Economics - Homework 8

If the market price is $25, the average revenue of selling five units is A. $5. B. $12.50. C. $25. D. $125.

$25.

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. Refer to Figure 12-5. The firm's manager suggests that the firm's goal should be to maximize average profit. If the firm does this, what is the amount of profit that it will earn? A. $6,600 B. $6,750 C. $12,150 D. $36,000

$6,600

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. Refer to Figure 12-5. If the market price is $20, what is the firm's profit-maximizing output? A. 750 units B. 1,100 units C. 1,350 units D. 1,800 units

1,350 units

Figure 12-4 Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. Refer to Figure 12-4. If the market price is $30, the firm's profit-maximizing output level is A. 0. B. 130. C. 180. D. 240.

180.

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's average profit? A. (P - ATC) × Q B. P - TC C. P - ATC D. (P × Q) - TC

P - ATC

Table 12-3 Arnie sells basketballs in a perfectly competitive market. Table 12-3 summarizes Arnie's output per day (Q), total cost (TC), average total cost (ATC) and marginal cost (MC). Refer to Table 12-3. What price (P) will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50? A. Price and profit cannot be determined from the information given. B. P = $12.50; profit = $52.50 C. P = $20; profit = $75.00. D. P = $12.50; profit = $22.50

P = $12.50; profit = $22.50

A firm will break even when A. P = ATC B. P < AVC C. P = AVC D. P > ATC

P = ATC

A firm will make a profit when A. P > AVC B. P = MC C. P = ATC D. P > ATC

P > ATC

Figure 12-1 Refer to Figure 12-3. If the firm is producing 500 units, what is the amount of its profit or loss? A. profit equivalent to the area A B. profit of $280 C. loss equivalent to the area A D. There is insufficient information to answer the question.

There is insufficient information to answer the question.

A perfectly competitive firm earns a profit when price is A. above minimum average total cost. B. equal to minimum average fixed cost. C. equal to minimum average variable cost. D. equal to minimum average total cost.

above minimum average total cost.

Both buyers and sellers are price takers in a perfectly competitive market because A. each buyer and seller is too small relative to others to independently affect the market price. B. the price is determined by government intervention and dictated to buyers and sellers. C. both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. D. each buyer and seller knows it is illegal to conspire to affect price.

each buyer and seller is too small relative to others to independently affect the market price.

The demand curve for each seller's product in perfect competition is horizontal at the market price because A. each seller is too small to affect market price. B. the price is set by the government. C. all the demanders get together and set the price. D. all the sellers get together and set the price.

each seller is too small to affect market price.

Both individual buyers and sellers in perfect competition A. have to take the market price as a given. B. can influence the market price by joining with a few of their competitors. C. can influence the market price by their own individual actions. D. have the market price dictated to them by government.

have to take the market price as a given.

If a perfectly competitive firm's price is above its average total cost, the firm A. should shut down. B. is incurring a loss. C. is earning a profit. D. is breaking even.

is earning a profit.

Figure 12-1 Refer to Figure 12-1. If the firm is producing 700 units A. it is making a profit. B. it is making a loss. C. it should increase its output to maximize profit. D. it should cut back its output to maximize profit.

it should cut back its output to maximize profit.

Figure 12-1 Refer to Figure 12-1. If the firm is producing 200 units A. it should cut back its output to maximize profit. B. it breaks even. C. it is making a loss. D. it should increase its output to maximize profit.

it should increase its output to maximize profit.

Figure 12-4 Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.Refer to Figure 12-4. If the market price is $30 and the firm is producing output, what is the amount of the firm's profit or loss? A. loss of $1,080 B. profit of $1,440 C. profit of $1,300 D. loss of $2,520

loss of $1,080

A perfectly competitive firm's supply curve is its A. marginal cost curve. B. marginal cost curve above its minimum average fixed cost. C. marginal cost curve above its minimum average total cost. D. marginal cost curve above its minimum average variable cost.

marginal cost curve above its minimum average variable cost.

Figure 12-10 Refer to Figure 12-10. The firm's short-run supply curve is its A. marginal cost curve from c and above. B. marginal cost curve from d and above. C. marginal cost curve from b and above. D. marginal cost curve.

marginal cost curve from b and above.

If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then A. firms are breaking even. B. existing firms will exit the industry. C. market supply will remain constant. D. new firms are attracted to the industry.

new firms are attracted to the industry.

In the short run, a firm that is operating at a loss has two options. These options are A. to reduce output or reduce its variable costs. B. to shut down temporarily or continue to produce. C. to go out of business or declare bankruptcy. D. to adopt new technology or change the size of its physical plant.

to shut down temporarily or continue to produce.

When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell A. the output where average total cost equals price. B. nothing at all; the firm shuts down. C. any positive output the entrepreneur decides upon because all of it can be sold. D. the output where marginal revenue equals marginal cost.

nothing at all; the firm shuts down.

In a perfectly competitive market the term "price taker" applies to A. buyers but not sellers. B. sellers and buyers. C. firms but not buyers. D. only the smallest sellers and buyers.

sellers and buyers.

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm A. should increase output. B. is earning a profit. C. should increase price. D. should shut down.

should shut down.

If a perfectly competitive firm's total revenue is less than its total variable cost, the firm A. should continue to produce and increase its demand. B. should adopt new technology in order to lower its costs of production. C. should raise its price above its average variable cost. D. should stop production by shutting down temporarily.

should stop production by shutting down temporarily.

In the long run, a perfectly competitive market will A. supply whatever amount consumers will buy at a price which earns the market an economic profit. B. generate a long-run equilibrium where the typical firm operates at a loss. C. supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve. D. produce only the quantity of output that yields a long-run profit for the typical firm.

supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve.

A very large number of small sellers who sell identical products imply A. a multitude of vastly different selling prices. B. the inability of one seller to influence price. C. a downward sloping demand for each seller's product. D. chaos in the market.

the inability of one seller to influence price.

An individual seller in perfect competition will not sell at a price lower than the market price because A. demand is perfectly inelastic. B. the seller can sell any quantity she wants at the prevailing market price. C. the seller would start a price war. D. demand for the product will exceed supply.

the seller can sell any quantity she wants at the prevailing market price.

If a firm shuts down it A. will produce nothing but must pay its fixed and variable costs. B. will earn enough revenue to cover its variable costs but not all of its fixed costs. C. will suffer a loss equal to its fixed costs. D. will produce nothing but must pay its variable costs.

will suffer a loss equal to its fixed costs.

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. Refer to Figure 12-9. At price P1, the firm would produce A. Q1 units B. Q3 units. C. Q5units. D. zero units.

zero units.