Chapter 11 Micro Econ

15 units

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

$224

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

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

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

might shut down, but might stay open.

In the short run, if price is less than average cost, a firm:

7

Julius builds dining chairs that he sells for $200 a chair. His fixed costs are $1,000 (for workshop equipment). Each chair costs him $50 in materials to produce plus an extra $25 for each previous chair made that day which reflects Julius' increasing exhaustion. (Thus, the first chair cost $50, the second costs $75, the third cost $100, etc.) Assume time requirements in producing a chair are not a factor. How many chairs should Julius produce each day?

$35,000; $6,680

Marcie quit her job as a preschool teacher, which paid an annual salary of $28,000, and became a street food vendor. She used $8,000 out of her savings account that paid a 4% annual interest rate to buy a street cart to sell food. In her first year of operations, she spent $10,000 on food and supplies (napkins, cups, plates, etc.) and earned total revenue of $45,000. Marcie's accounting profit is ______ and economic profit is ______.

profit

Price times quantity minus total cost equals:

P > AC.

Profit is positive whenever:

zero

Programs such as Steam distribute more and more video games. Purchasers buy the game and download it immediately to their computer. If the entire system is automated, estimate the marginal cost of producing and selling video games this way (ignore electricity costs).

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

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

D. Average total cost is U-shaped

Which statement about cost is correct? Marginal cost is constant. B. Average total cost always declines. C. Marginal cost is always falling. D. Average total cost is U-shaped.

Marginal Cost Curve

As the price of a good fluctuates, a profit-maximizing firm will expand or contract production along its:

price falls below the average cost.

Firms should exit the market if:

increase; short-run

More potential sellers ______ the elasticity of ______ firm-level demand.

downward-sloping.

The demand curve for oil from OPEC is:

Could be rising or falling

When marginal cost is rising, the average total costs:

the demand curve to shift D1 causing firms to earn economic losses. The supply curve will decrease to S1 as firms exit the industry. Eventually the market price will rise and firms will earn normal profits.

(Figure: Industry Firms) Use the figures. The market for a normal good is characterized by demand curve D2 and supply curve S2. A decrease in income will cause:

Panel A

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

$60;$140

(Table: Barrels of Oil) Refer to the table. The change in profit from producing the second barrel of oil is ________, and the marginal cost from producing the seventh barrel of oil is ________.

$50

(Table: Competitive Firm) Refer to the table. The fixed cost for this firm is:

$90

(Table: Competitive Firm) Refer to the table. The market price for the product is:

7

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

$70

(Table: Competitive Firm) The marginal cost of the fifth unit of output is:

$30

(Table: Oil Production) Refer to the table. What are the fixed costs of production for this firm?

$80

(Table: Oil Production) Refer to the table. What is the profit of producing 10 barrels of oil?

P- AC < 0.

A firm should exit an industry if:

profit (P > AC), causing other firms to enter the industry in the long run.

At any price above $60 in this diagram, firms already in this market will be making an economic:

I, II, and IV only

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.

They are making zero profits

As of July 2011, oil companies had a 6.5 percent profit margin (for each dollar of sales, 6.5 cents was profit), ranking 131 (profit margin is the far right column). Other industries making the same profit margin include packaging and containers, office supplies, farm and construction, and newspapers. If these profits are typical, what does this similar profit margin across very different industries suggest about oil companies' profits?

$2

Damien produces 400 gallons of milk a day in a very competitive industry. The market price for a gallon of milk is $2. Damien's marginal revenue per gallon of milk is:

4 and 10 units, respectively

Refer to the figure. If an industry consists of two firms, Firm 1 and Firm 2, as shown in the diagram, what is the industry's quantity supplied at a price of $7 and $9?

$96

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?

firms will enter the industry because the market price will rise.

Suppose there is a large and permanent increase in the demand for a good produced in a competitive industry. We should expect that

$4.28

Table: Competitive Firm 2) Refer to the table that shows the revenue and cost schedules for a competitive firm. What is the average fixed cost at the profit-maximizing quantity?

30

The marginal revenue (MR) for a firm is a constant $45, and the firm's marginal cost (MC) is given by MC = 1.5Q (where Q is quantity of output). What is the firm's profit-maximizing level of output?

enter; $150

Use the table. A firm is considering whether to enter an industry, with the conditions upon entry set forth in the table. Entering the industry would require the firm to pay $800 per day in fixed costs. This firm should ________ the industry because its profits would be ________ per day.

is less than

When opportunity cost is positive, economic profit ______ accounting profit.

decrease

When the level of production is relatively low, the average cost per unit of output would ________ if output increased.

Its firms sell similar products and have little control over their prices; there are many buyers and sellers and each is relatively small compared with the overall market.

Which of the following best describes a competitive industry?

When marginal cost is below average cost, average cost is rising.

Which of the following statements is FALSE? When marginal cost is below average cost, average cost is rising. B. A firm that produces 100 units at a total cost of $500 has an average cost of $5 per unit. C. AC = TC/Q D. Firms will earn positive profits if price exceeds average cost.