Exam 8: Profit Maximization and Competitive Supply

Which of the following is NOT a necessary condition for long-run equilibrium under perfect competition?

Following Example 8.8 in the book, the long-run supply of rental housing in most U.S. communities is more inelastic than the long-run supply of owner-occupied housing. Why?

Table 8.1 -Refer to Table 8.1. The maximum profit available to the firm is:

Figure 8.4.2 -Refer to Figure 8.4.2 above. When average variable cost (AVC) is minimum,

Use the following statements to answer this question: I. Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) also shifts the average variable cost curve upward. II) Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) reduces firm output but may increase firm profits.

Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift?

The demand curve and long-run supply curve for carpet cleaning in the local market are: Q_D = 1,000 - 10P and Q_S = 640 + 2P. The long-run cost function for a carpet cleaning business is: C(q) = 3 . The long-run marginal cost function is: MC(q) = 6q. If the carpet cleaning business is competitive, calculate the optimal output for each firm. How many firms are in the local market? Is the carpet cleaning industry an increasing, constant, or decreasing cost industry?

Figure 8.3.1 -Refer to Figure 8.3.1 above. At which point or range is profit maximized?

In the short run, a perfectly competitive firm earning negative economic profit:

An industry analyst observes that in response to a small increase in price, a competitive firm's output sometimes rises a little and sometimes a lot. The best explanation for this finding is that:

The long-run cost function for LeAnn's telecommunication firm is: A local telecommunication tax of $0.01 has been implemented for each unit LeAnn sells. This implies the marginal cost function becomes: If LeAnn can sell all the units she produces at the market price of $0.70, calculate LeAnn's optimal output before and after the tax. What effect did the tax have on LeAnn's output level? How did LeAnn's profits change?

Marginal profit is negative when:

A competitive firm sells its product at a price of $0.10 per unit. Its total and marginal cost functions are: TC = 5 - 0.5Q + 0.001Q² MC = -0.5 + 0.002Q, where TC is total cost ($) and Q is output rate (units per time period). a. Determine the output rate that maximizes profit or minimizes losses in the short term. b. If input prices increase and cause the cost functions to become TC = 5 - 0.10Q + 0.002Q² MC = -0.10 + 0.004Q, what will the new equilibrium output rate be? Explain what happened to the profit maximizing output rate when input prices were increased.

Bud Owen operates Bud's Package Store in a small college town. Bud sells six packs of beer for off-premises consumption. Bud has very limited store space and has decided to limit his product line to one brand of beer, choosing to forego the snack food lines that normally accompany his business. Bud's is the only beer retailer physically located within the town limits. He faces considerable competition, however, from sellers located outside of town. Bud regards the market as highly competitive and considers the current $2.50 per six pack selling price to be beyond his control. Bud's total and marginal cost functions are: TC = 2000 + 0.0005Q² MC = 0.001Q, where Q refers to six packs per week. Included in the fixed cost figure is a $750 per week salary for Bud, which he considers to be his opportunity cost. a. Calculate the profit maximizing output for Bud. What is his profit? Is this an economic profit or an accounting profit? b. The town council has voted to impose a tax of $.50 per six pack sold in the town, hoping to discourage beer consumption. What impact will the tax have on Bud? Should Bud continue to operate? What impact will the tax have on Bud's out-of-town competitors?

Average cost for the firm in Table 8.1:

An industry has 1000 competitive firms, each producing 50 tons of output. At the current market price of $10, half of the firms have a short-run supply curve with a slope of 1; the other half each have a short-run supply curve with slope 2. The short-run elasticity of market supply is:

Suppose your firm operates in a perfectly competitive market and decides to double its output. How does this affect the firm's marginal profit?

Suppose a firm has unavoidable fixed costs of $500,000 per year, and it decides to shut down. What is the firm's producer surplus?

In a constant-cost industry, price always equals:

Although the long-run equilibrium price of oil is $80 per barrel, some producers have much lower costs because their oil reserves are relatively close to the surface and are easier to extract. If the low-cost producers have a minimum LAC equal to $20 per barrel, then the difference ($60 per barrel) is: