ECON Chapter 9

-$24. $48.++ $72. $156.

Refer to Figure 9.1. If this farmer maximizes profits, his operating profit (or loss) will be

P = SRMC < SRAC = LRAC P > SRMC = SRAC = LRAC P = SRMC = SRAC > LRAC P = SRMC = SRAC = LRAC++

Which of the following is the set of conditions necessary for long-run equilibrium for a perfectly competitive firm?

average costs to increase average costs to decrease++ average costs to remain constant marginal costs to increase

Engineers for The Giffen Record Company determine that a 30% increase in all compact disc inputs will cause a 40% increase in output. Assuming that input prices remain constant, you correctly deduce that such a change in inputs will cause ________ as output increases.

zero; efficiently++ zero; inefficiently positive; efficiently positive; inefficiently

In long-run equilibrium for a perfectly competitive industry, firms earn ________ economic profits and produce ________

all firms that earn a loss will shut down. if current firms are earning a profit, new firms will enter the industry. firms act such that they minimize losses or maximize profits.++ All of the above are correct.

In the short run,

q1 q2 q3++ q4

Refer to Figure 9.5. Economies of scale exist up to ________ units of output for this firm.

the firm will increase its price and output. the firm will exit the industry.++ new firms will enter the industry and the current firms will expand production. firms will increase their output so that their average fixed cost per unit falls.

Refer to Figure 9.7. If demand for wheat is D1, then in the long run

D3; increase; 15++ D1; increase; 10 D3; decrease; 7 D1; decrease; 0

Refer to Figure 9.7. Suppose demand for wheat is initially D2. If consumer incomes increase, then demand for wheat will shift to ________ This will ________ the equilibrium price of wheat and individual profit maximizing firms will produce ________ bushels of wheat.

operate and expand.++ operate but not expand. shut down, but not go out of business. go out of business.

Refer to Table 9.1. If the market price is $42, then in the long run the firm will

diminishing returns. increasing returns to scale. decreasing returns to scale.++ constant returns to scale.

When increased scale of production leads to higher average costs, an industry exhibits

it is suffering a loss. fixed costs exceed revenues. variable costs exceed revenues.++ total costs exceed revenues.

A firm will shut down in the short run if

Continue to produce because price exceeds AVC.++ Shut down and produce zero sandwiches because price is less than ATC. Decrease production so that AVC will decrease. Increase production so that AFC will decrease.

The Taste Freeze Ice Cream Company is a perfectly competitive firm producing where MR = MC. The current market price of an ice cream sandwich is $5.00. The firm sells 200 ice cream sandwiches. Its AVC is $3.00 and its AFC is $3.00. What should Taste Freeze do?

the average variable cost curve that lies above its marginal cost curve. its marginal cost curve that lies above its average variable cost curve. ++ its marginal cost curve that lies above its average total cost curve. its average total cost curve that lies above its marginal cost curve.

The short-run supply curve of a perfectly competitive firm is the portion of

AVC < P < ATC.++ P > ATC. P = ATC. MR = MC < P.

We can call a profit-maximizing strategy a loss-minimizing strategy when a perfectly competitive firm produces where