AP Econ Unit 3

The table above shows a firms total cost of producing various units of output. What is the average variable cost of producing three units?

$7?

Suppose that price in a perfectly competitive industry decreases and it is now below minimum, average total cost but remains above minimum average variable cost. Which of the following will occur in the short run?

Firm will produce the output at which marginal cost equal the new price

Which of the following will most likely lead to zero economic profits

Free/Easy entry and exit of firms

If a profit maximizing firm in a perfectly competitive market chooses to produce in the short-run, the marginal cost is always

Greater than or equal to the average variable cost

Which of the following is true of a firm in a perfectly competitive industry?

It faces a perfectly elastic demand curve

For a perfectly competitive firm producing the profit-maximizing quantity, the average total cost is $10 and the average variable cost is $8. If the market price for its product is $10, which of the following is true for the firm?

It is earning zero economic (normal) profit and will remain in business

Which of the following is true of a perfectly competitive firm in long-run equilibrium

It produces its output at a minimum average total cost

Assume that a perfectly competitive firm is in a long-run equilibrium. If the industry demand for the product increases, how will this firms price, output, and profit change in the short run

Price: increase; Output: increase; Profit:increase

Assume that a firm uses only one variable input. If the firm is experiencing diminishing return, which of the following is true as more of the variable input is used?

Marginal cost will increase

The amount of product Z that must be forgone on order to obtain some amount of product Y is called

Opportunity cost

Assume that a profit-maximizing, perfectly competitive firm has economic losses in the short-run. If the firm continues to produce and sell its goods, then which of the following must be true?

The firm is covering all of its fixed cost but not all of its variable costs of production

In the short run, if a firm produces the level of output at which marginal revenue is equal to marginal cost but MR=D=AR=P is less than average total cost, the firm will

increase output to increase revenue?

A firm is producing the allocative efficient level of output if

price is equal to marginal cost