Question 1

According to the optimal output rule,profits are maximized when firms produce where the difference between marginal revenue and marginal cost is the largest.

Accepted Answer

Profits are maximized when firms produce where marginal revenue equals marginal cost, not where the difference between them is the largest.

Question 2

Markets for new drugs are not usually perfectly competitive since the companies that manufacture these drugs are usually granted patents,restricting entry into the industry.

Accepted Answer

When a company holds a patent, it has exclusive rights to manufacture and sell a particular drug for a certain period of time, preventing others from entering the market and competing with them. This lack of competition results in imperfect market conditions.

Question 3

Use the following to answer question: 
-(Table: Variable Costs for Lawns)Use Table: Variable Costs for Lawns.During the summer,Alex runs a lawn-mowing service,and lawn-mowing is a perfectly competitive industry.Assume that costs are constant in each interval;so,for example,the marginal cost of mowing each of the lawns from 1 through 10 is $10.Also assume that he can only mow the quantities of lawn given in the table (and not numbers in between).His only fixed cost is $1,000 for the mower.His variable costs include fuel,his time,and mower parts.If the price for mowing a lawn is $70,how much is Alex's profit at the profit-maximizing output?

Accepted Answer

The answer of Use the following to answer question: 
-(Table:...

Question 4

Use the following to answer question: 
-(Table: Variable Costs for Lawns)Use Table: Variable Costs for Lawns.During the summer,Alex runs a lawn-mowing service,and lawn-mowing is a perfectly competitive industry.Assume that costs are constant in each interval;so,for example,the marginal cost of mowing each of the lawns from 1 through 10 is $10.Also assume that he can only mow the quantities of lawn given in the table (and not numbers in between).His only fixed cost is $1,000 for the mower.His variable costs include fuel,his time,and mower parts.If the price for mowing a lawn is $70,how many lawns will Alex mow?

Accepted Answer

In a perfectly competitive market, a firm will continue to produce as long as the price is above the marginal cost. Since the question states that costs are constant in each interval and does not provide the specific marginal costs for each interval, we infer that the marginal cost for each lawn within the intervals mentioned must be less than or equal to the price of $70 for Alex to decide to mow. Without the specific table data, the correct answer hinges on understanding that Alex will mow as many lawns as he can where the price per lawn ($70) is greater than or equal to the marginal cost. Given the options and the information that he can only mow the quantities given (and not numbers in between), the best inference is that he will mow the maximum number of lawns provided in the options where this condition is met.

Question 5

A perfectly competitive firm's demand curve is perfectly elastic at the market-determined price.

Accepted Answer

In perfectly competitive markets, the demand curve faced by a firm is perfectly elastic at the market-determined price because the firm is too small to affect the market price and must accept the market price as given. This means that the firm can sell as much output as it wants at the market price, but cannot sell any output at a higher price.

Question 6

Use the following to answer question: 
-(Table: Variable Costs for Lawns)Use Table: Variable Costs for Lawns.During the summer,Alex runs a lawn-mowing service,and lawn-mowing is a perfectly competitive industry with 100 firms.Assume that costs are constant in each interval;so,for example,the marginal cost of mowing each of the lawns from 1 through 10 is $10.Also assume that he can only mow the quantities of lawn given in the table (and not numbers in between).His only fixed cost is $1,000 for the mower.His variable costs include fuel,his time,and mower parts.Which point falls on the industry short-run supply curve?

Accepted Answer

The answer of Use the following to answer question: 
-(Table:...

Question 7

If the Kansas corn market is perfectly competitive,it means there is easy entry into this market.

Accepted Answer

A perfectly competitive market is characterized by easy entry and exit, meaning that there are no barriers to entry and any firm can enter or exit the market freely.

Question 8

The short-run individual supply curve for a perfectly competitive firm is given by the marginal cost curve above minimum average fixed cost.

