Question 1

Consider the following cost curves for two perfectly competitive firms,A and B.  FIGURE 9-3
-Refer to Figure 9-3.Firms A and B are in the same industry.Choose the statement that best describes the situation facing the two firms.

Accepted Answer

Firm A is making losses but continues to produce as long as the price does not fall further, indicating it is covering its variable costs. Firm B is producing at a lower cost and earning economic profits, suggesting it is more efficient or has a cost advantage.

Question 2

The short-run supply curve for a perfectly competitive firm is

Accepted Answer

In the short run, a perfectly competitive firm will produce at the quantity where marginal cost equals marginal revenue. If the marginal cost is below the average variable cost, the firm will continue to produce. Therefore, the short-run supply curve for a perfectly competitive firm is its marginal cost curve above the average variable cost curve. This is because if the market price is above this level, the firm will produce, and if it is below this level, the firm will shut down.

Question 3

Consider a perfectly competitive firm that is producing a level of output such that price equals average total cost and average total cost is less than marginal cost.In order to maximize its profits,the firm should

Accepted Answer

When marginal cost is greater than average total cost, the firm is producing too much output and should reduce output to maximize profits.

Question 4

The supply curve for a perfectly competitive industry is the horizontal summation of the individual firms'

Accepted Answer

In a perfectly competitive market, the supply curve is derived from the marginal cost (MC) curves of individual firms above their average variable cost (AVC), as firms will only supply output if the price covers the AVC in the short run.

Question 5

Consider the following cost curves for two perfectly competitive firms,A and B. FIGURE 9-3 -Refer to Figure 9-3.If Firm B is producing at output level q₂,and selling its output at p₀,then Firm B should

Accepted Answer

At output level q2, Firm B is making losses. To maximize profits, Firm B should expand output to q0, where SRATC is at its minimum.

Question 6

Consider the total cost and revenue curves shown below,for two perfectly competitive firms,Firm A and Firm B.  FIGURE 9-4
-Refer to Figure 9-4.Given its total cost and revenue curves,Firm B should

Accepted Answer

Firm B should maximize its profits by producing the level of output where the slope of the TC curve is equal to the slope of the TR curve. This occurs at the point where the TC and TR curves intersect. At this point, the firm is earning zero economic profit, but it is covering all its variable and fixed costs. If the firm were to produce at a lower level of output, it would be incurring losses, and if it were to produce at a higher level of output, it would incur greater fixed costs and reduce its profits. Therefore, the optimal level of output for Firm B is the intersection point of the TC and TR curves.

Question 7

Consider the price and quantity data below for a perfectly competitive firm producing mousetraps.
  TABLE 9-1
-Refer to Table 9-1.Suppose this firm is producing 1500 mousetraps and its average total cost is $5.10 per unit.The firm will be

Accepted Answer

The firm's total cost is 1500 units * $5.10 = $7650. If the firm is suffering losses of $150, it means its total revenue is $7500, which is $150 less than the total cost.

Question 8

Consider the price and quantity data below for a perfectly competitive firm producing mousetraps.
  TABLE 9-1
-Refer to Table 9-1.Suppose this firm is producing 2000 mousetraps and average variable cost is $5.50.What level of economic profit is this firm earning?

Accepted Answer

There is insufficient information provided to determine the firm's total revenue, total cost, or fixed costs, which are necessary to calculate economic profit.

Question 9

Consider a firm in a perfectly competitive industry.The shut-down point is the price at which the firm can just cover its

Accepted Answer

The shut-down point occurs when the price is equal to the minimum of the average variable cost, meaning the firm can cover its variable costs but not its fixed costs.

Question 10

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry.  FIGURE 9-2
-Refer to Figure 9-2.If the market price is $1,the firm will produce ________ units of output in the short run.

Accepted Answer

If the market price is $1 and it is below the firm's average variable cost, the firm will not produce any output in the short run to minimize losses, hence producing 0 units.

