ECON 1030 Chapter 7 Homework

Refer to the above data. If the firm's minimum average variable cost is $10, the firm's profit-maximizing level of output would be: 2. 3. 4. 5.

3.

Assume the price of a product sold by a purely competitive firm is $5. Given the data in the accompanying table, at what output is total profit highest in the short run? 20 30 40 50

40

Consider the purely competitive firm pictured above. The firm is earning: normal profits since its price is above AVC. economic profits since its price is above AVC. normal profits since its price just covers ATC. losses since it is operating at the shutdown point.

normal profits since its price just covers ATC.

Mutual interdependence would tend to limit control over price in which market model? Monopolistic competition Pure competition Pure monopoly Oligopoly

oligopoly

T-Shirt Enterprises is selling in a purely competitive market. Its output is 300 units, which sell for $1 each. At this level of output, marginal cost is $1 and average variable cost is $1.50. The firm should: produce zero units of output. decrease output to 250 units. continue to produce 300 units. increase output to 350 units.

produce zero units of output.

A purely competitive firm, as shown above, will face what kind of change in profits over the long run, assuming industry demand is constant? Profits will increase. Profits will decrease. Profits will be unchanged. Cannot be decided from the information given.

profits will decrease

Refer to the above table. The marginal cost of the third unit of output is: $20. $23. $24. $25.

$23.

Refer to the above graph. The level of output at which this firm will shut down is: 0A. 0B. 0C. 0K.

0A

The table below shows cost data for a firm that is selling in a purely competitive market. Refer to the above cost chart. The lowest output level on this firm's short-run supply curve is: 10. 12. 16. 20.

NOT 10 NOT 20 either 12 or 16

At what point on the table would a purely competitive firm cover all of its costs and earn only normal profits? Q = 5 Q = 10 Q = 15 Q = 20

Q = 15

Refer to the above graphs. What will happen in the long run to industry supply and the equilibrium price of the product? S will decrease, P will decrease. S will increase, P will decrease. S will decrease, P will increase. S will increase, P will increase.

S will decrease, P will increase.

Which is true for a purely competitive firm in short-run equilibrium? The firm is making only normal profits. The firm's marginal cost is greater than its marginal revenue. The firm's marginal revenue is equal to its marginal cost. A decrease in output would lead to a rise in profits.

The firm's marginal revenue is equal to its marginal cost.

Which is true of normal profits? They are necessary to keep a firm in the industry in the long run. They are zero under pure competition in the long run. They are excluded from a firm's costs of production. They are greater than the opportunity cost to the firm

They are necessary to keep a firm in the industry in the long run.

The long-run supply curve would be upsloping in: an increasing-cost industry. a decreasing-cost industry. a constant-cost industry. a variable-cost industry.

an increasing-cost industry.

Refer to the above graph. It shows a profit-maximizing, purely competitive firm operating in the short run. Which area in the graph represents the amount of economic loss for the firm? 0beg bcde acdf abef

bcde

Purely competitive firms are assumed to: advertise. be price takers. sell where marginal cost is minimized. confront demand curves that are perfectly inelastic.

be price takers.

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profit or minimize losses, the firm should: continue producing 1000 units. produce less than 1000 units. produce more than 1000 units. shut down.

continue producing 1000 units.

Productive efficiency refers to: cost minimization, where P = minimum ATC. production, where P = MC. maximizing profits by producing where MR = MC. setting TR = TC.

cost minimization, where P = minimum ATC.

If the demand curve facing a firm is perfectly elastic, then: its marginal revenue will equal price. its marginal revenue schedule will decrease at an increasing rate. its marginal revenue schedule decreases twice as fast as the demand curve. it can increase its total revenue by lowering the price of its product.

its marginal revenue will equal price.

The individual firm's short-run supply curve is the part of its: average total cost curve that is upsloping. average variable cost curve that is upsloping. marginal cost curve lying above its average variable cost curve. marginal cost curve lying above its average total cost curve.

marginal cost curve lying above its average variable cost curve.

Pure competition produces a socially optimal allocation of resources in the long run because: marginal cost equals marginal revenue. marginal cost equals average total cost. marginal revenue equals price. marginal cost equals price.

marginal cost equals price.

In pure competition, the average revenue of a firm always equals: marginal cost. average total cost. marginal revenue. total revenue.

marginal revenue.

The production of agricultural products such as wheat or corn would best be described by which market model? Monopolistic competition Pure competition Pure monopoly Oligopoly

pure competition

There is no control over price by firms in: oligopoly. pure monopoly. pure competition. monopolistic competition.

pure competition.

The table below shows cost data for a firm that is selling in a purely competitive market. Refer to the above table. If the market price for the firm's product is $50, the competitive firm will: produce one unit. produce two units. produce three units. shut down.

shut down