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Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct? (i) Marginal revenue equals $4. (ii) Average revenue equals $100. (iii) Total revenue equals $1,600.

(i) and (iii) only

Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct? (i) Marginal revenue equals $5. (ii) Average revenue equals $5. (iii) Price equals $5.

(i), (ii), and (iii)

Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each. Refer to Scenario 13-8. What are Wanda's implicit costs per glass?

$0.10

Refer to Table 13-10. What is the marginal cost of producing 280 units of output?

$0.75

Scenario 14-1Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

$1,000

Refer to Table 13-14. What is the fixed cost of production for this firm?

$10

If Kevin's children run a lemonade stand for a day and sell 200 glasses of lemonade at $0.50 each, their total revenues are

$100

Katherine gives piano lessons for $20 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are

$100, and her economic profits are $0.

The table represents a demand curve faced by a firm in a competitive market. Refer to Table 14-5. For this firm, the price of the product is

$11

The table represents a demand curve faced by a firm in a competitive market. Refer to Table 14-3. For this firm, the marginal revenue is

$13

The table represents the demand information for a firm in a competitive market. Refer to Table 14-16. For this firm, when output is equal to 12 units, average revenue is

$15

Tony's Taco Truck has average variable costs of $1 and average fixed costs of $2 when it produces 50 units of output (tacos). The truck's total cost at 50 units of output is

$150

Table 13-13 Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled children in public school districts. The owner rents several small rooms in an office building in the suburbs for $600 a month and has leased computer equipment that costs $480 a month. Refer to Table 13-13. What is the marginal cost of creating the tenth instructional module in a given month?

$2,500

The information below applies to a competitive firm that sells its output for $40 per unit.• When the firm produces and sells 150 units of output, its average total cost is $24.50.• When the firm produces and sells 151 units of output, its average total cost is $24.55. Refer to Scenario 14-4. Suppose the firm is producing 150 units of output and its fixed cost is $975. Then its variable cost amounts to

$2,700.00

The Flying Elvis Copter Rides Refer to Table 13-7. What is the value of I?

$220

The Three Amigo's company produced and sold 500 dog beds. The average cost of production per dog bed was $50. Each dog be sold for a price of $65. The Three Amigo's total costs are

$25,000

Suppose that a firm in a competitive market is currently maximizing its short-run profit at an output of 50 units. If the current price is $9, the marginal cost of the 50th unit is $9, and the average total cost of producing 50 units is $4, what is the firm's profit?

$250

The Flying Elvis Copter Rides Refer to Table 13-7. What is the value of O?

$360

Scenario 13-19Doreen's Dairy produces and sells Swiss cheese. Last year, it produced 7,000 pounds and sold each pound for $6. In producing the 7,000 pounds, the dairy incurred variable costs of $28,000 and a total cost of $40,000. Refer to Scenario 13-19. In producing the 7,000 pounds of cheese, the firm's average variable cost was

$4.00

Suppose that a firm in a competitive market has the following cost curves: Refer to Figure 14-1. The firm's short-run supply curve is its marginal cost curve above

$4.50

Scenario 13-11Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each. Refer to Scenario 13-11. An accountant would calculate the total cost for one birdhouse to be

$5

The following table presents cost and revenue information for Bob's bakery production and sales. Refer to Table 14-14. What is Bob's total fixed cost?

$5

Suppose that a firm in a competitive market faces the following revenues and costs: Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will the firm earn?

$6

Ryan sells 200 plastic ball point pens at $0.50 each. His total costs are $25. His profits are

$75

Scenario 13-4Suppose that Abdul opens a coffee shop. He receives a loan from a bank for $100,000. He withdraws $50,000 from his personal savings account. The interest rate on the loan is 8%, and the interest rate on his savings account is 2%. Refer to Scenario 13-4. Abdul's annual explicit cost of capital is

$8,000

When a profit-maximizing firm is earning profits, those profits can be identified by

(P - ATC) × Q.

Refer to Figure 13-6. Why doesn't the total cost curve begin at the origin (the point 0,0)?

because fixed costs are positive when output is zero

Refer to Figure 13-5. Which curve is most likely to represent average total cost?

c

Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has earned $4,500 in monthly revenue. In the short run, Susan should

continue to operate her business, but in the long run she will probably face competition from newly entering firms.

As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's Bubble Gum Company encounters

diminishing marginal product.