Question 11

Consider the total cost and revenue curves shown below,for two perfectly competitive firms,Firm A and Firm B.  FIGURE 9-4
-Refer to Figure 9-4.Given its total cost and revenue curves,Firm A should

Accepted Answer

The answer of Consider the total cost and revenue curves...

Question 12

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry.  FIGURE 9-2
-Refer to Figure 9-2.If the market price is $2,the firm will

Accepted Answer

At a market price of $2, the firm's marginal cost curve intersects the marginal revenue curve at a quantity of 200 units. This means that the firm will produce and sell 200 units in the short run. At this quantity, the average total cost curve is above the price, meaning that the firm is making a loss. However, the loss is less than the fixed cost, so it is still better for the firm to continue operating in the short run rather than shutting down. Therefore, the best choice is C.

Question 13

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry.  FIGURE 9-2
-Refer to Figure 9-2.The short-run supply curve for this perfectly competitive firm is its

Accepted Answer

In a perfectly competitive industry, the firm's short-run supply curve is determined by its marginal cost (MC) curve. Therefore, the correct answer is the marginal cost curve at and above $1.50 (the point where the AVC curve intersects the MC curve). This is because as long as the market price is higher than or equal to the firm's minimum average variable cost (AVC), the firm will continue to produce in the short run. When the price falls below the AVC, the firm will shut down and incur losses equal to its fixed costs. Hence, the firm's supply curve is the MC curve at and above $1.50.

Question 14

Consider a perfectly competitive firm in the following position: output = 4000 units,market price = $1,fixed costs = $2000,variable costs = $1000,and marginal cost = $1.10.To maximize profits the firm should

Accepted Answer

The firm's marginal cost is higher than the market price, indicating that it is not profitable to produce an additional unit of output. Therefore, the firm should reduce its output to where the marginal cost equals the market price to maximize profits.

Question 15

Consider the total cost and revenue curves shown below,for two perfectly competitive firms,Firm A and Firm B.  FIGURE 9-4
-Refer to Figure 9-4.If both Firms A and B are producing a level of output such that the slope of the TC curve is equal to the slope of the TR curve,

Accepted Answer

The answer of Consider the total cost and revenue curves...

Question 16

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry.  FIGURE 9-2
-Refer to Figure 9-2.If the current market price is $6,the profit-maximizing output for this firm is

Accepted Answer

The answer of Consider the following short-run cost curves for...

Question 17

Consider the price and quantity data below for a perfectly competitive firm producing mousetraps.
  TABLE 9-1
-Refer to Table 9-1.Suppose this firm is producing 1250 mousetraps and its average total cost is $4 per unit.The firm will be

Accepted Answer

The answer of Consider the price and quantity data below...

Question 18

A perfectly competitive firm is currently producing an output level where price is $10.00,average variable cost is $6.00,average total cost is $10.00,and marginal cost is $8.00.In order to maximize profits,this firm should

Accepted Answer

This firm is currently producing at a point where price is equal to average total cost (ATC). Therefore, it is earning zero economic profit. To maximize profit, the firm should produce at a point where marginal cost (MC) equals price. In this case, the marginal cost is less than the price. This suggests that the firm can increase its profit by increasing its output. As such, the firm should increase its output until MC equals price, which in this case would mean increasing its output. Therefore, the correct choice is C.

Question 19

A perfectly competitive firm facing a price of $4.00 is currently producing an output level where average variable cost is $2.00,average total cost is $4.00,and marginal cost is $3.00.In order to maximize profits,this firm should

Accepted Answer

Since the price of the good is higher than the average variable cost ($4 > $2), the firm should continue to operate in the short run. In order to maximize profits, the firm should produce the quantity where marginal cost equals the price of the good, which is at an output level where MC = $4.00. Since the current marginal cost is $3.00, the firm should increase output to reach the profit-maximizing level. Therefore, the correct answer is to increase output (choice C).

