Question 1

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 23.4  D: Demand curve
MC: Marginal cost curve
ATC: Average-total cost curve
AVC: Average-variable-cost curve
Refer to Figure 23.4.The presence of the average-variable-cost curve suggests that the firm is operating:

Accepted Answer

The presence of the average-variable-cost curve suggests that the firm is operating in the short run. In the short run, the firm has fixed costs that it cannot change, so it must cover its variable costs to stay in business. The AVC curve represents the minimum amount the firm needs to charge to cover its variable costs.

Question 2

If a profit-maximizing, perfectly competitive firm is making only a normal profit in the short run, then the firm is in:

Accepted Answer

If a perfectly competitive firm is making only a normal profit in the short run, it means that the price (P) is equal to the average total cost (ATC). In other words, the firm is earning just enough revenue to cover its costs, including both fixed and variable costs. This is the point where economic profits are zero, indicating that the firm is earning a normal rate of return on its investment. Therefore, the equilibrium condition for such a firm is P = ATC, and the correct answer is E.

Question 3

If a firm in a perfectly competitive market is operating at its profit-maximizing level of output and suddenly faces a reduction in the price it can charge for its product, will the firm suspend operations?

Accepted Answer

If the firm is still earning enough revenue to cover its variable costs, it should continue operating in the short run. This is because shutting down would result in a loss equal to its fixed costs, whereas continuing to operate would at least cover its variable costs. In the long run, the firm may choose to exit the market if the price decrease persists. However, the firm would not suspend operations immediately in response to a short-term price decrease.

Question 4

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 23.3  In Figure 23.3, the firm will have to suspend its operations if the price falls below _____.

Accepted Answer

The firm will have to suspend its operations if the price falls below the minimum of the AVC curve. From the graph, we can see that the minimum of the AVC curve is at $4, therefore the firm will have to suspend its operations if the price falls below $4.

Question 5

For a perfectly competitive firm in the short run, which of the following statements is true?

Accepted Answer

In the short run, a perfectly competitive firm will produce as long as the price is greater than or equal to the minimum average variable cost, as it would still cover the variable costs. However, if the price falls below minimum average variable cost, the firm will not be able to cover its variable costs and would shut down. Therefore, option B is the correct statement. Options A, C, D, and E are incorrect.

Question 6

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 23.5 MC: Marginal cost curve MR: Marginal revenue curve. ATC: Average-total-cost curve AVC: Average-variable-cost curve Assume the price facing the firm in Figure 23.5 is P_1.Which of the following statements is true?

Accepted Answer

The answer of The figure given below shows the revenue...

Question 7

In the short run, a firm attempting to minimize losses:

Accepted Answer

A firm attempting to minimize losses in the short run will continue to produce as long as total revenue exceeds total variable cost. This is because by continuing to produce, the firm is able to at least cover its variable costs and avoid incurring additional losses in the short run. However, if the firm is unable to cover its fixed costs, it may eventually have to leave the industry in the long run. Marginal cost and marginal revenue are important considerations in determining profit-maximizing output levels, but they do not necessarily apply when a firm is trying to minimize losses. Additionally, the actions of competitors may influence a firm's decision to continue producing, but this is not the primary factor in minimizing losses.

Question 8

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 23.4  D: Demand curve
MC: Marginal cost curve
ATC: Average-total cost curve
AVC: Average-variable-cost curve
According to Figure 23.4, the firm's shutdown price is:

Accepted Answer

The shutdown price is where the price falls below the minimum average variable cost (AVC) and the firm decides to shut down production in the short run. In the given figure, the AVC curve intersects with the demand curve at a price of $50. Therefore, if the price falls below $50, the firm will shut down production in the short run. Hence, the answer is C.

Question 9

Some competitive firms are willing to operate at a loss in the short run because:

Accepted Answer

Firms are willing to operate at a loss in the short run if their average variable cost is less than the price because they can still cover their variable costs and contribute to fixed costs, even if they're not covering total costs.

Question 10

If a profit-maximizing, perfectly competitive firm is producing at a loss in the short run, then it implies that:

Accepted Answer

In a perfectly competitive market, a firm will continue to produce in the short run as long as the price (or average revenue) covers its average variable costs, even if it's not covering its average total costs. This is because, in the short run, the firm has already incurred its fixed costs, and as long as it can cover its variable costs and contribute something towards its fixed costs, it will be better off continuing to produce than shutting down immediately. Therefore, if a profit-maximizing, perfectly competitive firm is producing at a loss in the short run, it means that the price is less than the average total cost but greater than the average variable cost, allowing it to cover its variable costs and some portion of its fixed costs, but not enough to make an overall profit.

Question 11

A firm should not necessarily shut down if:

Accepted Answer

The answer of A firm should not necessarily shut down...

Question 12

When revenue is less than total cost but more than variable cost it implies:

Accepted Answer

When revenue is less than total cost but more than variable cost, the firm is able to cover its variable cost and a part of its fixed costs. This means that the firm is operating at a loss in the short run, but it is able to cover some of its costs and is better off than if it were to shut down and incur the full fixed costs. This situation is referred to as operating at a loss but still being able to contribute to fixed costs.

