Question 1

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

Accepted Answer

A) the firm's economic loss 
B) total variable cost 
C) average variable cost 
D) total fixed cost 
A) the firm's economic loss 
B) total variable cost 
C) average variable cost 
D) total fixed cost

Question 2

$$\begin{array} { | c | c | c | c | } 
\hline \text { Quantity } & \begin{array} { c } 
\text { Average } \
\text { Fixed Cost }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Variable Cost }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Cost }
\end{array} \
\hline 20 & \$ 40 & \$ 18 & \$ 18 \
\hline 40 & 20 & 14 & 10 \
\hline 60 & 13.1 & 16 & 20 \
\hline 80 & 10 & 22 & 40 \
\hline 100 & 8 & 30 & 62 \
\hline 120 & 6.61 & 40 & 90 \
\hline
\end{array}$$ Table 12-4 shows the short-run cost data of a perfectly competitive firm.Assume that output can only be increased in batches of 20 units.
-Refer to Table 12-4.If the market price is $45,the firm

Accepted Answer

A) earn a profit of $3,600. 
B) will suffer a loss of $200. 
C) will break even. 
D) will earn profit of $1,040. 
A) earn a profit of $3,600. 
B) will suffer a loss of $200. 
C) will break even. 
D) will earn profit of $1,040.

Question 3

Figure 12-16  
-Refer to Figure 12-16.Which panel best represents the perfectly competitive organic produce market in which firms are breaking even,economically,organic produce is considered a normal good,and the average income level of consumers is rising?

Accepted Answer

A) Panel A 
B) Panel B 
C) Panel C 
D) Panel D 
A) Panel A 
B) Panel B 
C) Panel C 
D) Panel D

Question 4

If in the long run a firm makes zero profit,it should exit the industry.

Accepted Answer

A) True 
 B)False

Question 5

When a perfectly competitive firm finds that its market price is below its minimum average variable cost,it will sell

Accepted Answer

A) the output where marginal revenue equals marginal cost. 
B) any positive output the entrepreneur decides upon because all of it can be sold. 
C) nothing at all;the firm shuts down. 
D) the output where average total cost equals price. 
A) the output where marginal revenue equals marginal cost. 
B) any positive output the entrepreneur decides upon because all of it can be sold. 
C) nothing at all;the firm shuts down. 
D) the output where average total cost equals price.

Question 6

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

Accepted Answer

A) The market demand curve is a horizontal line;the firm's demand curve is downward sloping. 
B) The market demand curve is downward sloping;the firm's demand curve is a vertical line. 
C) The market demand curve can not have a constant slope;the firm's demand curve has a slope equal to zero. 
D) The market demand curve is downward sloping;the firm's demand curve is a horizontal line. 
A) The market demand curve is a horizontal line;the firm's demand curve is downward sloping. 
B) The market demand curve is downward sloping;the firm's demand curve is a vertical line. 
C) The market demand curve can not have a constant slope;the firm's demand curve has a slope equal to zero. 
D) The market demand curve is downward sloping;the firm's demand curve is a horizontal line.

Question 7

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?

Accepted Answer

A) Panel A 
B) Panel B 
C) Panel C 
D) Panel D 
A) Panel A 
B) Panel B 
C) Panel C 
D) Panel D

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Maximizing average profit is equivalent to maximizing total profit.

Accepted Answer

A) True 
 B)False

Question 10

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that,for both

Accepted Answer

A) fixed costs are lower than variable costs. 
B) there are many other suppliers of similar goods or services. 
C) the implicit costs of production exceed the explicit costs of production. 
D) average costs of production do not change when their industry expands. 
A) fixed costs are lower than variable costs. 
B) there are many other suppliers of similar goods or services. 
C) the implicit costs of production exceed the explicit costs of production. 
D) average costs of production do not change when their industry expands.

Question 11

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

Accepted Answer

A) The firm's revenue is maximized. 
B) The firm's profit is maximized. 
C) The firm breaks even. 
D) Marginal cost equals marginal revenue. 
A) The firm's revenue is maximized. 
B) The firm's profit is maximized. 
C) The firm breaks even. 
D) Marginal cost equals marginal revenue.

Question 12

Figure 12-14  
-Refer to Figure 12-14.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

Accepted Answer

A) Panel A 
B) Panel B 
C) Panel C 
D) Panel D 
A) Panel A 
B) Panel B 
C) Panel C 
D) Panel D

Question 13

Figure 12-9 shows cost and demand curves facing a profit-maximizing,perfectly competitive firm.
-Refer to Figure 12-9.At price P1,the firm would

Accepted Answer

A) lose an amount equal to its fixed cost. 
B) lose an amount more than fixed cost. 
C) lose an amount less than fixed cost. 
D) break even. 
A) lose an amount equal to its fixed cost. 
B) lose an amount more than fixed cost. 
C) lose an amount less than fixed cost. 
D) break even.

Question 14

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

Accepted Answer

A) $5. 
B) $12.50. 
C) $25. 
D) $125. 
A) $5. 
B) $12.50. 
C) $25. 
D) $125.

Question 15

Assume that the LCD and plasma television sets industry is perfectly competitive.Suppose a producer develops a successful innovation that enables it to lower its cost of production.What happens in the short run and in the long run?

Accepted Answer

A) Initially,the firm will be able to increase its profit significantly,but in the long run its profits will still be greater than zero but lower than its short-run profits because other firms would also innovate. 
B) The firm will probably incur losses temporarily because of the high cost of the innovation,but in the long run it will start earning positive profits. 
C) This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation. 
D) The firm will be able to increase its economic profits temporarily,but in the long run its economic profits will be eliminated as other firms copy the innovation. 
A) Initially,the firm will be able to increase its profit significantly,but in the long run its profits will still be greater than zero but lower than its short-run profits because other firms would also innovate. 
B) The firm will probably incur losses temporarily because of the high cost of the innovation,but in the long run it will start earning positive profits. 
C) This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation. 
D) The firm will be able to increase its economic profits temporarily,but in the long run its economic profits will be eliminated as other firms copy the innovation.

