ECON chapter 11

If Tom sells 500 sandwiches for $7 and has an average cost of $5, what is his profit?

-$1,000

(Table: Barrels of Oil 2) Refer to the table. The maximum profit available to the company is:

-$224.

(Figure: Costs) Use the figure. At a price of $20, the firm earns profit of:

-$75.

(Table: Barrels of Oil 2) Refer to the table. What is the marginal cost of producing the seventh barrel of oil?

-36

Table: Barrels of Oil 2 Barrel of Oil Produced Total Revenue Total Cost Price 1 $50 $4 $50 2 100 10 50 3 150 21 50 4 200 38 50 5 250 61 50 6 300 90 50 7 350 126 50 8 400 176 50 9 450 266 50 10 500 390 50 Reference: Ref 11-2 (Table: Barrels of Oil 2) Refer to the table. What is the marginal revenue of producing the fifth barrel of oil?

-50

(Table: Competitive Firm) Refer to the table. The profit maximizing output for this firm is:

-7

(Table: Barrels of Oil 2) Refer to the table. How many barrels of oil should the company produce to maximize profit?

-8

Which of the following statements is TRUE?

-High profits in an industry give entrepreneurs an incentive to enter that industry.

A perfectly competitive industry exists under which of the following conditions? I. The product sold is similar across firms. II. There are many sellers, each small relative to the total market. III. There are many sellers, each with total assets less than $2 million. IV. The threat of competition exists from potential sellers that have not yet entered the market.

-I, II, and IV only

In a constant cost industry, P = AC = $20. Which sequence of events follows an increase in demand?

-P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits return to $0

(Figure: Profits and Competitive Firms) Refer to the four panels in the figure. Which panel shows a competitive firm making zero economic profits?

-Panel B

What condition is necessary in a constant cost industry?

-Prices of the industry's inputs do not change as the industry expands.

Figure: Calculating Profits Refer to the figure. How much profit is the firm making at the profit-maximizing quantity?

-The firm is not making a profit—it is making a loss of $220.

In a competitive equilibrium, firms earn ______ economic profits.

-zero

To maximize profits, a firm in a highly competitive industry should set its price:

-at the market price.

The oil industry is an increasing cost industry because:

-expanding output requires firms to use more expensive production methods to find and extract oil from less desirable locations.

Economic profit differs from accounting profits because of its inclusion of:

-implicit costs.

In competitive markets, the demand curve faced by the individual firm is:

-perfectly elastic.