HW 8

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm

should shut down.

A very large number of small sellers who sell identical products imply

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

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

A firm will make a profit when

P > ATC

If a firm shuts down it

will suffer a loss equal to its fixed costs.

If the market price is $25, the average revenue of selling five units is

$25.

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?

$6,600

If the market price is $20, what is the firm's profit-maximizing output?

1,350 units

If the market price is $30, the firm's profit-maximizing output level is

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?

P - ATC

What price (P) will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?

P = $12.50; profit = $22.50

A firm will break even when

P = ATC

If the firm is producing 500 units, what is the amount of its profit or loss?

There is insufficient information to answer the question.

A perfectly competitive firm earns a profit when price is

above minimum average total cost.

Both individual buyers and sellers in perfect competition

have to take the market price as a given.

Both buyers and sellers are price takers in a perfectly competitive market because

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

each seller is too small to affect market price.

If a perfectly competitive firm's price is above its average total cost, the firm

is earning a profit.

If the firm is producing 700 units

it should cut back its output to maximize profit.

If the firm is producing 200 units

it should increase its output to maximize profit.

If the market price is $30 and the firm is producing output, what is the amount of the firm's profit or loss?

loss of $1,080

A perfectly competitive firm's supply curve is its

marginal cost curve above its minimum average variable cost.

The firm's short-run supply curve is its

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

new firms are attracted to the industry.

When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell

nothing at all; the firm shuts down.

In a perfectly competitive market the term "price taker" applies to

sellers and buyers.

If a perfectly competitive firm's total revenue is less than its total variable cost, the firm

should stop production by shutting down temporarily.

In the long run, a perfectly competitive market will

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

In the short run, a firm that is operating at a loss has two options. These options are

to shut down temporarily or continue to produce.

At price P1, the firm would produce

zero units.