Question 1

A firm's producer surplus equals its economic profit when:

Accepted Answer

A)  average variable costs are minimized. 
B)  average fixed costs are minimized. 
C)  marginal costs equal marginal revenue. 
D)  fixed costs are zero. 
E)  total revenues equal total variable costs.

Question 2

The table below provides cost information for two firms in a competitive industry. Graph the supply curves of the firms individually and jointly. For these two firms, at any positive output level, marginal cost exceeds average variable cost.

Accepted Answer

The answer of The table below provides cost information for...

Question 3

Figure 8.4.2
-Refer to Figure 8.4.2 above. How much is the profit lost when the farmer produces 6 sacks instead of 14 sacks?

Accepted Answer

A)  $996 
B)  $1.168 
C)  $628 
D)  None of the above. There is no profit lost because the farmer maximizes profit when it produces 6 sacks of coffee.

Question 4

A firm never operates:

Accepted Answer

A)  at the minimum of its ATC curve. 
B)  at the minimum of its AVC curve. 
C)  on the downward-sloping portion of its ATC curve. 
D)  on the downward-sloping portion of its AVC curve. 
E)  on its long-run marginal cost curve.

Question 5

Figure 8.7.3
-Refer to Figure 8.7.3 above. At P = $80, the profit-maximizing output in the short run is:

Accepted Answer

A)  22. 
B)  34. 
C)  39. 
D)  50. 
E)  64.

Question 6

If a competitive firm's marginal costs always increase with output, then at the profit maximizing output level, producer surplus is:

Accepted Answer

A)  zero because marginal costs equal marginal revenue. 
B)  zero because price equals marginal costs. 
C)  positive because price exceeds average variable costs. 
D)  positive because price exceeds average total costs. 
E)  positive because revenues are increasing faster than variable costs.

Question 7

Homer's Boat Manufacturing cost function is:  The marginal cost function is:  If Homer can sell all the boats he produces for $1,200, what is his optimal output? Calculate Homer's profit or loss.

Accepted Answer

The answer of Homer's Boat Manufacturing cost function is: ...

Question 8

The squishy industry is competitive and the market price is $0.80. Apu's long-run cost function is:  where r is the price Apu pays to lease a squishy machine and q is squishy output. The long-run marginal cost curve is:  What is Apu's optimal output if the price Apu pays to lease a squishy machine is $1.10? Suppose the lease price of squishy machines falls by $0.55. What happens to Apu's optimal output if the market price for a squishy remains at $0.80? Did profits increase for Apu when the lease rate of squishy machines fell?

Accepted Answer

The answer of The squishy industry is competitive and the...

Question 9

Scenario 8.2:
Yachts are produced by a perfectly competitive industry in Dystopia. Industry output (Q) is currently 30,000 yachts per year. The government, in an attempt to raise revenue, places a $20,000 tax on each yacht. Demand is highly, but not perfectly, elastic.
-Refer to Scenario 8.2. The more elastic is demand for yachts,

Accepted Answer

A)  the more Q will fall and the more P will rise. 
B)  the less Q will fall and the more P will rise. 
C)  the more Q will fall and the less P will rise. 
D)  the less Q will fall and the less P will rise. 
E)  the closer is the new equilibrium point to the old.

Question 10

Three hundred firms supply the market for paint. For fifty of the firms, their short-run average variable costs are minimized at $10 and short-run total costs are minimized at $15. For the remaining firms, the short-run average variable costs and short-run average total costs are minimized at $20 and $25, respectively. If each firm has a U-shaped marginal cost curve then the short-run market supply curve is:

Accepted Answer

A)  U-shaped too. 
B)  kinked at $10. 
C)  kinked at $15. 
D)  kinked at $20. 
E)  kinked at $25.

Question 11

Use the following statements to answer this question: I. Markets may be highly (but not perfectly) competitive even if there are a few sellers.
II) There is no simple indicator that tells us when markets are highly competitive.

Accepted Answer

A)  I and II are true 
B)  I is true and II is false 
C)  I is false and II is true 
D)  I and II are false

Question 12

The manufacturing of paper products causes damage to a local river when the manufacturing plant produces more than 1,000 units in a period. To discourage the plant from producing more than 1,000 units, the local community is considering placing a tax on the plant. The long-run cost curve for the paper producing firm is:  where q is the number of units of paper produced and t is the per unit tax on paper production. The relevant marginal cost curve is:  If the manufacturing plant can sell all of its output for $2, what is the firm's optimal output if the tax is set at zero? What is the minimum tax rate necessary to ensure that the firm produces no more than 1,000 units? How much are the firm's profits reduced by the presence of a tax?

Accepted Answer

The answer of The manufacturing of paper products causes damage...

