Micro Test 3: Module 9
Pete owns a business that produces pumpkin pies for the holidays. Given the info in the table, answer the questions. Pies / ATC / MC 100 / 13.00/ 10.00 200 / 9.00 / 5.00 300 / 11.00 / 15.00 If the price of pies is $15, Pete will ..... At this output level, he will have a total profit of $_____?
*At $15 Pete will earn a economic profit. *Total Profit=(MC - ATC) x Q ($15 - $11) x 300 (4) x 300 = $1,200
To calculate profit, we need to identify three pieces of information:
-average total cost (ATC) -quantity of output -price
Pete owns a business that produces pumpkin pies for the holidays. Given the info in the table, answer the questions. Pies / ATC / MC 100 / 8.00/ 5.00 200 / 7.50 / 7.00 300 / 7.67 / 8.00 1.If the price of pies is $8 each, Pete will.... At this output level, he will have a total profit of.. 2.If the price of pies is $7 each, Pete will.... At this output level, he will have a total profit of..
1. At $8 Pete will have an economic profit of $99 : Total profit= (MC-ATC) x Q ($8 - $7.67) x 300 = $99 2. At $7 Pete will have an economic loss of -$100. ($7.00-$7.50) x 200 = -100
Suppose Carl's Candies sells 100 boxes of candy for $4 each. The total fixed cost of the 100 boxes is $100, and the average variable cost of the 100 boxes is $1.50 per box. Carl's makes a profit per unit of:
Profit perf unit= (Price - ATC) ATC= AFC + AVC = 2.50 AFC= TFC/Q = 1 $4-$2.50= $1.50
A firm sustains a loss if....
Total Revenue < Total Cost
For each of the markets listed below, determine whether the market can reasonably be described as perfectly competitive. a. Breakfast cereal b. Sugar c. Automobiles d. Hass avocados e. Cable TV
a. Not perfectly competitive b. Perfectly competitive c. Not perfectly competitive d. Perfectly competitive e. Not perfectly competitive
In a perfectly competitive market, we assume the product is identical i the minds of ______
consumers
The ________ , the average revenue, and the marginal revenue curves for a perfectly competitive firm are the same horizontal line at the market price.
demand
Profit maximization implies that perfectly competitive firms should expand production up to the point where marginal revenue _________ marginal cost.
equals
Total revenue minus the _______ and _______ costs of production is economic profit.
explicit ; implicit
When a firm shuts down in the short run, it must still pay the ______ costs.
fixed
In a perfectly competitive market, we assume the product is __________ in the minds of consumers.
homogeneous
The market condition in which firms do not face incentives to enter or exit the market and firms earn a normal profit is known as:
long-run equilibrium
As the market price decreases, all else held constant, a profit maximizing firm will ________ its production
lower
Extra or additional revenue associated with the production of an additional unit of output is the _______ revenue.
marginal
The extra or additional cost associated with the production of an additional unit of output is the __________ cost
marginal
Firms that take or accept the market price and have no ability to influence that price are ______ ______?
price takers
Allocative efficiency is :
producing the goods and services that are most wanted by consumers in such a way that their marginal benefit equals their marginal cost.
All firms maximize profits by producing the quantity of output at which the marginal ______ is equal to the marginal ______
revenue ; cost
Profit equals (average ______ minus average total ______) multiplied by output.
revenue ; cost
Profit equals total _____ minus total _____
revenue ; cost
Because the marginal _____ equals the market _____ for perfectly competitive firms, they should produce output until the market price equals the marginal cost.
revenue ; price
The price of a good times the number of units sold gives us:
total revenue
If a firm is earning an economic profit:
Price > Average total cost
In increasing-cost industries, the cost of production rises with expanded output, and the long-run market supply curve slopes______
upward
A company can break even and meet operating costs without loss when it earns ______ economic profit
zero
Pete's Paper is a small company that produces office paper in a perfectly competitive market. Many other small companies like Pete's Paper produce the exact same type of paper. The market price of office paper is $50/case. Complete the schedule. Quant./Total Cost/MarginalCost/MarginalRev. 0 /$100 / --- / --- 1 /$135 / ? / ? 2 /$165 3 /$215 4 /$275 5 /$350 1. To maximize profits at the market price of $50/case, Pete's Paper should produce _____ cases of office paper each day? 2. Suppose a decrease in the market demand for office paper causes the price of office paper to decrease to $40/case. To maximize profits, Pete's Paper should now produce _______ cases of office paper each day?
Marginal Cost = change in total cost/ change in total output: (135-100) / (1-0) = 35 (165-135) / (2-1) = 30 (215-165) / (3-2) = 50 (275-215) / (4-3) = 60 (350-275) / (5-4) = 75 Marginal Revenue: In perfect competition, marginal revenue is equal to the market price ($50) thus all columns = 50. 1. Profit maximization is the quantity when MC=MR, thus they should produce 3 cases per day. 2. The new market price is $40, thus the closest equilibrium is at 2 cases per day when the MC= $30.
The perfectly competitive model is the most efficient type of market and is characterized by both _______ and ________ efficiency.
allocative ; productive
In a perfectly competitive market, a single firm is a price taker, and therefore, can only charge the ______ price.
market
When the total revenue earned by a firm is less than the total cost of production.....
the firm faces a loss
Normal profit is also known as ______ economic profit.
zero
