Question

If a competitive firm can sell a bushel of soybeans for $25 per bushel and it has an average variable cost of $20 per bushel, and the marginal cost is $22 per bushel, the firm should:

		expand output.
		reduce output.
		increase price.
		cut output to zero.

In the long run, the competitive firm always produces at the:

		minimum of the average variable cost curve.
		minimum of the average total cost curve.
		maximum possible point of production.
		minimum of the marginal cost curve.

Price is equal to average cost if the firm:

		is never in productive equilibrium.
		is earning a normal rate of profit.
		is earning zero profits.
		needs to cut costs in the short run.

In an increasing cost industry:

		zero economic profit occurs at a higher price in the long run.
		economic profits occur at a higher price in the long run.
		zero economic profit occurs at a lower price in the long run.
		economic losses occur at a higher price in the long run.

If the characteristics of a competitive market hold, then the market is:

		both productively and allocatively efficient.
		neither productively nor allocatively efficient.
		productively efficient only.
		allocatively efficient only.

The supply curve increases as price increases, in accordance with the Law of Supply, ceteris paribus. Which of the following statements is true?

		Firms always set output at a level where P = MC.
		Firms try to maximize profit.
		Firms charge what the last unit costs to make.
		All of the above are true.

Allocative efficiency means that products are produced:

		at their lowest possible opportunity cost.
		at their lowest average variable cost.
		where the price equals marginal cost.
		at maximum output.

The market structure associated with many firms selling a standardized product is:

		competition.
		monopolistic competition.
		oligopoly.
		monopoly.

The main characteristic of the long run that enables a firm to enter or exit a market is enough time for the firm to:

		gauge the strength of consumer demand for the product.
		apply for any licenses required.
		acquire or sell its plant and equipment.
		set up a tax account with the IRS.

The cotton industry is experiencing less than normal profits. You can expect some firms to:

		increase price.
		decrease output.
		leave the industry in the long run.
		enter the industry in anticipation of higher prices.

In the theory of competitive markets, firms:

		take the price that is set by market forces.
		can affect the market price by deciding not to sell their product.
		can affect the market price by putting a label on their product.
		can affect the market by selling at less than the market price.

Answer 1

If a competitive firm can sell a bushel of soybeans for $25 per bushel and it has an average variable cost of $20 per bushel, and the marginal cost is $22 per bushel, the firm should:

Ans. expand output
To maxiimise profit: P = 25 = MC

If a competitive firm can sell a bushel of soybeans for $25 per bushel and it has an average variable cost of $20 per bushel, and the marginal cost is $22 per bushel, the firm should:
Ans. minimum of the average total cost curve
Explanation: Perfectly competitive firm produces at social optimum point.

Price is equal to average cost if the firm:
Ans. is earning a normal rate of profit.
Explanation: Profit = quantity x (Price - AVerage cost)

In an increasing cost industry:
ans. Izero economic profit occurs at a higher price in the long run.