Exam 12: Firms in Perfectly Competitive Markets

In the mid-1990s, cattle ranchers in the United States kept raising cattle even though prices were at a ten-year low and below average total cost. What is the likely explanation for this?

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

Which of the following is a characteristic of a monopoly?

Figure 12-14 -If, in a perfectly competitive industry, the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue,

Suppose Veronica sells teapots in the perfectly competitive teapot market. Her output per day and her costs are as follows: Suppose the current equilibrium price in the teapot market is $15. To maximize profit, how many teapots will Veronica produce, what price will she charge, and how much profit (or loss) will she make? Draw a graph to illustrate your answer. Your graph should include Veronica's demand, ATC, AVC, MC, and MR curves, the price she is charging, the quantity she is producing, and the area representing her profit (or loss).

In a graph that illustrates a perfectly competitive firm, marginal revenue is

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. What is the amount of its total fixed cost?

A perfectly competitive firm's supply curve is its

In August 2008, Ethan Nicholas developed the iShoot application for the apple iPhone 3G, and within five months had earned $800,000 from this program. By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales. This example indicates that in a competitive market,

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

Figure 12-18 -Use the figure above to answer the following questions. a. How can you determine that the figure represents a graph of a perfectly competitive firm? Be specific; indicate which curve gives you the information and how you use this information to arrive at your conclusion. b. What is the market price? c. What is the profit-maximizing output? d. What is total revenue at the profit-maximizing output? e. What is the total cost at the profit-maximizing output? f. What is the profit or loss at the profit-maximizing output? g. What is the firm's total fixed cost? h. What is the total variable cost? i. Identify the firm's short-run supply curve. j. Is the industry in a long-run equilibrium? k. If it is not in long-run equilibrium, what will happen in this industry to restore long-run equilibrium? l. In long-run equilibrium, what is the firm's profit maximizing quantity?

Table 12-1 Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units. -Refer to Table 12-1. Suppose the fixed cost of production rises by $500 and the price per unit is still $8. What happens to the firm's profit-maximizing output level?

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -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?

Why would a company continue to operate for many years while never once turning a profit rather than shut down immediately? Using revenue and cost analysis, explain when the company would shut down.

Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12. Which of the following will happen?

Figure 12-13 -In long-run perfectly competitive equilibrium, which of the following is false?

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?

If a typical firm in a perfectly competitive industry is earning profits, then

Figure 12-1 -Refer to Figure 12-1. If the firm is producing 200 units,

Figure 12-10 -In the short run, a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.