Question 1

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 losses as its total revenue (200 units x $40 = $8,000) is less than its total variable cost ($10,000). Thus, it should shut down in the short run to avoid further losses. This is because at the present output level, the firm is unable to even cover its variable cost, let alone its fixed costs, so producing more or less will not improve its situation. Shutting down will minimize its losses to the amount of its fixed costs.

Question 2

To maximize profit, a perfectly competitive firm that decides not to shut down will choose the rate of output at which

Accepted Answer

In a perfectly competitive market, where the firm is a price taker, the firm should produce at the point where price equals marginal cost (PMC) in order to maximize profits. This is because at this point, the firm is able to sell its output at the prevailing market price, and any additional unit of output will add more to revenue (P) than it will to costs (MC). Alternatively, if the firm produces at a point where PMC is greater than price, it can increase profits by reducing output, while if PMC is less than price, it can increase profits by increasing output. Therefore, the firm should always produce at the point where PMC equals price to maximize profits.

Question 3

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, it means that the company is experiencing losses. Economic profit is calculated by subtracting total cost from total revenue. Therefore, if the total revenue curve is below total cost, economic profit would be negative, indicating losses rather than zero profit.

Question 4

Many country inns shut down in the off-season because

Accepted Answer

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

Question 5

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...

Question 6

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

Accepted Answer

In the short run, a perfectly competitive firm may shut down if its total revenue is less than its variable cost. However, it still incurs its fixed costs, so its total cost is not zero.

Question 7

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-taking firm will shut down if the market price falls below the minimum of the average variable cost curve. In this case, the average variable cost is $170 at the optimal level of output. Therefore, if the market price falls below $170, the firm will not even be able to cover its variable costs and will shut down. Option C is the only choice that indicates a price below $170.

Question 8

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 as long as it is able to cover its variable costs. This means that the firm will produce as long as the price of the product is greater than the average variable cost of producing that output. Therefore, the correct choice is A, P > AVC at some output level.

Question 9

A perfectly competitive firm is currently producing where price is $8 and both marginal cost and average variable cost are $9. To maximize profit or minimize loss in the short run, this firm should

Accepted Answer

The firm should shut down in the short run because its revenue is less than its variable cost. Continuing to produce in the short run would result in a greater loss than shutting down.

Question 10

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

Accepted Answer

In a perfectly competitive market, short-run losses are minimized, not maximized, at the output level where MR = MC.

Question 11

In the short run, a perfectly competitive firm will always shut down if, at all output levels above zero,

Accepted Answer

The answer of In the short run, a perfectly competitive...

Question 12

In the short run, a perfectly competitive firm suffering a loss

Accepted Answer

In the short run, a perfectly competitive firm suffering a loss will continue producing as long as the price (P) covers the variable costs (AVC) of production. If the price falls below the AVC, the firm cannot cover its variable costs and incurs a larger loss by continuing to produce. Therefore, it will shutdown its operations and incur a smaller loss by not producing at all. Therefore, option A is the correct answer.

Question 13

Exhibit 8-16 
-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 Exhibit 8-16 
-Claude's Copper Clappers sells clappers...

Question 14

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 will only continue to operate if its total revenue is greater than its variable costs. If the firm shuts down, it incurs a loss equal to its fixed costs. However, since variable costs can be zero in certain situations (such as if the firm has already produced all of its output for the period), the statement is true.

Question 15

Exhibit 8-16 
-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 Exhibit 8-16 
-Claude's Copper Clappers sells clappers...

Question 16

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 17

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

Accepted Answer

The answer of If price is less than its minimum...

Question 18

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

When Peg shuts down, she is no longer incurring variable costs, but she is still incurring fixed costs. Therefore, her loss is equal to her fixed costs. The correct answer is D, as the loss is not zero, not greater than if she had kept operating, not the same as the losses she was incurring while operating, not less than her total revenue.

Question 19

Exhibit 8-16 
-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 Exhibit 8-16 
-Claude's Copper Clappers sells clappers...

Question 20

Exhibit 8-16 
-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 in a loss-making situation since his price ($40) is less than average total cost ($60). In this scenario, he should shut down in the short run since the loss he incurs by continuing production (selling at $40) will be greater than the loss he incurs by shutting down. Thus, shutting down would minimize his losses in the short run.

Quiz 8: A: perfect Competition

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

To maximize profit, a perfectly competitive firm that decides not to shut down will choose the rate of output at which

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

Many country inns shut down in the off-season because

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

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

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?

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

A perfectly competitive firm is currently producing where price is $8 and both marginal cost and average variable cost are $9. To maximize profit or minimize loss in the short run, this firm should

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

In the short run, a perfectly competitive firm will always shut down if, at all output levels above zero,

In the short run, a perfectly competitive firm suffering a loss

Exhibit 8-16 -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

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

Exhibit 8-16 -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

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

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

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

Exhibit 8-16 -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

Exhibit 8-16 -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