Question 13

In the short run, certain costs, such as rent on land and equipment, must be paid whether or not any output is produced.These are:

Accepted Answer

Fixed costs are costs that do not change with the level of output and must be paid regardless of whether or not any output is produced. Rent on land and equipment is an example of a fixed cost.

Question 14

In the short run a competitive firm is said to break-even if, at the equilibrium:

Accepted Answer

In the short run, a competitive firm aims to cover its variable costs, as fixed costs are already incurred and cannot be recovered in the short run. This means that at the equilibrium, the price must be equal to the average variable cost (AVC) to ensure that the firm is not making any losses. However, if the price is equal to the average total cost (ATC or AC), the firm is said to break-even as it is covering all its costs, including fixed costs. Therefore, the correct choice is D, price is equal to the average total cost.

Question 15

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 23.4  D: Demand curve
MC: Marginal cost curve
ATC: Average-total cost curve
AVC: Average-variable-cost curve
Refer to Figure 23.4.The total profit or loss for the firm is:

Accepted Answer

In a perfectly competitive market, the firm produces at the quantity where marginal cost equals marginal revenue, which is the intersection point of the demand and marginal cost curves in the given graph. This occurs at a quantity of 5 units, where the price is $10. At this quantity, the average total cost is $12, which is higher than the price, resulting in a loss of $2 per unit. Therefore, the total loss for the firm is $10 x $2 = $20.

Question 16

Since the beginning of the millennium, the United States has witnessed closure of many Internet start-up companies.According to the model of perfect competition, these companies must have shut down in the short run because:

Accepted Answer

The answer of Since the beginning of the millennium, the...

Question 17

The permanent shut down point of a perfectly competitive firm in the long run is:

Accepted Answer

In the long run, a perfectly competitive firm will continue to produce as long as it is able to cover its total costs, including both variable and fixed costs. The minimum point of the average total cost (ATC) curve represents the lowest point at which the firm can cover all of its costs and earn zero economic profit. If the firm's price falls below this point, it will be unable to cover all of its costs and will shut down permanently. Therefore, the answer is D, the minimum point of the ATC curve.

Question 18

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 23.3  Refer to Figure 23.3 and identify the price level at which the firm earns only normal profit.

Accepted Answer

The answer of The figure given below shows the revenue...

Question 19

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 23.5  MC: Marginal cost curve
MR: Marginal revenue curve.
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
According to Figure 23.5, the firm has:

Accepted Answer

The firm is operating at a quantity where MC intersects MR, which is indicated by the point U1. At this point, the firm is producing Q* units of output, where the market price is equal to the average total cost (ATC) of production. Therefore, the firm is making zero economic profit, represented by the rectangle PS1U1B11S1. However, the actual cost of production is higher than the revenue earned, as shown by the rectangle BDE. Hence, the firm is incurring losses equal to the area PS1U1B11S1U1B0BDE.

Question 20

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 23.4  D: Demand curve
MC: Marginal cost curve
ATC: Average-total cost curve
AVC: Average-variable-cost curve
Refer to Figure 23.4.At the profit-maximizing output level, which of the following is true?

Accepted Answer

The answer of The figure given below shows the demand...

Quiz 44: Perfect Competition

If a profit-maximizing, perfectly competitive firm is making only a normal profit in the short run, then the firm is in:

If a firm in a perfectly competitive market is operating at its profit-maximizing level of output and suddenly faces a reduction in the price it can charge for its product, will the firm suspend operations?

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 23.3 In Figure 23.3, the firm will have to suspend its operations if the price falls below _____.

For a perfectly competitive firm in the short run, which of the following statements is true?

In the short run, a firm attempting to minimize losses:

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 23.4 D: Demand curve MC: Marginal cost curve ATC: Average-total cost curve AVC: Average-variable-cost curve According to Figure 23.4, the firm's shutdown price is:

Some competitive firms are willing to operate at a loss in the short run because:

If a profit-maximizing, perfectly competitive firm is producing at a loss in the short run, then it implies that:

A firm should not necessarily shut down if:

When revenue is less than total cost but more than variable cost it implies:

In the short run, certain costs, such as rent on land and equipment, must be paid whether or not any output is produced.These are:

In the short run a competitive firm is said to break-even if, at the equilibrium:

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 23.4 D: Demand curve MC: Marginal cost curve ATC: Average-total cost curve AVC: Average-variable-cost curve Refer to Figure 23.4.The total profit or loss for the firm is:

Since the beginning of the millennium, the United States has witnessed closure of many Internet start-up companies.According to the model of perfect competition, these companies must have shut down in the short run because:

The permanent shut down point of a perfectly competitive firm in the long run is:

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 23.3 Refer to Figure 23.3 and identify the price level at which the firm earns only normal profit.

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 23.5 MC: Marginal cost curve MR: Marginal revenue curve. ATC: Average-total-cost curve AVC: Average-variable-cost curve According to Figure 23.5, the firm has:

The figure given below shows the demand and cost curves of a perfectly competitive firm. Figure: 23.4 D: Demand curve MC: Marginal cost curve ATC: Average-total cost curve AVC: Average-variable-cost curve Refer to Figure 23.4.At the profit-maximizing output level, which of the following is true?