M:WMF week 1 ( Costs and Profits + Perfect Competition)

The cost function of a firm is given by:

1050

Which of the following statements is correct about the Perfectly Competitive Market?' I. Each firm maximizes profits. II. The market produces the quantity that maximizes total surplus.

Both statements are correct.

A Perfectly Competitive firm is a:

Price Taker, which implies that MR=P

The table below shows the total output as a function of the number of workers. ( [Workers: 1,2,3,4,5][Toys: 5,12,22,30,35])

First decreasing but then increasing.

The Law of Diminishing Marginal Returns states that:

If at least one input is fixed, as we increase the variable input, we will eventually reach a point where the extra output generated by a one unit increase in variable input starts to get smaller and smaller.

The market for onions is perfectly competitive and the industry is currently in a long run equilibrium. Suppose that growing population has increased the demand for onions. What should we expect will happen to the price of onions in the short and long run?

In the short run prices will rise, but as new firms enter the market and shift out supply the price will return to its original level.

To maximize profits, firms should produce where:

MR=MC

The market for heaters is perfectly competitive, and the industry is currently in a long run equilibrium. Suppose the government imposes a new annual licensing fee on all firms in the industry. In the new long run equilibrium, which statement about the number of firms, N, aggregate quantity supplied, Q, quantity supplied by the individual firm, q, and the price P is correct?

N is lower, Q is lower, q is higher & P is higher.

Which of the following statements about profits is correct?

None of these statements is correct. (Profits decrease the more a firm sells, because costs are always increasing, Profits increase the more a firm sells, as long as revenues are also increasing, Profits increase the more a firm sells, because revenues always increase)

To maximize profits, a perfectly competitive firm should produce where:

P=MC, though it is true the marginal profit is zero.

Marginal Cost is:

The extra cost needed to pay for the extra inputs needed to produce one extra unit.

The firm's marginal cost is given by MC=20+20q and we learn that the market price is $420 per unit.

The firm reduce its production to 20 despite the fact that this will reduce revenue.

Ben quit his job as an economics professor to become a golf professional. He gave up his salary ($30,000) and invested his retirement fund of $50,000 (which was earning 10 percent interest) in this venture. After all expenses, his net winnings (accounting profits) were $35,000. Ben's economic profits were:

Zero

Which of the following is the correct relationship between the horizontal rectangle (ABCD) and the vertical rectangle (AEFG)?

area(ABCD) > area(AEFG)