Chapter 10 homework

The profit maximizing output level for a perfectly competitive firm is always where A.P = MC. B. P = AVC. C. MC = ATC. D. MC = AVC.

A. P = MC.

Producer surplus is given by the area A.above the supply curve but below the price. B.below the supply curve. C.below the demand curve but above the price. D.below the demand curve.

A.above the supply curve but below the price

Joe is self-employed in a store that has a rental value of $500 a month which he pays, but he can vacate the building without giving notice. His other expenses are $100 a month for maintenance. He makes $25,000 a year on net sales (total revenue minus the wholesale cost of the product). If he quit his job and worked the same number of hours elsewhere at a job he liked equally well, he estimates that he could make $20,000 a year. No one else can be hired to work in the store. Joe should A.quit his job. B.keep the job. C.work part-time. D.It is impossible to say with the information given in the problem.

A.quit his job.`

If a firm's demand curve falls below its AVC curve, then the firm should A.shut down now. B.operate in the short run but not the long run. C.set price = marginal cost. D.shutdown in the long-run.

A.shut down now.

The output where MC = AVC is called the A.shutdown point. B.break-even point. C.profit maximizing point. D.revenue maximizing point.

A.shutdown point

A standardized product is a product A.that has many perfect substitutes. B.that is unique to one producer. C.which is produced according to government regulations. D. where the demand function is downward sloping for both the firm and the industry.

A.that has many perfect substitutes

In a competitive industry, the industry's short-run supply curve is A.the horizontal sum of the marginal cost curves. B.the vertical sum of the marginal cost curves. C.determined by the average total cost curve. D.determined by the average variable cost curve.

A.the horizontal sum of the marginal cost curves.

Breakeven point

ATC= P

Suppose an industry has 100 firms, each with supply curve P = 50 + 10Q. Furthermore, suppose the market demand curve is given by P = 200 - 0.9Q. What is the industry supply curve? A.P = 500 + Q B.P = 50 + 0.1Q C.P = -500 + 10P D.P = 50 + 10 Q

B.P = 50 + 0.1Q

At market equilibrium, the total benefit that results from all the transactions is A.the consumer surplus minus the producer surplus. B.the producer surplus minus the consumer surplus. C.the sum of the producer surplus and the consumer surplus. D.the entire area under the demand curve up to the quantity exchanged.

C. the sum of the producer surplus and the consumer surplus.

Which of the following is not a condition for perfect competition? A.Firms take prices as given. B.Firms sell a standardized product. C.Firms are protected by barriers to entry. D.Firms have perfect information.

C.Firms are protected by barriers to entry

Say a competitive firm is producing at point where ATC = $10, AVC = $2. If the firm charges $5 for its output, then in the short-run this firm should A.shutdown production. B.exit the industry. C.continue to operate. D.try to reduce its fixed costs.

C.continue to operate.

At market equilibrium, the total benefit that results from all the transactions is A.the consumer surplus minus the producer surplus. B.the producer surplus minus the consumer surplus. C.the sum of the producer surplus and the consumer surplus. D.the entire area under the demand curve up to the quantity exchanged.

C.the sum of the producer surplus and the consumer surplus.

Shutdown point

MC=AVC

Maximum Profit:

P=MC

IF ATC AND AVC above P

Shutdown

IF AVC is above P

Shutdown

IF AVC below P

continue to operate