Question 20

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry.  FIGURE 9-2
-Refer to Figure 9-2.If the price is $6 and the firm is producing at its profit-maximizing output,then total costs for the firm are

Accepted Answer

Total costs are equal to total variable costs plus total fixed costs. At the profit-maximizing output, total variable costs are equal to total revenue, which is $600. Total fixed costs are $1000. Therefore, total costs are $1600.

Quiz 9: Competitive Markets

Consider the following cost curves for two perfectly competitive firms,A and B. FIGURE 9-3 -Refer to Figure 9-3.Firms A and B are in the same industry.Choose the statement that best describes the situation facing the two firms.

The short-run supply curve for a perfectly competitive firm is

Consider a perfectly competitive firm that is producing a level of output such that price equals average total cost and average total cost is less than marginal cost.In order to maximize its profits,the firm should

The supply curve for a perfectly competitive industry is the horizontal summation of the individual firms'

Consider the following cost curves for two perfectly competitive firms,A and B. FIGURE 9-3 -Refer to Figure 9-3.If Firm B is producing at output level q2,and selling its output at p0,then Firm B should

Consider the total cost and revenue curves shown below,for two perfectly competitive firms,Firm A and Firm B. FIGURE 9-4 -Refer to Figure 9-4.Given its total cost and revenue curves,Firm B should

Consider the price and quantity data below for a perfectly competitive firm producing mousetraps. TABLE 9-1 -Refer to Table 9-1.Suppose this firm is producing 1500 mousetraps and its average total cost is $5.10 per unit.The firm will be

Consider the price and quantity data below for a perfectly competitive firm producing mousetraps. TABLE 9-1 -Refer to Table 9-1.Suppose this firm is producing 2000 mousetraps and average variable cost is $5.50.What level of economic profit is this firm earning?

Consider a firm in a perfectly competitive industry.The shut-down point is the price at which the firm can just cover its

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry. FIGURE 9-2 -Refer to Figure 9-2.If the market price is $1,the firm will produce ________ units of output in the short run.

Consider the total cost and revenue curves shown below,for two perfectly competitive firms,Firm A and Firm B. FIGURE 9-4 -Refer to Figure 9-4.Given its total cost and revenue curves,Firm A should

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry. FIGURE 9-2 -Refer to Figure 9-2.If the market price is $2,the firm will

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry. FIGURE 9-2 -Refer to Figure 9-2.The short-run supply curve for this perfectly competitive firm is its

Consider a perfectly competitive firm in the following position: output = 4000 units,market price = $1,fixed costs = $2000,variable costs = $1000,and marginal cost = $1.10.To maximize profits the firm should

Consider the total cost and revenue curves shown below,for two perfectly competitive firms,Firm A and Firm B. FIGURE 9-4 -Refer to Figure 9-4.If both Firms A and B are producing a level of output such that the slope of the TC curve is equal to the slope of the TR curve,

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry. FIGURE 9-2 -Refer to Figure 9-2.If the current market price is $6,the profit-maximizing output for this firm is

Consider the price and quantity data below for a perfectly competitive firm producing mousetraps. TABLE 9-1 -Refer to Table 9-1.Suppose this firm is producing 1250 mousetraps and its average total cost is $4 per unit.The firm will be

A perfectly competitive firm is currently producing an output level where price is $10.00,average variable cost is $6.00,average total cost is $10.00,and marginal cost is $8.00.In order to maximize profits,this firm should

A perfectly competitive firm facing a price of $4.00 is currently producing an output level where average variable cost is $2.00,average total cost is $4.00,and marginal cost is $3.00.In order to maximize profits,this firm should

Consider the following short-run cost curves for a profit-maximizing firm in a perfectly competitive industry. FIGURE 9-2 -Refer to Figure 9-2.If the price is $6 and the firm is producing at its profit-maximizing output,then total costs for the firm are

Consider the following cost curves for two perfectly competitive firms,A and B. FIGURE 9-3 -Refer to Figure 9-3.If Firm B is producing at output level q₂,and selling its output at p₀,then Firm B should