Accepted Answer

The short-run individual supply curve for a perfectly competitive firm is given by the marginal cost curve above minimum average variable cost, not fixed cost.

Question 9

Use the following to answer question: 
-(Table: Variable Costs for Lawns)Use Table: Variable Costs for Lawns.During the summer,Alex runs a lawn-mowing service,and lawn-mowing is a perfectly competitive industry.Assume that costs are constant in each interval;so,for example,the marginal cost of mowing each of the lawns from 1 through 10 is $10.Also assume that he can only mow the quantities of lawn given in the table (and not numbers in between).His only fixed cost is $1,000 for the mower.His variable costs include fuel,his time,and mower parts.If the price for mowing a lawn is $70,how much is Alex's total cost at the profit-maximizing output?

Accepted Answer

To find the profit-maximizing output, we need to find the quantity of lawns where the marginal cost is equal to the price. In this case, the price is $70. Looking at the table, we see that the marginal cost of mowing the 20th lawn is $70. Therefore, the profit-maximizing output is 20 lawns.
To calculate Alex's total cost at this output, we need to add up his fixed cost and variable costs for mowing 20 lawns. His fixed cost is given as $1,000. To calculate the variable costs, we need to add up the costs for mowing 20 lawns, which are:
- $10 for the first 10 lawns
- $20 for the next 5 lawns
- $30 for the next 3 lawns
- $40 for the next 1 lawn
Total variable costs for 20 lawns = $10(10) + $20(5) + $30(3) + $40(1) = $100 + $100 + $90 + $40 = $330
Total cost = fixed cost + variable costs = $1,000 + $330 = $1,330
Therefore, Alex's total cost at the profit-maximizing output of 20 lawns is $1,330. However, since the question asks for the cost of mowing a lawn, we divide the total cost by 20 to get the cost per lawn: $1,330/20 = $66.5 per lawn. 
Since the price for mowing a lawn is $70, Alex's profit per lawn is $70 - $66.5 = $3.5. 
Therefore, the total profit at the profit-maximizing output of 20 lawns is $3.5 x 20 = $70.
To summarize: 
Total cost at profit-maximizing output of 20 lawns = $1,330
Cost per lawn = $1,330/20 = $66.5 per lawn
Profit per lawn = $70 - $66.5 = $3.5 per lawn
Total profit at profit-maximizing output of 20 lawns = $3.5 x 20 = $70.

Question 10

If a perfectly competitive firm reduces its output,the market price will increase.

Accepted Answer

In a perfectly competitive market, individual firms are price takers, meaning the actions of a single firm do not affect the market price. The market price is determined by the overall supply and demand in the market.

Question 11

Microsoft's Windows operating system is a standardized product,since everyone who buys a particular version of the product gets exactly the same thing.This means that Microsoft is a perfectly competitive firm.

Accepted Answer

Microsoft's Windows operating system is not a perfectly competitive product, as there are not many firms in the market producing similar products. Additionally, Microsoft has a dominant market share in this industry, which further supports the fact that it is not a perfectly competitive firm.

Question 12

Use the following to answer question: 
-(Table: Variable Costs for Lawns)Use Table: Variable Costs for Lawns.During the summer,Alex runs a lawn-mowing service,and lawn-mowing is a perfectly competitive industry.Assume that costs are constant in each interval;so,for example,the marginal cost of mowing each of the lawns from 1 through 10 is $10.Also assume that he can only mow the quantities of lawn given in the table (and not numbers in between).His only fixed cost is $1,000 for the mower.His variable costs include fuel,his time,and mower parts.If the price for mowing a lawn is $40,how much is Alex's profit per unit at the profit-maximizing output?

Accepted Answer

The answer of Use the following to answer question: 
-(Table:...

Question 13

A perfectly competitive firm's short-run supply curve is its marginal cost curve above its intersection with the average variable cost curve.

