MULTIPLE CHOICE QUESTION A. If a perfectly competitive firm’s marginal cost is g

Question

MULTIPLE CHOICE QUESTION

A. If a perfectly competitive firm’s marginal cost is greater than its marginal revenue at its current level of production, what must the firm do to increase its profit?
[1] Reduce the price of its product.
[2] Decrease its output.
[3] Increase the price of its product.
[4] Increase its output

B. A profit-maximising firm sells its product for R300, but continues to produce even though it is making a loss. This suggests that
[1] the marginal cost is less than the price.
[2] the average fixed cost is less than the price.
[3] the average variable cost is less than the price.
[4] the average total cost is less than the price.

C. A perfectly competitive firm is described as a market with
[1] a few firms producing differentiated goods.
[2] a few buyers, many sellers and the production of differentiated goods.
[3] many buyers, many sellers and the production of homogenous goods.
[4] a large number of firms that each individually sets the price of their goods.

D. The determination of the price of a product in a perfectly competitive market is where the
[1] supply and demand curves intersect.
[2] quantity supplied and quantity demanded intersect.
[3] marginal cost equals the price of the product.
[4] marginal revenue equals the marginal cost.

E. At what price should a firm produce to maximise profits in a perfectly competitive market?
[1] where price equals marginal cost
[2] where price equals marginal revenue
[3] where price equals total revenue
[4] where price equals average revenue

F. When a perfectly competitive industry is in a long-run equilibrium, all the firms in the industry will
[1] earn an economic profit.
[2] make an economic loss.
[3] earn a normal profit.
[4] earn zero profits.

G. Which of the following correctly characterises a perfectly competitive labour market?
[1] a large number of firms and a large number of workers
[2] imperfect information
[3] employees and employers having individual control over the market wage rate
[4] very few skilled workers

H. Which of the following is true of the profit-maximising level of employment in a perfectly competitive labour market?
[1] The marginal revenue product equals the value of marginal product.
[2] The marginal revenue product equals the marginal cost of labour.
[3] The marginal product equals the marginal revenue product.
[4] The marginal product equals the marginal cost of labour.

Explanation / Answer

Answer: [2] - Decrease its output.

If a perfectly competitive company produces at a quantity where the Marginal Cost is more than Marginal Revenue. i.e MC > MR, then the company could increase its profit by decreasing the output, since, the reductions in marginal costs MC would exceed the reductions in marginal revenue MR.

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