Exam 6: Sellers and Incentives

The figure below shows the marginal cost (circles) and the average variable cost (crosses) of a firm in a competitive market. The firm always makes the choice to maximize its profit. -Refer to the figure above.If the market price of the product is $1,700,what is the firm's producer surplus?

Which of the following is true of perfect competition in the long run?

The following table shows the total output of bread produced by different numbers of workers in a bakery. -Refer to the table above.The marginal product of workers falls below zero when the ________ worker is hired.

For a perfectly competitive firm,profit maximization requires producing ________.

Consider a textile factory operating in the short run.Classify the following costs that the firm incurs as variable costs,sunk costs,or fixed costs. a)The cost of issuing identity cards to all workers b)The wages paid to the workers of the factory c)The yearly rent paid for production space d)The tax paid on the sale of its products

Which of the following markets is NOT characterized by free entry and exit?

The following graph represents the total production of a firm on the y-axis, and the number of employees on the x-axis. -Refer to the figure above.Marginal product of labor falls below zero when ________.

In a perfectly competitive market,the price in the long run will always ________.

The figure below shows the supply and the demand for a good (left) and the cost curves of an individual firm in this market (right). Assume that all firms in this market, including the potential entrants, have identical cost curves. Initially, the market is in equilibrium at point A. -Refer to the figure above.Suppose that the market has reached the long-run equilibrium.Then,due to news of the product's defects and recall,the demand falls by 2 units at each price.The market will tend toward the new long run equilibrium where ________.

The long-run supply curve of a firm is ________.

In a perfectly competitive market,an individual seller sells only a negligible fraction of the total amount of the good produced.This is why ________.

Graphically,producer surplus is the ________.

Scenario: Emily runs a small coffee roasting company. Labor is the only variable input. Output depends on the size of the coffee roaster (a fixed input) that she rents. She can fit only one roaster in her shop. The table below summarizes possible output per month depending on the number of workers employed and the size of a roaster Emily rents. Assume that workers cannot produce any quantity other than ones shown in the table. So, for example, if Emily wants to produce 3,000 kg per month with a small roaster, then she would have to hire 3 workers and produce 4,000 kg. Emily pays $2,400 per month to each worker she employs. Monthly rental prices are $400 for a small roaster, $650 for a medium roaster, and $880 for a large roaster. In addition, Emily's opportunity cost of being an entrepreneur is $12,000 per month because, with her MBA degree, she could be working for a management consulting firm. You should consider this as a part of the fixed cost. -Refer to the scenario above.If Emily wants to produce 4,000 kg per month,then the minimum total average cost is ________,which is achieved by renting a ________ roaster.

Price in a perfectly competitive market will change if ________.

A perfectly competitive firm's supply curve in the short run is ________.

The equilibrium price in a market corresponds to the point where the ________.

The figure below shows the cost curves of a firm in a competitive market. The firm always makes the choice to maximize its profit. -Refer to the figure above.If the market price of the product is $3.25,the firm's profit maximizing output is ________ and the firm's maximum profit is ________.

The assumption that each firm in a perfectly competitive market is a price taker basically means that ________.

In The Wealth of Nations,Adam Smith argued that "the division of labor [specialization] was limited by the extent of the market." (Bracketed remark added.)Which of the following best explains Smith's argument?

The price elasticity of supply is the ________.