Implicit costs

do not require an outlay of money by the firm.

Which of the following represents the firm's long-run condition for exiting a market?

exit if P < ATC

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the

firm's profit-maximizing level of output is less than 100 units.

When price is below average variable cost, a firm in a competitive market will

shut down and incur fixed costs.

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $145,000. Because of this information, in the short run, the Brookside Racquet Club should

stay open because shutting down would be more expensive.

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

the cost of the steel that is used in producing automobiles

The graph of the production function plots total cost versus quantity of output.

False

Refer to Figure 13-7. Which of the figures represents the marginal cost curve for a typical firm?

Figure 1

Refer to Table 13-5. Assume that fixed costs are $500, and variable costs are $100 per worker. For this firm, what are the shapes of the production function and the total-cost curve?

The production function is increasing at a decreasing rate, whereas the total-cost function is increasing at an increasing rate.

A firm operating in a perfectly competitive market earns zero economic profit in the long run but remains in business because the firm's revenues cover the business owners' opportunity costs.

True

A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

True

A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin.

True

All firms maximize profits by producing an output level where marginal revenue equals marginal cost; for firms operating in perfectly competitive industries, maximizing profits also means producing an output level where price equals marginal cost.

True

Because nothing can be done about sunk costs, they are irrelevant to decisions about business strategy.

True

In the long run, when price is greater than average total cost, some firms in a competitive market will choose to enter the market.

True

Listed in the table are the long-run total costs for three different firms. Refer to Table 13-20. Firm C is experiencing diseconomies of scale.

True

Refer to Table 13-2. What is the marginal product of the third worker?

100 units

In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms Refer to Figure 14-10. If there are 700 identical firms in this market, what is the value of Q2?

420,000

In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. Refer to Figure 14-10. If there are 700 identical firms in this market, what is the value of Q2?

420,000

Suppose that a firm in a competitive market faces the following revenues and costs: Refer to Table 14-10. At which level of output in the table is average variable cost equal to $6?

5 units

In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. Refer to Figure 14-9. If there are 300 identical firms in this market, what level of output will be supplied to the market when price is $2.00?

60,000

Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the average total cost of production when the firm hires 7 workers?

81 cents

Refer to Figure 13-4. Which of the above marginal cost curves reflects diminishing marginal product?

A

Suppose a firm operating in a competitive market has the following cost curves Refer to Figure 14-8. Which line segment best reflects the short-run supply curve for this firm?

ABCF

Suppose a firm operating in a competitive market has the following cost curves: Refer to Figure 14-8. Which line segment best reflects the short-run supply curve for this firm?

ABCF

The figure below depicts average total cost functions for a firm that produces automobiles. Refer to Figure 13-9. Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory?

ATCA

Refer to Figure 13-8. Which of the following statements is correct?

Average variable cost is declining for quantities less than B because marginal cost is lower than average variable cost.

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15.

In the short run firms will shut down, and in the long run firms will leave the market.

Suppose that a firm in a competitive market faces the following revenues and costs: Refer to Table 14-9. If the firm's marginal cost is $5, it should

Increase production to maximize profit

Scenario 13-15Joan grows pumpkins. If Joan plants no seeds on her farm, she gets no harvest. If she plants 1 bag of seeds, she gets 500 pumpkins. If she plants 2 bags, she gets 800 pumpkins. If she plants 3 bags, she gets 900 pumpkins. A bag of seeds costs $100, and seeds are her only cost. Refer to Scenario 13-15. Joan's total-cost curve is

Increasing at an increasing rate

Refer to Figure 14-7. Let Q represent the quantity of output and suppose the price of the good is $125. Then marginal revenue is

None of the above are correct.

Variable cost divided by the change in quantity produced is

None of the above is correct.

On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?

The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.

Which of these assumptions is often realistic for a firm in the short run?

The firm can vary the number of workers it employs but not the size of its factory.

The value of a business owner's time is an example of

an opportunity cost.

Consider the following information about baseball production at Bobby's Baseball Factory: Bobby pays all his workers the same wage, and labor is his only variable cost. From this information we can conclude that Bobby's average variable cost decreases

as output rises from 0 to 26, but rises after that.

At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the twenty-first pair of boots is $83. We can conclude that the

average total cost of 21 pairs of boots is $23.

Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible

average total cost of production.

