Graded Homework - Chapter 11

What condition is necessary in a constant cost industry?

Prices of the industry's inputs do not change as the industry expands

To maximize profits, a firm in a highly competitive industry should set its price:

at the market price

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

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

In competitive markets, the demand curve faced by the individual firm is:

perfectly elastic

Which of the following statements is TRUE?

High profits in an industry give entrepreneurs an incentive to enter that industry

A perfect 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 IV. the threat of competition exists from potential sellers that have not yet entered the market

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

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

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

$224

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

$75

(Table: Barrels of Oil 2) Refer to the table. What is the marginal cost of producing the seventh barrel of oil?

36

(Table: Barrels of Oil 2) Refer to the table. What is the marginal revenue of producing the fifth barrel of oil?

50

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

7

(Table: Barrels of Oil 2) Refer to the table. How many barrels of oil should the company produce to maximize profit?

8

If Tom sells 500 sandwiches for $7 and has an average cost of $5, what is his profit?

$1000

(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

The oil industry is an increasing cost industry because:

expanding output requires firms to use more expensive production methods to find and extract oil from less desirable locations.

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

implicit costs

In a competitive equilibrium, firms earn _____ economic profits.

zero