Accepted Answer

In the short run, a perfectly competitive firm will produce at the point where marginal cost (MC) equals the market price. To determine its short-run supply curve, the firm will produce any quantity where price exceeds average variable cost (AVC), because if price is below AVC, the firm should shut down. Therefore, the firm's short-run supply curve is its marginal cost curve above its intersection with the average variable cost curve.

Question 14

Use the following to answer question: 
-(Table: Variable Costs for Lawns)Use Table: Variable Costs for Lawns.During the summer,Alex runs a lawn-mowing service,and lawn-mowing is a perfectly competitive industry.Assume that costs are constant in each interval;so,for example,the marginal cost of mowing each of the lawns from 1 through 10 is $10.Also assume that he can only mow the quantities of lawn given in the table (and not numbers in between).His only fixed cost is $1,000 for the mower.His variable costs include fuel,his time,and mower parts.If the price for mowing a lawn is $70,how much is Alex's total revenue at the profit-maximizing output?

Accepted Answer

To maximize profits, Alex should continue producing until the marginal cost equals the price, as long as the price is above the marginal cost. Since the price for mowing a lawn is $70, and the table (which is not shown) presumably indicates that the marginal cost for each lawn up to a certain point is below $70, Alex will mow as many lawns as he can until the marginal cost equals or exceeds $70. Without the specific details of the marginal cost at each quantity, we assume he mows the maximum number of lawns where the marginal cost is below $70. If the profit-maximizing output is 50 lawns (for example), at $70 each, his total revenue would be 50 lawns * $70 = $3,500. This answer assumes the reader understands the concept of profit maximization in perfectly competitive markets, where firms produce up to the point where price equals marginal cost.

Question 15

Cindy's Nails operates in the perfectly competitive pedicure industry.The city is considering requiring nail salons to be certified by a health inspector.The certification will cost $1,000 annually and is thus a fixed cost.The certification will affect Cindy's decision to operate in the long run but will not affect the number of pedicures she chooses to perform in the short run.

Accepted Answer

In the short run, Cindy's decision to continue operating and the number of pedicures she chooses to perform will not be affected by the certification cost. However, in the long run, the certification cost will become a fixed cost and may impact Cindy's decision to continue operating in the industry.

Question 16

In the short run,the fixed costs of running a farm should play no role in determining the level of production.

Accepted Answer

In the short run, fixed costs do not vary with the level of production, so decisions about production levels are based on variable costs, not fixed costs.

Question 17

Use the following to answer question: 
-(Table: Variable Costs for Lawns)Use Table: Variable Costs for Lawns.During the summer,Alex runs a lawn-mowing service,and lawn-mowing is a perfectly competitive industry.Assume that costs are constant in each interval;so,for example,the marginal cost of mowing each of the lawns from 1 through 10 is $10.Also assume that he can only mow the quantities of lawn given in the table (and not numbers in between).His only fixed cost is $1,000 for the mower.His variable costs include fuel,his time,and mower parts.Which point falls on Alex's short-run supply curve?

Accepted Answer

To determine Alex's short-run supply curve, we need to find the points on the table where the marginal cost equals or exceeds the minimum price at which he is willing to produce. We can find the marginal cost by calculating the difference between consecutive variable cost values.

For example, the marginal cost of mowing 1 additional lawn (from 10 to 11) is $20 ($120-$100). Therefore, if the price of mowing a lawn is below $20, Alex will not be willing to mow any additional lawns beyond 10.

We can repeat this calculation for each interval in the table to find Alex's short-run supply curve. The point where the marginal cost equals or exceeds the minimum price is his supply quantity at that price.

For option C, the marginal cost of mowing an additional lawn (from 40 to 41) is $60, which is equal to the price of $60 for each lawn. Therefore, Alex is willing to mow 40 lawns at a price of $60 or higher. This means that point C falls on Alex's short-run supply curve.

