E201 Perfect Competition

In the above figure (#7), the marginal cost of the output produced by the profit maximizing firm is -$4 -$6 -$7 -$10

$10

Consider the perfectly competitive firm in the above figure. The shutdown point occurs at a price of -$11.00. -$22.00. -$12.00. -$16.00.

$11.00.

In the above figure (#7), the firm's total revenue is equal to $200 -$200 -$60 -$150 -$140

$200

Instead of baby sitting for $5.00 an hour for her neighbor, Stacy sold assorted vegetables by the pound. In three hours she is able to sell 50 pounds of vegetables at 50 cents a pound. If the materials (paper bags) cost her a total of $3.00, and she obtained all the vegetables and capital inputs (table, sign) at no charge from her grandmother, then her economic profits were: -$7 -$-3 (she suffered economic losses) -$10 -$0 (that is, she "broke even")

$7

Consider the perfectly competitive firm in the above figure. The profit maximizing level of output for the firm is equal to -17 units -0 units -14 units -19 units

17 units

In the above figure, the firm will produce -15 units. -20 units. -5 units. -0 units.

20 units

boxes of chocolate/ Marginal Cost 95_________$4 96_________$4.10 97_________$4.25 98_________$4.45 99_________$4.70 100________$5 The table above gives the marginal costs of producing boxes of chocolates at Nancy's Fancy Chocolates. Nancy is a producer in the perfectly competitive market for fancy chocolates. If the market price for a box of fancy chocolates is $4.50, then how many boxes should Nancy produce to maximize her profits? This price is above Nancy's minimum average variable cost. -95 -99 -98 -100

98

Which of the following is NOT a characteristic of a perfectly competitive market? -There are many sellers in the market. -Firms have difficulty entering the market. -Goods offered for sale are largely the same. -Firms are price takers.

Firms have difficulty entering the market.

A perfectly competitive firm's short-run supply curve is the same as its -ATC curve -AVC curve -MC curve above the minimum of the AVC curve

MC curve above the minimum of the AVC curve

American Idle sells hammocks in a perfectly competitive market. This year, the price of hammocks has fallen to $24, and Simon Cowbell, the manager of American Idle, is trying to decide what to do. He discovers that his average variable cost (AVC) is $25, average total cost (ATC) is $30, and marginal cost is $24 and upward sloping. What should he do? -Shut down because p < AVC. -Increase production until ATC falls below $27. -Decrease production so that MC falls below $27. -Stay open because price > AVC

Shut down because p < AVC.

In a competitive industry, the short run supply curve of the firm is given by -The portion of the marginal cost curve (MC) above the minimum point as the firm produces where price is equal to MC -The portion of the marginal cost curve (MC) above the minimum point of the average variable cost as the firm can maximize profits or minimize losses when it produces where price is equal to marginal cost. -The portion of the short run average total cost curve (ATC) above the minimum point as the firm can make positive profits when price is greater than average total cost. -The portion of the short run average variable cost curve (AVC) above the minimum point as the firm can cover its variable cost when price is greater than average variable cost.

The portion of the marginal cost curve (MC) above the minimum point as the firm produces where price is equal to MC

Farmer K produces and sells soybeans in a perfectly competitive market. Farmer K's short run supply curve for soybeans is -The upward sloping portion of the average cost curve. -The upward sloping portion of the marginal cost curve. -The upward sloping portion of the marginal cost curve above the average total cost curve. -The upward sloping portion of the marginal cost curve above the average variable cost curve.

The upward sloping portion of the marginal cost curve above the average variable cost curve.

Consider the perfectly competitive firm in the above figure (#17). At the profit maximizing level of output, the firm is earning -an economic loss equal to $187.00. -a normal profit. -an economic loss equal to $123.50. -an economic loss equal to $119.00.

an economic loss equal to $119.00.

For a competitive firm, -average revenue equals marginal revenue, but the price of the good is different. -average revenue, marginal revenue, and the price of the good are all equal to one another. -marginal revenue equals the price of the good, but average revenue is different. -average revenue equals the price of the good, but marginal revenue is different.

average revenue, marginal revenue, and the price of the good are all equal to one another

When a profit-maximizing firm's fixed costs are considered sunk in the short run, then the firm -can set price above marginal cost. -can safely ignore fixed costs when deciding how much output to produce. -must set price below average total cost. -will never show losses.

can safely ignore fixed costs when deciding how much output to produce.

Whenever a perfectly competitive firm chooses to change its level of output, holding the price of the product constant, its marginal revenue -increases if MR < ATC and decreases if MR > ATC. -does not change. -increases. -decreases.

does not change.

When price rises from P2 to P3, the firm finds that -if it produces at output level Q3 it will earn a positive profit -marginal cost exceeds marginal revenue at a production level of Q2. -expanding output to Q4 would leave the firm with losses. -it could increase profits by lowering output from Q3 to Q2.

expanding output to Q4 would leave the firm with losses.

If a profit-maximizing firm in a competitive market discovers that at its current level of production price is greater than marginal cost it should -Keep output the same. -shut down. -increase its output. -reduce its out.

increase its output.

If the market price is P3, in the short run, the perfectly competitive firm will earn -positive economic profits. -zero economic profits. -negative economic profits but will try to remain open. -negative economic profits and will shut down.

negative economic profits but will try to remain open.

When a perfectly competitive firm decides to shut down, it is most likely that -marginal cost is above average variable cost. -fixed costs exceed variable costs. -marginal cost is above average total cost. -price is below the minimum of average variable cost.

price is below the minimum of average variable cost.

A profit-maximizing firm in a competitive market is able to sell its product for $13. At its current level of output the firm's average total cost is $11. Its marginal cost curve crosses the marginal revenue curve at an output level of 10 units. Then the firm experiences a -profit of exactly $20. -loss of more than $20. -profit of more than $20. -loss of exactly $20.

profit of exactly $20.

When firms have an incentive to exit a competitive market, their exit will -shift the demand for the product to the left. -raise the profits for the firms that remain in the market. -lower the market price. -necessarily raise the costs for the firms that remain in the market.

raise the profits for the firms that remain in the market.

A profit-maximizing firm in a competitive market produces small rubber balls. When the market price for small rubber balls falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, the firm -should raise the price of its product. -will shut down. -will be earning both economic and accounting profits. -will experience losses but it will continue to produce rubber balls.

will experience losses but it will continue to produce rubber balls.

In the long run, each firm in a competitive industry earns -positive, negative, or zero economic profits. -positive economic profits. -zero economic profits. -zero accounting profits.

zero economic profits.