Question 1

Claude's Copper Clappers sells clappers for $40 each in a perfectly competitive market.At its present rate of output,Claude's marginal cost is $39,average variable cost is $45,and average total cost is $60.To improve his profit/loss situation,Claude should

Accepted Answer

Claude is currently producing at a level where his price ($40) is below his average total cost ($60). This means he is making a loss on each unit produced. In this situation, Claude should shut down in the short run to minimize his losses, as continuing to produce would only add to his overall cost. This would allow Claude to re-evaluate his situation and potentially come up with a new plan for producing more efficiently or at a higher price in the long run.

Question 2

Suppose a price-taking firm produces 400 units at its optimal output level.At that output rate marginal cost is $200,average total cost is $240,and average variable cost is $170.What can you determine about the market price that would force the firm to shut down in the short run?

Accepted Answer

In the short run, a price taker firm will shut down if the price is less than the minimum value of average variable cost. In this case, the average variable cost is $170, which means that the firm will shut down if the market price is less than $170. So, the correct answer is C, which states that the market price must be less than $170 to force the firm to shut down in the short run.

Question 3

Exhibit 8-14
 
-In Exhibit 8-14,what area represents total loss at the loss-minimizing output?

Accepted Answer

The answer of Exhibit 8-14
 
-In Exhibit 8-14,what area represents...

Question 4

At its present rate of output,200 units,a perfectly competitive firm has variable costs of $10,000 and marginal cost of $50,and accepts the market price of $40 per unit.To improve its profit/loss situation,this firm should

Accepted Answer

The firm is currently incurring a loss because the market price of $40 is lower than the marginal cost of $50. Therefore, it is not profitable for the firm to continue producing in the short run. The best option for the firm is to shut down in the short run and minimize its losses.

Question 5

Claude's Copper Clappers sells clappers for $60 each in a perfectly competitive market.At its present rate of output,Claude's marginal cost is $65,average variable cost is $25,and average total cost is $62.To improve his profit/loss situation,Claude should

Accepted Answer

The answer of Claude's Copper Clappers sells clappers for $60...

Question 6

If a perfectly competitive firm shuts down in the short run,its variable cost equals zero.

Accepted Answer

In the short run, a perfectly competitive firm may choose to shut down if its total revenue is less than its variable cost. In such a case, the firm's variable cost will be zero since it has stopped all production activities. However, its fixed costs will still have to be paid, which may eventually lead to the firm's exit from the industry in the long run.

Question 7

If price is less than its minimum average variable cost,a perfectly competitive firm that continues to produce in the short run

Accepted Answer

If the price is less than the minimum average variable cost, the firm is unable to cover all of its variable costs. However, if the firm decides to continue producing, it is incurring additional variable costs. Therefore, in the short run, the firm's losses are greater than its fixed cost.

Question 8

Exhibit 8-14
 
-In Exhibit 8-14,what area represents variable cost at the loss-minimizing output?

Accepted Answer

The answer of Exhibit 8-14
 
-In Exhibit 8-14,what area represents...

Question 9

Exhibit 8-15
 
-The purely competitive firm in Exhibit 8-15 should

Accepted Answer

The answer of Exhibit 8-15
 
-The purely competitive firm in...

Question 10

Claude's Copper Clappers sells clappers for $40 each in a perfectly competitive market.At its present rate of output,Claude's marginal cost is $39,average variable cost is $25,and average total cost is $45.To improve his profit/loss situation,Claude should

Accepted Answer

The answer of Claude's Copper Clappers sells clappers for $40...

Question 11

Exhibit 8-16
 
-Which of the following statements about the perfectly competitive firm represented in Exhibit 8-16 is false?

Accepted Answer

The answer of Exhibit 8-16
 
-Which of the following statements...

Question 12

If a perfectly competitive firm is producing at a quantity at which MC < AVC,it cannot be maximizing profit in the short run.

Accepted Answer

The answer of If a perfectly competitive firm is producing...

Question 13

In the short run,a firm will produce a positive amount of output as long as

Accepted Answer

In the short run, a firm will produce a positive amount of output as long as its total revenue covers its variable costs. This means that the firm will continue to produce as long as the price of the product is greater than its average variable cost (P > AVC) at some output level. If the price is below the average variable cost (P < AVC) at all output levels, the firm will shut down in the short run. However, if the price is just equal to the average variable cost (P = AVC) at some output level, the firm will produce that amount in the short run, but it will not earn any profit. Thus, option A is the correct choice.

Question 14

Many country inns shut down in the off-season because

Accepted Answer

The answer of Many country inns shut down in the...

Question 15

If the total revenue curve lies completely below the total cost curve,economic profit is zero.

Accepted Answer

If the total revenue curve lies completely below the total cost curve, economic profit is negative, not zero. This means that the cost of producing the goods or services exceeds the revenue earned from selling them, resulting in a loss. Zero economic profit occurs when total revenue equals total cost.

Question 16

Exhibit 8-15
 
-The maximum economic profit (or minimum economic loss) for the firm in Exhibit 8-15 is a

Accepted Answer

The answer of Exhibit 8-15
 
-The maximum economic profit (or...

Question 17

Claude's Copper Clappers sells clappers for $65 each in a perfectly competitive market.At its present rate of output,Claude's marginal cost is $65,average variable cost is $45,and average total cost is $67.To maximize his profit or minimize his loss,Claude should

Accepted Answer

The answer of Claude's Copper Clappers sells clappers for $65...

Question 18

If a perfectly competitive firm shuts down in the short run,its total cost equals zero.

Accepted Answer

If a perfectly competitive firm shuts down in the short run, its total cost is not zero. The firm may still have fixed costs to pay, such as rent on a factory, even though it has stopped producing. However, its total variable costs would be zero since it is not producing any output.

Question 19

Peg's Kegs sells kegs in a perfectly competitive market.Because low demand forced price below average variable cost,Peg has made the short-run decision to shut down.Her current loss is

Accepted Answer

The answer of Peg's Kegs sells kegs in a perfectly...

Question 20

At its present rate of output,200 units,a perfectly competitive firm has total cost of $10,000,marginal cost of $38,and fixed cost of $2,000,and it charges the market price of $38 per unit.To maximize profit or minimize loss,this firm should

Accepted Answer

The answer of At its present rate of output,200 units,a...

Quiz 8: Perfect Competition