Question 13

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

Accepted Answer

A)  on the downward-sloping portion of its ATC curve. 
B)  at the minimum of its ATC curve. 
C)  on the upward-sloping portion of its ATC curve. 
D)  above its ATC curve.

Question 14

Suppose we plot the total revenue curve with quantity on the horizontal axis and revenue on the vertical axis (as in Figure 8.1 in the book). Under price-taking behavior, the total revenue curve should be:

Accepted Answer

A)  an inverted U-shaped curve (first increasing and then decreasing). 
B)  a U-shaped curve (first decreasing and then increasing). 
C)  a horizontal line with vertical axis intercept equal to the market price. 
D)  a straight line from the origin with slope equal to the market price.

Question 15

The textbook for your class was not produced in a perfectly competitive industry because:

Accepted Answer

A)  there are so few firms in the industry that market shares are not small, and firms' decisions have an impact on market price. 
B)  upper-division microeconomics texts are not all alike. 
C)  it is not costless to enter or exit the textbook industry. 
D)  of all of the above reasons.

Question 16

Consider the following statements when answering this question: I. Increases in the demand for a good, which is produced by a competitive industry, will raise the short-run market price.
II) Increases in the demand for a good, which is produced by a competitive industry, will raise the long-run market price.

Accepted Answer

A)  I and II are true. 
B)  I is true, and II is false. 
C)  I is false, and II is true. 
D)  I and II are false.

Question 17

When the price faced by a competitive firm was $5, the firm produced nothing in the short run. However, when the price rose to $10, the firm produced 100 tons of output. From this we can infer that:

Accepted Answer

A)  the firm's marginal cost curve must be flat. 
B)  the firm's marginal costs of production never fall below $5. 
C)  the firm's average cost of production was less than $10. 
D)  the firm's total cost of producing 100 tons is less than $1000. 
E)  the minimum value of the firm's average variable cost lies between $5 and $10.

Question 18

Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should:

Accepted Answer

A)  close her doors immediately. 
B)  continue producing in the short and long run. 
C)  continue producing in the short run, but plan to go out of business in the long run. 
D)  raise her prices above the perfectly competitive level. 
E)  lower her output.

Question 19

Short-run supply curves for perfectly competitive firms tend to be upward sloping because:

Accepted Answer

A)  there is diminishing marginal product for one or more variable inputs. 
B)  marginal costs increase as output increases. 
C)  marginal fixed costs equal zero. 
D)  A and B are correct. 
E)  B and C are correct.

Question 20

Consider a competitive market in which the market demand for the product is expressed as
P = 75 - 1.5Q,
and the supply of the product is expressed as
P = 25 + 0.50Q.
Price, P, is in dollars per unit sold, and Q represents rate of production and sales in hundreds of units per day. The typical firm in this market has a marginal cost of
MC = 2.5 + 10q.
a. Determine the equilibrium market price and rate of sales.
b. Determine the rate of sales of the typical firm, given your answer to part (a) above.
c. If the market demand were to increase to  what would the new price and rate of sales in the market be? What would the new rate of sales for the typical firm be?
d. If the original supply and demand represented a long-run equilibrium condition in the market, would the new equilibrium (c) represent a new long-run equilibrium for the typical firm? Explain.

Accepted Answer

The answer of Consider a competitive market in which the...

Exam 8: Profit Maximization and Competitive Supply

A firm's producer surplus equals its economic profit when:

The table below provides cost information for two firms in a competitive industry. Graph the supply curves of the firms individually and jointly. For these two firms, at any positive output level, marginal cost exceeds average variable cost.

Figure 8.4.2 -Refer to Figure 8.4.2 above. How much is the profit lost when the farmer produces 6 sacks instead of 14 sacks?

A firm never operates:

Figure 8.7.3 -Refer to Figure 8.7.3 above. At P = $80, the profit-maximizing output in the short run is:

If a competitive firm's marginal costs always increase with output, then at the profit maximizing output level, producer surplus is:

Homer's Boat Manufacturing cost function is: The marginal cost function is: If Homer can sell all the boats he produces for $1,200, what is his optimal output? Calculate Homer's profit or loss.

Use the following statements to answer this question: I. Markets may be highly (but not perfectly) competitive even if there are a few sellers. II) There is no simple indicator that tells us when markets are highly competitive.

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

Suppose we plot the total revenue curve with quantity on the horizontal axis and revenue on the vertical axis (as in Figure 8.1 in the book) . Under price-taking behavior, the total revenue curve should be:

The textbook for your class was not produced in a perfectly competitive industry because:

When the price faced by a competitive firm was $5, the firm produced nothing in the short run. However, when the price rose to $10, the firm produced 100 tons of output. From this we can infer that:

Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should:

Short-run supply curves for perfectly competitive firms tend to be upward sloping because: