Exam 9: Firms in Perfectly Competitive Markets

Assuming a market price of $4,fill in the columns in the following table.What is the profit-maximizing level of production? What are the two ways to determine the profit-maximizing level of production? Quantity Total Revenue (TR) Total Cost (TC) Profit Marginal Revenue (MR) Marginal Cost (MC) 0 3 1 5 2 6 3 9 4 14 5 20 6 28 7 40

Figure 9-1 -Refer to Figure 9-1.If the firm is producing 500 units,what is the amount of its profit or loss?

The minimum point on the average variable cost curve is called the loss-minimizing point.

If,for a given output level,a perfectly competitive firm's price is less than its average variable cost,then the firm

What is always true at the quantity where a firm's average total cost equals average revenue?

In an increasing-cost industry the long-run supply curve is upward sloping.

If,for a perfectly competitive firm,price exceeds the marginal cost of production,the firm should

If the market price is $40,the average revenue of selling five units is

If,for the last unit of a good produced by a perfectly competitive firm,MR > MC,then in producing it,the firm

Figure 9-5 Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 9-5.The firm's manager suggests that the firm's goal should be to maximize average profit.In that case,what is the output level and what is the average profit that will achieve the manager's goal?

Assume that the medical screening industry is perfectly competitive.Consider a typical firm that is making short-run losses.Suppose the medical screening industry runs an effective advertising campaign which convinces a large number of people that yearly CT scans are critical for good health.How will this affect a typical firm that remains in the industry?

What assumptions are necessary for a market to be perfectly competitive? Explain why each of these assumptions is important.

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The fixed cost of production is $20,000.The price of each good is $10.Should the firm continue to produce in the short run?

How are sunk costs and fixed costs related?

Figure 9-17 The graphs in Figure 9-17 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry. -Refer to Figure 9-17.Which of the following statements is true?

A perfectly competitive industry achieves allocative efficiency when

Werner & Sons is a manufacturer of three-ring binders operating in a perfectly competitive industry.Table 9-5 shows the firm's cost schedule. Table 9-5 Quantity (cases) Variable Cost Total Cost Marginal Cost Average Variable Cost Average Total Cost 0 \ 0 \ 76 1 30 106 2 50 3 134 4 140 5 160 6 114 7 150 8 190 9 316 Use the table to answer the following questions. a.Complete Table 9-5 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?

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₄,the firm would

Figure 9-4 Figure 9-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 9-4.What is the amount of its total fixed cost?

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.Identify the short-run shut down point for the firm.