CLEP Microeconomics chapter practice4 questions

20 Perfect Competition: The Firm's Decision

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

For a perfectly competitive firm, marginal revenue equals

Each additional unit sells at the unchanged market price, so price, average revenue, and marginal revenue are equal.
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B. the market price

Each additional unit sells at the unchanged market price, so price, average revenue, and marginal revenue are equal.

Question 2

Question 2 of 4

A competitive firm's price is 18. Marginal cost for quantities 1 through 5 is 6, 10, 14, 19, and 25. What quantity maximizes profit?

The firm produces the first three units because their marginal costs do not exceed 18. The fourth unit costs 19 at the margin.
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A. 3

The firm produces the first three units because their marginal costs do not exceed 18. The fourth unit costs 19 at the margin.

Question 3

Question 3 of 4

A competitive firm produces where P=MC. At that quantity, P<AVC. In the short run the firm should

Price does not cover average variable cost, so production would add more variable cost than revenue. Shutting down minimizes the short-run loss.
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E. shut down

Price does not cover average variable cost, so production would add more variable cost than revenue. Shutting down minimizes the short-run loss.

Question 4

Question 4 of 4

The short-run supply curve of a competitive firm is the portion of

At each price above minimum AVC, the rising marginal-cost curve identifies the profit-maximizing quantity supplied.
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C. marginal cost above average variable cost

At each price above minimum AVC, the rising marginal-cost curve identifies the profit-maximizing quantity supplied.

Quiz complete