4,000PI
where Q is quantity, P is the price of the product, M is income, and PI is the input price. The
manager of the perfectly competitive firm uses time−series data to obtain the following forecasted
values of M and PI for 2015:
M̂ = $50,000 and P̂I = $20
The manager also estimates the average variable cost function to be
AVC = 3.0 - 0.0027Q + 0.0000009Q2
Total fixed costs will be $2,000 in 2015. The manager _____ produce since _____________.
a.
should; $3 > $0.975
b.
should; $2.75 > $0.75
c.
should not; $2 < $2.15
d.
should not; $0.50 < $1.00
Answer: a
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-75 Consider a competitive industry and a price-taking firm that produces in that industry. The
market demand and supply functions are estimated to be:
Demand: Qd = 10,000 -10,000P +1.0 M
Supply: Qs = 80,000 +10,000P - 4,000PI
where Q is quantity, P is the price of the product, M is income, and PI is the input price. The
manager of the perfectly competitive firm uses time−series data to obtain the following forecasted
values of M and PI for 2015:
M̂ = $50,000 and P̂I = $20
The manager also estimates the average variable cost function to be
AVC = 3.0 - 0.0027Q + 0.0000009Q2
Total fixed costs will be $2,000 in 2015. The marginal cost function is:
a.
SMC = 3.0 − 0.0027Q + 0.0000009Q2
b.
SMC = 3.0 − 0.00135Q + 0.00000045Q2
c.
SMC = 3.0Q − 0.0027Q2 + 0.0000009Q3
d.
SMC = 3.0 − 0.0054Q + 0.0000018Q2
e.
none of the above
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Answer: e
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-76 Consider a competitive industry and a price-taking firm that produces in that industry. The market
demand and supply functions are estimated to be:
Demand: Qd = 10,000 -10,000P +1.0 M
Supply: Qs = 80,000 +10,000P - 4,000PI
where Q is quantity, P is the price of the product, M is income, and PI is the input price. The
manager of the perfectly competitive firm uses time−series data to obtain the following forecasted
values of M and PI for 2015:
M̂ = $50,000 and P̂I = $20
The manager also estimates the average variable cost function to be
AVC = 3.0 - 0.0027Q + 0.0000009Q2
Total fixed costs will be $2,000 in 2015. The optimal level of production for the firm is
a.
1,000
b.
1,500
c.
2,000
d.
2,500
e.
none of the above
Answer: c
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-77 Consider a competitive industry and a price-taking firm that produces in that industry. The market
demand and supply functions are estimated to be:
Demand: Qd = 10,000 -10,000P +1.0 M
Supply: Qs = 80,000 +10,000P - 4,000PI
where Q is quantity, P is the price of the product, M is income, and PI is the input price. The
manager of the perfectly competitive firm uses time−series data to obtain the following forecasted
values of M and PI for 2015:
M̂ = $50,000 and P̂I = $20
The manager also estimates the average variable cost function to be
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
AVC = 3.0 - 0.0027Q + 0.0000009Q2
Total fixed costs will be $2,000 in 2015. The profit (loss) is
a.
$2,600
b.
$2,000
c.
$4,000
d.
$3,250
e.
none of the above
Answer: e
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-78 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts
product price to be $28 in 2015. Bartech's average variable cost function is estimated to be
AVC = 10 - 0.003Q + 0.0000005Q2
Bartech expects to face fixed costs of $12,000 in 2015. At what level of output will Bartech's
average variable cost reach its minimum value?
a.
2,000 units
b.
3,000 units
c.
4,000 units
d.
5,000 units
e.
6,000 units
Answer: b
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-79 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts
product price to be $28 in 2015. Bartech's average variable cost function is estimated to be
AVC = 10 - 0.003Q + 0.0000005Q2
Bartech expects to face fixed costs of $12,000 in 2015. What is the minimum average variable
cost?
a.
$0
b.
$5.50
c.
$6.00
d.
$6.50
e.
$7.00
Answer: b
Difficulty: 02 Medium
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-80 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts
product price to be $28 in 2015. Bartech's average variable cost function is estimated to be
AVC = 10 - 0.003Q + 0.0000005Q2
Bartech expects to face fixed costs of $12,000 in 2015. The profit-maximizing (or lossminimizing) output for Bartech is
a.
0 units
b.
500 units
c.
1,000 units
d.
2,000 units
e.
6,000 units
Answer: e
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-81 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts
product price to be $28 in 2015. Bartech's average variable cost function is estimated to be
AVC = 10 - 0.003Q + 0.0000005Q2
Bartech expects to face fixed costs of $12,000 in 2015. How much profit (loss) does Bartech, Inc.
expect to earn?
a.
−$2,500
b.
$96,000
c.
$127,000
d.
$156,000
e.
$166,000
Answer: b
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-82 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts
product price to be $28 in 2015. Bartech's average variable cost function is estimated to be
AVC = 10 - 0.003Q + 0.0000005Q2
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Bartech expects to face fixed costs of $12,000 in 2015. Now, suppose that the 2015 price forecast
is drastically revised downward to $5. What is Bartech's profit-maximizing (or loss-minimizing)
output for 2015?
a.
0 units
b.
1,000 units
c.
2,000 units
d.
3,000 units
e.
