Microeconomics - Practice Test 10: Perfect Competition and the Supply Curve

In the short run, perfectly (or purely) competitive firms will maximize their profit by producing which of the choices? Select two option that apply.

-the quantity where marginal revenue = marginal cost. -the quantity where price equals marginal cost.

Classify the assumptions according to whether or not each item is an assumption made under perfect competition (also known as pure competition or competitive industry).

Assumed in perfect competition -price-taking behavior Not assumed in perfect competition -a small number of producers -significant barriers to entry -firms selling a similar but differentiated good

The diagram depicts the cost curves and the marginal revenue curve of a price-taking firm that produces cherries. Identify each item in the graph of this cherry producer. There are more labels than boxes. The average total cost (ATC), marginal cost (MC), and marginal revenue (MR) curves are already labeled.

Refer to picture ATC at Q profit max = ATC at the profit-maximizing output Q profit max = profit-maximizing output

The table shows the cost and revenue information for a perfectly (or purely) competitive firm that produces external hard drives. Use whole numbers to answer the six questions. a. What is the marginal revenue received from the 11th unit? b. What is the marginal cost of producing the 11th unit? c. What price does this firm charge for each hard drive? d. How many units should this firm produce to maximize profits?

a. $100 b. $38 c. $100 per unit d. 14 units

The table shows total cost and total revenue information for a perfectly (or purely) competitive firm. a. Firms earning a loss will sometimes shut down in the short run. What quantity will the firm produce if it shuts down in the short run? b. What will the profits be if this firm shuts down at zero unit of the production?

a. 0 units b. -$500

The graph shows the average total cost (ATC) curve, the marginal cost (MC) curve, the average variable cost (AVC) curve, and the marginal revenue (MR) curve (which is also the market price) for a perfectly competitive firm that produces terrible towels. Answer the three accompanying questions, assuming that the firm is profit-maximizing and does not shut down in the short run. a. What is the firm's total revenue? b. What is the firm's total cost? c. What is the firm's profit? (Enter a negativ

a. 500*260 = 130000 b. 815*260 = 211900 c. 130000-211900 = -81900

Papa Mel's is an alfalfa farm in a perfectly competitive industry. The market demand and supply for alfalfa is shown in the market graph. Based on this information, move the line segment in Papa Mel's graph to show the correct placement of the demand curve for Papa Mel's alfalfa, then answer the question. a. The market graph is for reference and it is not graded. b. What is Papa Mel's profit‑maximizing level of output?

a. Graph. y=5 b. 6 bales

Over the last three years, Christmas tree prices have increased from an average of $35 per tree to over $75 per tree. How would a Christmas tree farm and the overall industry respond to the price change under the following circumstances? Be sure to explain how your answer depends on the elasticity of supply. a. The price increase is a result of an increase in demand from younger generations, mainly millennials, increasing their desire to purchase real Christmas trees. The Christmas tree farm a

a. In the short run, producers earn profits and increase supply. Supply is less elastic in the short run than in the long run. b. In the short run, the increase in price leads to profits for tree farms.

The hypothetical production data is for a profit maximizing firm. Suppose the market price falls from $200 to $182 and the firm does not shut down. Use this information and the table to match the labels. a. If the market price is $160, then the firm will shutdown. b. Since the firm is still operating, the firm must be earning a positive profit. c. If the price increases to $200, then the firm will earn a positive economic profit.

a. false b. false c. true

The graph shows the marginal cost (MC), average total cost (ATC), and marginal revenue (MR) curves for a perfectly competitive firm. Note that for perfectly competitive firms, the demand (D) curve is the same as the MR curve. Assume that the cost curves are representative of other firms in the industry. a. Given the current price, this firm will earn a b. In the long run, firms will c. Over time, the price of the product will

a. negative economic profit. b. exit the market. c. rise.

Rambutan is a fruit prized in Eastern Asia for its unique hairy look. Once peeled, it reveals a sweet, slightly sour, grape‑like, gummy‑tasting fruit. Shown is a graph for a perfectly or purely competitive rambutan farmer. a. This firm is incurring a _____. In the long run, firms will _____ this market. b. What is this firm's profit/loss? Round to the nearest penny. c. If the market price fell to $9.51, then

a. profit; enter b. 14 c. this firm would be breaking even (zero profit).

The graph shows the relevant curves for an individual firm in a perfectly (or purely) competitive industry. Adjust the horizontal price line to show a price at which the firm will shut down immediately. Which of the choices best explains why this price will cause the firm to shut down instead of continuing to operate at a loss?

total revenue < total variable costs Graph. refer to picture

Select the answers that make the statement correct. For firms in perfectly competitive markets, long‑run economic profits are _____ because firms will _____ the market if profits are negative and _____ the market if profits are positive.

zero; exit; enter