ECON CH 9!

Refer to the diagram to the right which shows cost and demand curves facing a typical firm in a constant−cost perfectly competitive industry. What is the minimum price the firm requires to produce​ output?

$5

Isabella grows pumpkins. Her average variable cost ​(AVC​), average total cost ​(ATC​), and marginal cost ​(MC​) of production are illustrated in the figure to the right. Assume the market for pumpkins is perfectly competitive and that the market price is ​$4.00 per box. If Isabella produces the​ profit-maximizing quantity of​ pumpkins, what will be her​ profits? Isabella will earn a profit of ​$___ thousand. What will​ Isabella's profit be if she shuts down in the short run and produces​ nothing? ​Isabella's profit will be ​$___ thousand.

-2.75 -3.00

The graph to the right represents the situation of​ Marguerite's Caps, a firm selling caps in the perfectly competitive cap industry. In order to maximize her​ profits, Marguerite should produce __ caps. At the​ profit-maximizing level of​ output, she will earn a profit of ​$_____ Suppose Marguerite decides to quit the cap industry and shut down. Her loss would be ​$___

100 200 300

Edward Scahill produces table lamps in the perfectly competitive desk lamp market. The equilibrium price of lamps is ​$50. a. Fill in the blanks in the table for total revenue and marginal​ revenue, as represented by ​(i and ii​). ​ ​(i​) Total revenue is ​$___ ​(​ii) Marginal revenue is ​$___ How many table lamps will Edward produce to maximize​ profit? __ lamps If next week the equilibrium price of desk lamps drops to​ $30, should Edward shut down​?

150 50 7 No because price is greater than minimum AVC.

Refer to the diagram to the right which shows the cost and demand curves for a profit−maximizing firm in a perfectly competitive market. If the market price is​ $30, the​ firm's profit maximizing output level is

180

Based on the numbers in the​ table, how many bushels should this farmer produce in order to maximize​ profit? Refer to the​ graph, which shows the marginal cost and marginal revenue curves for a farmer in the perfectly competitive market for wheat. What is the​ profit-maximizing level of output if the farmer can produce only whole units of​ output?

6 bushels 6 bushels

Farmer Smith grows wheat. The average total cost and marginal cost of growing wheat for an individual farmer are illustrated in the graph to the right. Suppose the market for wheat is perfectly competitive. If the market price is ​$8 per bushel​, then to maximize​ profits, farmer Smith should produce __ thousand bushels of wheat.

70

The table above shows the short−run cost data of a perfectly competitive firm. Assume that output can only be increased in batches of 20 units. If the market price is​ $45 the firm will produce

80 units

Suppose the price of wheat rises to ​$7.00 per bushel. Farmer Parker will maximize profits by producing __ bushes of wheat He will make a profit of $__

9 $30.5

Refer to the diagram to the right which shows cost and demand curves facing a profit−maximizing perfectly competitive firm. Identify the short run shut down point for the firm.

B

Which demand curve in the graph is associated with the shutdown point for this perfectly competitive​ firm?

D2

A firm will break even when

P​ = ATC.

A firm will make a profit when

P​ > ATC.

Refer to the diagram to the right which shows cost and demand curves facing a profit−maximizing perfectly competitive firm. At price P3​, the firm would produce

Q3 units

Refer to the graph of the demand curve facing a firm in the perfectly competitive market for wheat. The fact that the demand curve is horizontal implies which of the​ following?

The firm can sell any amount of output as long as it accepts the market price of​ $7.00.

Which of the following is a characteristic of a​ monopoly?

There is only one seller in the market.

Why do single firms in perfectly competitive markets face horizontal demand​ curves?

With many firms selling an identical​ product, single firms have no effect on market price.

Explain why it is true that for a firm in a perfectly competitive market that P​ = MR​ = AR. Part 2 In a perfectly competitive​ market, P​ = MR​ = AR because

firms can sell as much output as they want at the market price.

If a perfectly competitive​ firm's price is above its average total​ cost, the firm

is earning a profit.

If a perfectly competitive​ firm's price is less than its average total cost but greater than its average variable​ cost, the firm

is incurring a loss.

A perfectly competitive firm produces​ 3,000 units of a good at a total cost of​ $36,000. The price of each good is​ $10. Calculate the​ firm's short run profit or loss.

loss of​ $6,000

A​ firm's total profit can be calculated as all of the following except

marginal profit times quantity sold.

The increase in total revenue that results from selling one more unit of output is What is the relationship between​ price, average​ revenue, and marginal revenue for a firm in a perfectly competitive​ market?

marginal revenue. Price is equal to both average revenue and marginal revenue.

The price of a​ seller's product in perfect competition is determined by

market demand and market supply.

When a perfectly competitive firm finds that its market price is below its minimum average variable​ cost, it will sell

nothing at​ all; the firm shuts down.

Marginal revenue is

the change in total revenue divided by the change in the quantity of output.

How should firms in perfectly competitive markets decide how much to​ produce? Perfectly competitive firms should produce the quantity where

the difference between total revenue and total cost is as large as possible.

Refer to the graph of the costs for a perfectly competitive firm. Which of the following best represents profit per unit of​ output? Which of the following best represents total​ profit?

the distance between points A and B the shaded rectangle

The table above shows the short−run cost data of a perfectly competitive firm. Assume that output can only be increased in batches of 20 units. If the market price is​ $45, the firm

will earn profit of​ $1,040.

Refer to the diagram to the right which shows cost and demand curves facing a profit−maximizing perfectly competitive firm. At price P1​, the firm would produce

zero units