Ch10 Cost of Prod. & P.C. By Kevin Crump

The income a firm earns from selling one additional product is the...

Marginal revenue. (Cost of production - Revenue = Profit)

Using the total-cost-total-revenue approach, assume that a firm calculates that its break-even point is 200 products. This firm will not produce fewer than 200 products because at a lower output, the firm would...

Not earn a normal profit (the break even point). If the firm were to produce any less than 200 products, it would not be able to cover all of the implicit costs or production.

In order to maximize profit, the firm should produce where...

MC=MR, because the firm should produce as long as the marginal revenue from selling one more unit is above or equal to marginal cost.

In a perfectly competitive market, what is the slope of the demand curves for the industry and the individual firm? Industry Demand Individual Firm Demand...

Downward-Sloping Horizontal. Market supply and demand are in control over product pricing, so the individual firms must accept the product prices as a perfectly elastic demand curve.

Because the perfectly competitive firm is a price-taker, its demand curve is...

Horizontal, because the firm has no power to change price in the market, it can sell all of the products it makes at the same price.

Ata market price of $93, this firm (see above graph)

has normal profit, but is just able to cover all of its explicit and implicit costs.At $93, this firm can cover all of its fixed and variable costs. Those costs include both the explicit and implicit costs associated with the resources used in production. When a firm can just cover its fixed and variable costs, that firm has a normal profit and zero economic profit.

The portion of the firm's marginal cost curve that is above the average variable cost curve is the firm's... (see bottom link for graph)

short-run supply curve. The firm maximizes profit where MC=MR, so it will supply products at the output where marginal revenue meets the marginal cost curve. The firm will not produce at any point where it cannot cover its average variable cost, so the short-run supply curve only consists of the points above the AVC curve.

This firm's short-run shutdown would occur when price is below. (see bottom link for graph)

Average Variable Cost. At a price below average variable cost, this firm cannot operate in the short run.

If a firm incurs losses, it should continue to produce as long as the price covers the...

Average Variable Cost. If the buisness can cover the costs of the AVC, then they should keep producing so they can put the rest of the gained money toward their fixed costs.

The MR=MC rule for profit maximization applies to firms engaged in I. perfect competition II. monopolistic competition III. oligopoly IV. monopoly

I, II, III, IV, because firms in all structures max out profits by producing at the output where marginal cost is equal to marginal revenue.

For the perfectly competitive firm, the MR=MC rule can also be stated as...

P=MC. Because the individual firms have to accept the price that is set for their product(s), price and the marginal revenue are the equal.

At a product price of "0h", this firm would maximize profit by producing at an output of... (see bottom link for graph)

"Os" At output "0s", the marginal revenue equals the marginal cost, which is the definition of profit maximization.

[The following information applies to the questions displayed below.] Total Product (Q) TotalCost (TC) ($) Average TotalCost (ATC) ($) Average VariableCost (AVC) ($) MarginalCost ($) Total Revenue (TR) ($) Marginal Revenue (MR) ($) 0 100.00 1 190.00 190.00 90.00 81.00 2 270.00 135.00 85.00 162.00 3 340.00 113.33 80.00 243.00 4 400.00 100.00 75.00 324.00 5 470.00 94.00 74.00 405.00 6 550.00 91.67 75.00 486.00 7 640.00 91.43 77.14 567.00 8 750.00 93.75 81.25 648.00 9 880.00 97.78 86.67 729.00 10 1030.00 103.00 93.00 810.00 At zero units of total product, the total fixed cost for this firm is.....

100. At zero units of output, all costs are fixed. At any level of output (ATC-AVC) X TP = TFC is $100.

At a particular output, a perfectly competitive firm's price is $10, marginal cost is $11, average total cost is $12, and average variable cost is $8. The firm should...

Decrease output to minimize loss, but keep producing in the short run. At the level of production, MC>MR, so the firm should reduce production levels. Since price is lower than average total cost, they are enduring a loss, but since the price is higher than average variable cost, they should keep producing in the short run.

At long-run equilibrium for the perfectly competitive firm, the marginal cost is equal to all of the following EXCEPT I. average total cost II. average revenue III. price IV. marginal revenue V. average variable cost

V, Average Variable Cost. Marginal revenue and price are equal on the demand curve, so it reaches productive efficiency by producing where Marginal Cost = Average Total Cost. Average Variable Cost is the only curve not equal to all of the others at profit maximixing output.

If the market price is $71, this competitive firm will (See above graph)

Cease production and sell what it has already produced to minimize losses. This firm must shut down because it cannot cover all of its variable costs. It will sell what it has already produced to minimize losses.

