Question

Which of the following statements is (are) correct?
(x) Since the market for wheat is considered to be competitive, a wheat farmer maximizes profit by choosing a quantity at which the market price of wheat is greater than the farm's marginal cost of production.
(y) If rational, profit-maximizing firms analyze at the margin, then marginal adjustments to production should increase profit (decrease loss) if the firm is not at its profit-maximizing amount of output.
(z) When price is less than marginal cost for a firm in a competitive market, there are opportunities to increase profit by increasing production.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (y) only

A profit maximizing firm in a competitive market produces toys. When the market price for toys increases to a price above the minimum of its average total cost, the firm

A. the firm should raise the price of its product above the market price.
B. will experience losses but will continue to produce toys.
C. will not increase its production of toys because economic profits will still be less than zero.
D. will be earning both economic and accounting profits.
E. will be earning economic profits but not accounting profits.

Comparing marginal revenue to marginal cost
(x) reveals the contribution of the last unit of production to total profit.
(y) is helpful in making profit maximizing production decisions.
(z) tells a firm whether it should change production or remain at the present level of production
A. (x), (y) and (z)
B. (x) and (y), only
C. (x) and (z), only
D. (y) and (z), only
E. (z) only

Answer 1

Q1. Option E. Competitive market maximizes profit by producing quantity where MC=MR and does not have control over price

Q2. Option D. When price is greater than average cost, then profit increases

Q3. Option D