Exam 12: Firms in Perfectly Competitive Markets

A perfectly competitive firm in a constant-cost industry produces 1,000 units of a good at a total cost of $50,000.The prevailing market price is $48.Assuming that this firm continues to produce in the long run, what happens to output level in the long run?

If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

For a perfectly competitive firm, average revenue is equal to

Figure 12-4 Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 12-4.If the market price is $30 and if the firm is producing output, what is the amount of its total variable cost?

Figure 12-1 -Refer to Figure 12-1.If the firm is producing 700 units, what is the amount of its profit or loss?

In the long run, a firm in a perfectly competitive industry will supply output only if its total revenue covers its

Figure 12-2 -Refer to Figure 12-2.What is the amount of profit if the firm produces Q₂ units?

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC)and average total cost (ATC).Which of the following equations is equal to a firm's profit?

If a typical firm in a perfectly competitive industry is incurring losses, then

Of the following industries, which are perfectly competitive? For those that are not perfectly competitive, explain why. a.Restaurants b.Corn c.College education d.Local radio and television

Using two graphs, illustrate how a positive technological change in the market for notebook computers could eliminate short-run economic profit for a firm in that market.On the first graph, use a supply and demand graph to illustrate the positive technological change.On the second graph, use demand, ATC, MC, and MR curves to illustrate the elimination of economic profit resulting from the positive technological change.Explain what is taking place in each graph.

Table 12-5 Use the table to answer the following questions. a. Complete Table 12-5 by filling in the blank cells. b. Werner is selling in a perfectly competitive market at a price of $40.What is the profit maximizing or loss-minimizing output? c. Calculate the firm's profit or loss. d. Should the firm continue to produce in the short run? Explain. e. If the firm's fixed costs were $30 higher what would be the profit-maximizing output level in the short run? Indicate whether the output level will increase, decrease, or remain unchanged compared to your answer in b. f. Suppose fixed cost remains at $76.If the price of three-ring binders falls to $20 what is the profit-maximizing or loss-minimizing output? g. Calculate the profit or loss.Should the firm continue to produce in the short run? Explain your answer. h. Suppose the fixed cost remains at $76.What price corresponds to the shut-down point? i. Suppose the fixed cost remains at $76.What price corresponds to the break-even point? Answer: a. b. Quantity = 8 units. c. Profit = $54. d. Yes, it is earning an economic profit. e. The profit-maximizing output will not change since marginal cost is not affected by changes in fixed cost. f. Quantity = 5 units. g. Loss = $60.Yes, it is loss-minimizing. h. The shut-down point corresponds to a price of $16 and an output of 4 units. i. The break-even point occurs at a price $31.67 and an output of 6 units. -Use a graph to show the demand, AVC, ATC, MC, and MR curves of a firm that should temporarily shut down in the short run.Identify the shutdown point on the graph.

Which of the following is a characteristic of an oligopolistic market structure?

Figure 12-16 -Refer to Figure 12-16.Which panel best represents the perfectly competitive organic produce market in which some firms are earning short-run economic profits, and the Surgeon General announces that switching from non-organic produce to organic produce will add 5 years to the average life span of consumers?

Firms in perfect competition are price takers because

Figure 12-8 -Refer to Figure 12-8.Suppose the firm produces 4,000 units.What does the shaded area labeled A represent?

Ben's Peanut Shoppe suffers a short-run loss.Ben will not choose to shut down if

Marty's Bird House suffers a short-run loss.Marty can reduce his loss below the amount of his total fixed costs by continuing to produce if his revenue

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.The firm's manager suggests that the firm's goal should be to maximize average profit.If the firm does this, what is the amount of profit that it will earn?