Chapter 11 Costs & Profits

(Figure: Costs of Oil Production) Refer to the figure. Assuming that price equals marginal cost, the profit of producing eight barrels of oil is:

$160.

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

$75.

Refer to the figure. If you are one of literally thousands of maple syrup producers and you wanted to increase your maple syrup production from 100 gallons to 110 gallons, what price would you charge?

$96

(Figure: Two-Firm Industry) Refer to the figures. At a market price of $20, the total quantity supplied in the industry is:

15 units.

(Figure: Two-Firm Industry) Refer to the figures. At a market price of $25, the total quantity supplied in the industry is:

45 units.

Use the figure. The profit-maximizing output for this firm is:

6.

Firms should exit the market if:

price falls below the average cost.

(Figure: Industry Firms) Refer to the figures. The market is characterized by demand curve D2 and supply curve S1. The firms in the industry are earning ________, which will cause the______________.

profit; supply curve to shift to S2

Firms in a perfectly competitive industry maximize profits by:

setting a price equal to the market price.

Economists study decreasing cost industries in order to explain:

the existence of industry clusters.

For a small firm in an extremely competitive industry, marginal revenue is always equal to price because:

the firm has no ability to influence the market price.

Economists call the time after all exit or entry has occurred:

the long run

Refer to the figure. In the long run, what do you expect this firm's economic profit or loss to be?

$0

A firm should always shut down if it is earning negative profits.

False

A firm's total profit is equal to the marginal cost of production multiplied by the quantity produced.

False

Average total cost is equal to total cost divided by profit.

False

Decreasing cost industries have supply curves that slope downward forever.

False

Economic profit is equal to total revenue minus explicit costs.

False

Explicit costs incurred by firms include the firm's opportunity costs.

False

Firms have less pricing power if their firm-level product is more unique.

False

If P = $20, AC = $16, and Q = 100, then profit = $3,600.

False

Firms in competitive industries:I. can only charge a price equal to the market price.II. cannot charge any more than the market price.III. will earn less profit if they charge less than the market price.

I, II, and III

A market is considered perfectly competitive if:I. there is a lot of product differentiation among sellers.II. there are many sellers, each small relative to the total market.III. the product sold is similar across sellers.IV. there are only a few buyers.

II and III only

A firm should exit an industry if:

P- AC < 0.

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

Panel A

Refer to the set of four panels in the figure. Which panel shows the typical shape of the average cost curve in a competitive market?

Panel A

(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

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

Panel C

A competitive firm maximizes profits when price equals marginal cost.

True

A firm should exit an industry if price is less than average cost.

True

A firm will continue to produce additional output, as long as marginal revenue is greater than marginal cost.

True

A firm's short-run supply curve is its marginal cost curve.

True

Average cost is equal to total cost divided by quantity.

True

How much profit is the firm making at the profit-maximizing quantity?

a profit of $300

Firms are profitable when price is:

greater than average cost.

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

implicit costs.

Firms earn negative profit when price is:

less than average cost.

Firm profit is defined as:

total revenue minus total cost.