Question 16

Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost,perfectly competitive industry.
-Refer to Figure 12-5.If the market price is $20,what is the average profit at the profit-maximizing quantity?

Accepted Answer

A) $5 
B) $6 
C) $9 
D) $20 
A) $5 
B) $6 
C) $9 
D) $20

Question 17

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?

Accepted Answer

A) No,it should shut down because it is making a loss. 
B) Yes,it should continue to produce because its price exceeds its average fixed cost. 
C) Yes,it should continue to produce because it is minimizing its loss. 
D) There is insufficient information to answer the question. 
A) No,it should shut down because it is making a loss. 
B) Yes,it should continue to produce because its price exceeds its average fixed cost. 
C) Yes,it should continue to produce because it is minimizing its loss. 
D) There is insufficient information to answer the question.

Question 18

Table 12-5
 $$\begin{array} { | c | c | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity } \
\text { (cases) }
\end{array} & \begin{array} { c } 
\text { Variable } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Total } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Variable } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Total Cost }
\end{array} \
\hline 0 & \$ 0 & \$ 76 & & & \
\hline 1 & 30 & 106 & & & \
\hline 2 & 50 & & & & \
\hline 3 & & 134 & & & \
\hline 4 & & 140 & & & \
\hline 5 & & 160 & & & \
\hline 6 & 114 & & & & \
\hline 7 & 150 & & & & \
\hline 8 & 190 & & & & \
\hline 9 & & 316 & & & \
\hline
\end{array}$$ 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.
 $$\begin{array} { | c | c | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity } \
\text { (cases) }
\end{array} & \begin{array} { c } 
\text { Variable } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Total } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Variable } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Total Cost }
\end{array} \
\hline 0 & \$ 0 & \$ 76 & - - & - - & \$ 76 \
\hline 1 & 30 & 106 & \$ 30 & \$ 30 & 106 \
\hline 2 & 50 & 126 & 20 & 25 & 63 \
\hline 3 & 58 & 134 & 8 & 19.33 & 44.67 \
\hline 4 & 64 & 140 & 6 & 16 & 35 \
\hline 5 & 84 & 160 & 20 & 16.8 & 32 \
\hline 6 & 114 & 190 & 30 & 19 & 31.67 \
\hline 7 & 150 & 226 & 36 & 21.43 & 32.29 \
\hline 8 & 190 & 266 & 40 & 23.75 & 33.25 \
\hline 9 & 240 & 316 & 50 & 26.67 & 35.11 \
\hline
\end{array}$$ 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.
Diff: 3 Page Ref: 421-422
Topic: Profit-Maximizing Level of Output
*: Recurring
Learning Outcome: Micro-13: Explain the relationship between production and profits under perfect competition
AACSB: Analytical thinking
-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.

Accepted Answer

The answer of Table 12-5
 \[\begin{array} { | c |...

Question 19

Figure 12-11  
-Refer to Figure 12-11.Suppose the prevailing price is $20 and the firm is currently producing 1,350 units.In the long-run equilibrium

Accepted Answer

A) there will be fewer firms in the industry and total industry output decreases. 
B) there will be more firms in the industry and total industry output increases. 
C) there will be fewer firms in the industry but total industry output increases. 
D) there will be more firms in the industry and total industry output remains constant. 
A) there will be fewer firms in the industry and total industry output decreases. 
B) there will be more firms in the industry and total industry output increases. 
C) there will be fewer firms in the industry but total industry output increases. 
D) there will be more firms in the industry and total industry output remains constant.

Question 20

If,as a perfectly competitive industry expands,it can supply larger quantities only at a higher long-run equilibrium price,it is

Accepted Answer

A) a constant-cost industry. 
B) an increasing-cost industry. 
C) a decreasing-cost industry. 
D) a fixed-cost industry. 
A) a constant-cost industry. 
B) an increasing-cost industry. 
C) a decreasing-cost industry. 
D) a fixed-cost industry.

Exam 12: Firms in Perfectly Competitive Markets

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

Figure 12-16 -Refer to Figure 12-16.Which panel best represents the perfectly competitive organic produce market in which firms are breaking even,economically,organic produce is considered a normal good,and the average income level of consumers is rising?

If in the long run a firm makes zero profit,it should exit the industry.

When a perfectly competitive firm finds that its market price is below its minimum average variable cost,it will sell

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

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

Maximizing average profit is equivalent to maximizing total profit.

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that,for both

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

Figure 12-14 -Refer to Figure 12-14.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

Figure 12-9 shows cost and demand curves facing a profit-maximizing,perfectly competitive firm. -Refer to Figure 12-9.At price P1,the firm would

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

Assume that the LCD and plasma television sets industry is perfectly competitive.Suppose a producer develops a successful innovation that enables it to lower its cost of production.What happens in the short run and in the long run?

Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost,perfectly competitive industry. -Refer to Figure 12-5.If the market price is $20,what is the average profit at the profit-maximizing quantity?

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?

Figure 12-11 -Refer to Figure 12-11.Suppose the prevailing price is $20 and the firm is currently producing 1,350 units.In the long-run equilibrium

If,as a perfectly competitive industry expands,it can supply larger quantities only at a higher long-run equilibrium price,it is

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

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Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

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Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology,production,and Costs

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

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Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

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Money,banks,and the Federal Reserve System

Monetary Policy

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Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

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