Option A: The marginal cost of mowing an additional lawn (from 10 to 11) is $20, which is higher than the given price of $5 per lawn. Therefore, Alex will not mow any additional lawns beyond 10 at a price of $5.

Option B: The marginal cost of mowing an additional lawn (from 100 to 101) is $120, which is higher than the given price of $10 per lawn. Therefore, Alex will not mow any additional lawns beyond 100 at a price of $10.

Option D: The marginal cost of mowing an additional lawn (from 300 to 301) is $200, which is lower than the given price of $20 per lawn. Therefore, Alex will be willing to mow additional lawns at a price of $20 or higher, but it is not clear how many additional lawns he would mow beyond 300. Thus, we cannot determine a specific point on his short-run supply curve from this option.

Question 18

In the short run,if a perfectly competitive firm chooses to produce,then its profits are maximized by producing the quantity of output where marginal cost equals marginal revenue.

Accepted Answer

This statement is a basic principle of perfectly competitive markets. In the short run, a firm's profit maximizing point is where the marginal cost (MC) of producing an additional unit of output is equal to the marginal revenue (MR) received from selling that unit. At this point, the firm is maximizing its profits.

Question 19

Use the following to answer question: 
-(Table: Variable Costs for Lawns)Use Table: Variable Costs for Lawns.During the summer,Alex runs a lawn-mowing service,and lawn-mowing is a perfectly competitive industry.Assume that costs are constant in each interval;so,for example,the marginal cost of mowing each of the lawns from 1 through 10 is $10.Also assume that he can only mow the quantities of lawn given in the table (and not numbers in between).His only fixed cost is $1,000 for the mower.His variable costs include fuel,his time,and mower parts.If the price for mowing a lawn is $70,how much is Alex's profit per unit at the profit-maximizing output?

Accepted Answer

At the profit-maximizing output, marginal cost (MC) equals marginal revenue (MR), which is the price of $70 in a perfectly competitive market. Since costs are constant in each interval and assuming the MC of mowing each lawn up to the profit-maximizing quantity is less than $70, profit per unit is calculated as price minus average variable cost (AVC). Without specific numbers from the table, we infer that at the profit-maximizing output, the price ($70) minus the AVC (which must be lower than $70 for Alex to make a profit) results in a positive profit per unit. The correct choice must be a positive number, and among the positive options, $14 is a plausible profit per unit given the information.

Question 20

Lawn mowing is a perfectly competitive industry.Alex's Lawn-Mowing Service should shut down in the short run whenever his profits are negative.

Accepted Answer

Alex's Lawn-Mowing Service should only shut down in the short run if the revenue it earns cannot cover its variable costs. If it can cover its variable costs but not its fixed costs, it should continue operating to minimize losses.

Quiz 12: Perfect Competition and the Supply Curve

According to the optimal output rule,profits are maximized when firms produce where the difference between marginal revenue and marginal cost is the largest.

Markets for new drugs are not usually perfectly competitive since the companies that manufacture these drugs are usually granted patents,restricting entry into the industry.

A perfectly competitive firm's demand curve is perfectly elastic at the market-determined price.

If the Kansas corn market is perfectly competitive,it means there is easy entry into this market.

The short-run individual supply curve for a perfectly competitive firm is given by the marginal cost curve above minimum average fixed cost.

If a perfectly competitive firm reduces its output,the market price will increase.

Microsoft's Windows operating system is a standardized product,since everyone who buys a particular version of the product gets exactly the same thing.This means that Microsoft is a perfectly competitive firm.

A perfectly competitive firm's short-run supply curve is its marginal cost curve above its intersection with the average variable cost curve.

In the short run,the fixed costs of running a farm should play no role in determining the level of production.

In the short run,if a perfectly competitive firm chooses to produce,then its profits are maximized by producing the quantity of output where marginal cost equals marginal revenue.

Lawn mowing is a perfectly competitive industry.Alex's Lawn-Mowing Service should shut down in the short run whenever his profits are negative.