Constant returns to scale occur when the firm's long-run

average total costs are constant as output increases.

A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100,

average variable cost is $3.

Scenario 13-20Suppose that a given firm experiences decreasing marginal product of labor with the addition of each worker regardless of the current output level. Refer to Scenario 13-20. Marginal cost will be

rising at all points.

A difference between explicit and implicit costs is that

implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

Scenario 14-4The information below applies to a competitive firm that sells its output for $40 per unit.• When the firm produces and sells 150 units of output, its average total cost is $24.50.• When the firm produces and sells 151 units of output, its average total cost is $24.55. Refer to Scenario 14-4. When the firm increases its output from 150 units to 151 units, its profit

increases by $7.95.

Refer to Table 13-9. For the firm whose production function and costs are specified in the table, its average-variable-cost curve is

increasing

The length of the short run

is different for different types of firms.

If marginal cost is below average total cost, then average total cost

is falling

Suppose that a firm in a competitive market faces the following revenues and costs: Refer to Table 14-8. The firm will produce a quantity greater than 3 because at 3 units of output, marginal cost

is less than marginal revenue.

Suppose a firm operating in a competitive market has the following cost curves: Refer to Figure 14-4. When price rises from P3 to P4, the firm finds that

it can earn a positive profit by increasing production to Q4.

If a competitive firm is selling 500 units of its product at a price of $8 per unit and earning a positive profit, then

its total cost is less than $4,000.

Firms may experience diseconomies of scale when

large management structures are bureaucratic and inefficient.

A competitive firm's short-run supply curve is part of which of the following curves?

marginal cost

The average-total-cost curve intersects

marginal cost at the minimum of average total cost.

If firms are competitive and profit maximizing, the price of a good equals the

marginal cost of production.

Refer to Figure 13-2. As the number of workers increases,

marginal product decreases.

When a firm's only variable input is labor, then the slope of the production function measures the

marginal product of labor.

At the profit-maximizing level of output,

marginal revenue equals marginal cost.

Firms that operate in perfectly competitive markets try to

maximize profits.

The efficient scale of the firm is the quantity of output that

minimizes average total cost

Suppose a firm operating in a competitive market has the following cost curves: Refer to Figure 14-2. If the market price is Pd, in the short run the firm will earn

negative economic profits and will shut down.

Scenario 14-5 A study sponsored by the Food Consumer Safety Board found that consumption of irradiated tomatoes increased the health of laboratory rats. As a result of national press coverage of the report, the demand for irradiated tomatoes increased dramatically. Organic farmers were able to switch from organic production of tomatoes to irradiated production with no additional cost. Assume that the tomato market satisfies all of the assumptions of perfect competition. Refer to Scenario 14-5. As a result of the increase in the demand for tomatoes, we would predict that in the short run that the

price of tomatoes would rise.

A firm in a competitive market has the following cost structure: if the market price is $4, this firm will

produce 3 units in the short run and exit in the long run.

Shrimp Galore, a shrimp harvesting business in the Pacific Northwest, has a 30-year loan on its shrimp harvesting boat. The annual loan payment is $25,000 and the boat has a market (salvage) value that exceeds its outstanding loan balance. Prior to the 2010 shrimp harvesting season, Shrimp Galore's accountant predicted that at expected market prices for shrimp, Shrimp Galore would have a net loss of $75,000 dollars after paying all 2010 expenses (including the annual loan payment). In this case, Shrimp Galore should

produce nothing and experience a loss of $25,000.

A key characteristic of a competitive market is that

producers sell nearly identical products.

A production function is a relationship between inputs and

quantity of output

Explicit costs

require an outlay of money by the firm

One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run,

the size of the factory is fixed.

Which of the following can be added to profit to obtain total revenue?

total cost

Refer to Table 13-8. What is the shape of the marginal cost curve for this firm?

upward-sloping

In the short run, a firm incurs fixed costs

whether it produces output or not.

​Sebastian decides to open a tree farm. When deciding to open his own business, he turned down two separate job offers of $25,000 and $30,000 and withdrew $20,000 from his savings. Sebastian's savings account paid 3 percent interest. He also borrowed $20,000 from his brother, whom he pays 2 percent interest per year. He spent $15,000 to purchase supplies and earned $50,000 in revenue during his first year. Which of the following statements is correct?

​Sebastian's economic profit is $4,000, and his accounting profit is $34,600.