Which of the following statements best describes a perfectly competitive market? I. A large number of firms exist in the industry. II. Products are differentiated. III. Firms can easily enter or exit the industry.

I and III. Many firms are in the industry along with them producing homogeneous products to one another. No barrier ways of entry and exit

At price "0f", which of the following is true? I. The firm has a positive economic profit of "feug" and a total fixed cost of "guvj". II. The firm has a total cost of "gut0" and a fixed cost of "guvj". III. The firm is in a short-run position. (see bottom link for graph)

I, II, III. This competitive firm has a positive economic profit because total revenue ("fet0") is greater than total cost ("gut0"). This firm's total fixed cost is "guvj" (total cost minus total variable cost). But because this firm faces perfect competition, firms will enter and expand competition, driving the price down until no further positive economic profits can be obtained. This firm is in a short-run position.

If a firm is producing 10 products which it can sell for a price of $5 per unit, and the marginal cost of producing the 11th product is $3, which of the following statements is true? I.The total cost of producing 11 units is $5 greater than producing 10 units. II. The total revenue of selling 11 units equals the total revenue of selling 10 units. III. The total profit from selling 11 units is $2 more than the total profit from selling 10 units. IV. The marginal revenue from selling the 11th unit is $3 . V. The marginal cost of producing the 11th unit is greater than the marginal revenue from producing it.

III, because the marginal revenue of producing the next product is $5, and the marginal cost of producing the unit is $3, total profit is increased by $2.

Because the perfectly competitive firm is a price taker, the price equals...

Marginal Revenue. The individual firms must accept the set pricing on the products, so every product is sold at the same price. Price is the marginal revenue the firm earns from selling each product.

Assume Kenny is a farmer who sells soybeans in a perfectly competitive industry. If the industry equilibrium price for soybeans is $14 per bushel and Kenny sets his price at $15 per bushel, Kenny's ____ will ___...

Total Revenue will decrease. That is due to the fact that his product is just the same as everyone elses product of soybeans. That means that the buyer can get it from any-one individual buisness instead of his, which means he is losing revenue.

If a firm in a competitive industry is facing an increase in the cost of heating fuel, this firm will find that...

It's marginal cost, average variable cost, and average total cost curves have shifted upward. That is due to the heating fuel costs being variable costs, meaning the marginal cost, average variable cost, and average total cost curves all shoot upward.

Total Product (Q) TotalCost (TC) ($) Average TotalCost (ATC) ($) Average VariableCost (AVC) ($) MarginalCost ($) Total Revenue (TR) ($) Marginal Revenue (MR) ($) 0 100.00 1 190.00 190.00 90.00 81.00 2 270.00 135.00 85.00 162.00 3 340.00 113.33 80.00 243.00 4 400.00 100.00 75.00 324.00 5 470.00 94.00 74.00 405.00 6 550.00 91.67 75.00 486.00 7 640.00 91.43 77.14 567.00 8 750.00 93.75 81.25 648.00 9 880.00 97.78 86.67 729.00 10 1030.00 103.00 93.00 810.00 Between three and four units of total product, the marginal cost and marginal revenue are Marginal Cost Marginal Revenue...

Less than ATC constant. The price this firm faces is a constant industry market price of $81.00. For a firm in a perfectly competitive market, marginal revenue is constant and equals average revenue and price. If ATC is falling, the MC must be less than ATC.

An industry characterized by a large number of firms that produce identical products and have no control over price is...

Perfect Competition. There are many firms that are able to come in and out of the market as they please. They are not able to control the price of their products and vend identical units.

Total Product (Q) TotalCost (TC) ($) Average TotalCost (ATC) ($) Average VariableCost (AVC) ($) MarginalCost ($) Total Revenue (TR) ($) Marginal Revenue (MR) ($) 0 100.00 1 190.00 190.00 90.00 81.00 2 270.00 135.00 85.00 162.00 3 340.00 113.33 80.00 243.00 4 400.00 100.00 75.00 324.00 5 470.00 94.00 74.00 405.00 6 550.00 91.67 75.00 486.00 7 640.00 91.43 77.14 567.00 8 750.00 93.75 81.25 648.00 9 880.00 97.78 86.67 729.00 10 1030.00 103.00 93.00 810.00 Assuming units of output are not divisible, the shutdown point for this firm in the short run occurs where...

Total output at 8 units, where MR. In the short run, a firm must cover at least all of its variable costs or where MR = AVC. At the market price of $81, at seven units of output, MR>AVC and the firm is able to cover all of its variable costs.