ECO 112 HW 9

Rambutan is a fruit prized in Eastern Asia for its unique hairy look. Once peeled, it reveals a sweet, slightly sour, grape‑like, gummy‑tasting fruit. Shown is a graph for a perfectly or purely competitive rambutan farmer. This firm is incurring a ____. In the long run, firms will ____ this market.

profit; enter

If this firm chooses to operate, what will its profits equal? Enter a negative number for a loss.

$-420

What will the profits be if this firm shuts down?

$-500

What is the marginal revenue received from the 11th unit?

$100

What price does this firm charge for each hard drive?

$100 per unit

When profit maximizing, what is this firm's profit?

$1000

The graph shows the average total cost (ATC) curve, the marginal cost (MC) curve, the average variable cost (AVC) curve, and the marginal revenue (MR) curve (which is also the market price) for a perfectly competitive firm that produces water balloon ammunition. Answer the three accompanying questions, assuming that the firm is profit-maximizing and does not shut down in the short run. What is the firm's total revenue? What is the firm's total cost? What is the firm's profit? (Enter a negative number for a loss.)

$130000 $211900 $-81900

What is this firm's profit/loss? Round to the nearest penny.

$14.00

What is the marginal cost of producing the 11th unit?

$38

Firms earning a loss will sometimes shut down in the short run. What quantity will the firm produce if it shuts down in the short run?

0 units

How many units should this firm produce to maximize profits?

14 units

Firms sometimes prefer to minimize losses by continuing to operate in the short run. What quantity will the firm produce to minimizes losses in the short run?

4 units

If the cost and revenue numbers in the table will continue forever (permanently), is it better for this firm to A) shut down immediately. B) continue to operate indefinitely. C) continue to operate in the short run, and exit the market in the long run.

C) continue to operate in the short run, and exit the market in the long run.

Classify the assumptions according to whether or not each item is an assumption made under perfect competition (also known as pure competition or competitive industry). - firms selling a similar but differentiated good - significant barriers to entry - a small number of producers - price-taking behavior

Assumed in perfect competition: price-taking behavior Not assumed in perfect competition: a small number of producers; significant barriers to entry; firms selling a similar but differentiated good

If the market price fell to $9.51, then A) this firm would be at its shut down price. B) this firm would be incurring a loss. C) this firm would be breaking even (zero profit). D) this firm would be making an economic profit.

C) this firm would be breaking even (zero profit).

In the long run, firms will A) enter the market. B) exit the market.

B) exit the market.

Given the current price, this firm will earn a A) zero economic profit. B) negative economic profit. C) positive economic profit.

B) negative economic profit.

Over time, the price of the product will A) stay the same. B) rise. C) fall.

B) rise.

In the short run, perfectly (or purely) competitive firms will maximize their profit by producing which of the choices? Select all that apply. A) any quantity where marginal revenue > marginal cost B) the quantity where marginal revenue = marginal cost C) the largest quantity possible, not considering costs or revenues D) a small quantity to drive up the price E) the quantity where price equals marginal cost

B) the quantity where marginal revenue = marginal cost E) the quantity where price equals marginal cost

The hypothetical production data is for a profit maximizing firm. Suppose the market price falls from $200 to $182 and the firm does not shut down. Use this information and the table to match the labels. True or False: If the market price is $160, then the firm will shutdown.

False

True or False: Since the firm is still operating, the firm must be earning a positive profit.

False

True or False: If the price increases to $200, then the firm will earn a positive economic profit.

True

For firms in perfectly competitive markets, long‑run economic profits are ____ because firms will ____ the market if profits are negative and ____ the market if profits are positive.

zero; exit; enter