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1 . Purely competitive firms increase total revenue by • A. increasing production • B. decreasing production • C. increasing price • D. decreasing price
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Correct :
To increase revenue, firms look to increase price or quantity, as price multiplied by quantity equals total revenue. Purely competitive firms can sell as much as they want at the market price. Adding additional units of the product does not result in a change in the market price. Therefore, since purely competitive firms do not influence price, they increase total revenue by increasing quantity.

Materials • Profit-Maximizing Case
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2 . What are two ways for a competitive firm to determine the optimal level of production, that is, the level of production that will maximize profit or minimize losses? • A. Comparing total revenue to total cost or marginal revenue to marginal costs • B. Comparing average revenue to average costs or marginal revenue to marginal costs • C. Comparing average variable costs to price or marginal revenue to price • D. Comparing total revenue to average variable costs or price to average variable costs
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Correct :
A firm can look at two factors when considering whether it is maximizing profit or minimizing losses. First, it can find the maximum difference between total revenue and total cost. Second, a firm can look at the additional revenue gained from selling one more unit and at the additional cost from producing that additional unit. As long as the additional revenue from selling one more unit is greater than the cost of producing that unit, the firm will continue to increase its revenue. If the additional cost of producing another unit is greater than the additional revenue generated by selling that additional unit, the firm takes away from its total profit; this is the