4,000 units
Answer: a
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-83 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts
product price to be $28 in 2015. Bartech's average variable cost function is estimated to be
AVC = 10 - 0.003Q + 0.0000005Q2
Bartech expects to face fixed costs of $12,000 in 2015. Now, suppose that the 2015 price forecast
is drastically revised downward to $5. Under the revised forecast how much profit (loss) does
Bartech, Inc. expect to earn?
a.
$0
b.
−$12,000
c.
$2,500
d.
$16,000
e.
$18,000
Answer: b
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-84 Radon Research Corporation (RRC) is one of 24 firms in Albuquerque testing homes for
dangerous levels of radon gas. There is a standard test that all testing companies use. The
manager of RRC wants to know the number of homes to test in 2015 in order to maximize the
firm’s profit. The manager forecasted a price of $160 for radon tests in 2015. The firm’s marginal
cost was estimated as
SMC = 200 -15Q + 0.8Q2
where Q is the number of tests performed each week. RRC’s fixed cost will be $250 per week.
The average variable cost at RRC is
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
a.
200 − 30Q + 1.6Q2
b.
200Q − 15Q2 + 0.8Q3
c.
100 − 10Q + 0.4Q2
d.
200 − 7.5Q + 0.2667Q2
e.
none of the above
Answer: d
Difficulty: 03 Hard
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-85 Radon Research Corporation (RRC) is one of 24 firms in Albuquerque testing homes for
dangerous levels of radon gas. There is a standard test that all testing companies use. The
manager of RRC wants to know the number of homes to test in 2015 in order to maximize the
firm’s profit. The manager forecasted a price of $160 for radon tests in 2015. The firm’s marginal
cost was estimated as
SMC = 200 -15Q + 0.8Q2
where Q is the number of tests performed each week. RRC’s fixed cost will be $250 per week.
How many radon tests per week should be undertaken?
a.
12.5
b.
15.5
c.
16.8
d.
17.3
e.
20
Answer: b
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-86 Radon Research Corporation (RRC) is one of 24 firms in Albuquerque testing homes for
dangerous levels of radon gas. There is a standard test that all testing companies use. The
manager of RRC wants to know the number of homes to test in 2015 in order to maximize the
firm’s profit. The manager forecasted a price of $160 for radon tests in 2015. The firm’s marginal
cost was estimated as
SMC = 200 -15Q + 0.8Q2
where Q is the number of tests performed each week. RRC’s fixed cost will be $250 per week.
The weekly profit (loss) at RRC in 2015 will be
a.
$121
b.
$320
c.
$86
d.
−$61
e.
−$121
Answer: d
Difficulty: 02 Medium
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-87 Sport Tee Corporation manufactures T-shirts bearing the logos of professional football teams.
The wholesale market for sport T-shirts is perfectly competitive. The manager forecasts the
wholesale price of T-shirts next year to be $7.00. The firm’s estimated marginal cost is
SMC = 12 - 0.005Q + 0.0000008Q2
where Q is the number of T-shirts produced and sold each month. Sport Tee Corporation will
have a fixed cost of $2,000 per month. Average variable cost at Sport Tee is
a.
12 − 0.01Q + 0.0000024Q2
b.
12 − 0.0025Q + 0.000000266Q2
c.
12 − 0.0001Q + 0.000001Q2
d.
12Q − 0.0025Q2 + 0.000000266Q3
e.
none of the above
Answer: b
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-88 Sport Tee Corporation manufactures T-shirts bearing the logos of professional football teams.
The wholesale market for sport T-shirts is perfectly competitive. The manager forecasts the
wholesale price of T-shirts next year to be $7.00. The firm’s estimated marginal cost is
SMC = 12 - 0.005Q + 0.0000008Q2
where Q is the number of T-shirts produced and sold each month. Sport Tee Corporation will
have a fixed cost of $2,000 per month. To maximize profit how many T-shirts should be
produced and sold each month?
a.
1,000
b.
2,000
c.
3,000
d.
4,000
e.
5,000
Answer: e
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11-89 Sport Tee Corporation manufactures T-shirts bearing the logos of professional football teams.
The wholesale market for sport T-shirts is perfectly competitive. The manager forecasts the
wholesale price of T-shirts next year to be $7.00. The firm’s estimated marginal cost is
SMC = 12 - 0.005Q + 0.0000008Q2
where Q is the number of T-shirts produced and sold each month. Sport Tee Corporation will
have a fixed cost of $2,000 per month. At the profit-maximizing level of output total revenue will
be
a.
$10,000
b.
$15,000
c.
$20,000
d.
$25,000
e.
$35,000
Answer: e
Difficulty: 01 Easy
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
11-90 Sport Tee Corporation manufactures T-shirts bearing the logos of professional football teams.
The wholesale market for sport T-shirts is perfectly competitive. The manager forecasts the wholesale
price of T-shirts next year to be $7.00. The firm’s estimated marginal cost is
SMC = 12 - 0.005Q + 0.0000008Q2
where Q is the number of T-shirts produced and sold each month. Sport Tee Corporation will
have a fixed cost of $2,000 per month. Monthly profit will be
a.
−$2,000
b.
−$1,150
c.
$4,250
d.
$3,400
e.
$2,250
Answer: e
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximizing Output Decision
AACSB: Analytic
Blooms: Apply
Learning Objective: 11-06
Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.