Question 1

Figure 8.6.1
-Refer to Figure 8.6.1 above. The minimum variable cost of the firms in this competitive market is:

Accepted Answer

Firm 3 has a lower variable cost compared to the other firms in the market, as represented by the lower position of its cost curve. Therefore, C is the best choice.

Question 2

Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift?

Accepted Answer

The technological innovation that shifts the marginal cost curve downward affects variable costs and has no impact on fixed costs, so the average fixed cost curve remains the same.

Question 3

Producer surplus in a perfectly competitive industry is:

Accepted Answer

Producer surplus is the difference between total revenue and total variable cost, representing the benefit producers receive by selling at a market price higher than their minimum acceptable price.

Question 4

Figure 8.6.2
-Refer to Figure 8.6.2 above. Which area represents producer surplus in this figure?

Accepted Answer

Producer surplus is the area above the supply curve (or marginal cost curve, MC) up to the price level. In this case, it's the area above the MC curve and below the price level, P, which matches description D.

Question 5

Use the following statements to answer this question: I. Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) also shifts the average variable cost curve upward.
II) Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) reduces firm output but may increase firm profits.

Accepted Answer

I is true because the marginal cost curve intersects the average variable cost curve at its lowest point, so if the marginal cost increases, it will also pull the average variable cost curve upward. II is false because under perfect competition, firms are price takers and cannot influence the market price. An increase in marginal cost would reduce output and profits, as firms adjust output to where price equals marginal cost, and higher costs at any output level would reduce profit margins.

Question 6

Figure 8.5.2
-Refer to Figure 8.5.2 above. The shift in the marginal cost curve implies:

Accepted Answer

A shift in the marginal cost curve usually reflects a change in the costs of production. An increase in the price of an input would raise the costs associated with producing each additional unit, thus shifting the marginal cost curve upward and reducing the profit-maximizing level of output.

Question 7

In a supply-and-demand graph, producer surplus can be pictured as the:

Accepted Answer

Producer surplus is the measure of how much producers gain from a transaction. It is calculated as the difference between the market price and the cost of producing the good. In a supply-and-demand graph, this can be pictured as the area between the equilibrium price line (the price at which quantity supplied equals quantity demanded) and the supply curve to the left of equilibrium output. This represents the amount that producers are willing and able to sell at a given price, but which they are not selling because the price is higher than the equilibrium price.

Question 8

Figure 8.5.1
-The supply curve for a competitive firm is

Accepted Answer

The supply curve for a competitive firm is determined by its marginal cost (MC) curve above the minimum point of its average variable cost (AVC) curve. This is because a firm will only produce if it can cover its variable costs and any additional revenue will go towards covering fixed costs and generating profits. Therefore, options A and D are incorrect because they both include the entire MC curve or the MC curve above the minimum point of the average total cost (ATC) curve, which would result in the firm producing even if it is incurring losses. Option B is also incorrect because the upward-sloping portion of the MC curve may be below the minimum point of the AVC curve, in which case the firm would not produce. Option E is also incorrect because the MR curve is not sufficient to determine the level of output a competitive firm will produce.

Question 9

Use the following statements to answer this question: I. An increase in the firm's fixed costs will also shift the firm's short-run supply curve to the left.
II) An increase in the firm's fixed costs will not shift the firm's short-run supply curve to the right or left, but it may alter how much of the marginal cost curve is used to form the short-run supply curve.

Accepted Answer

The answer of Use the following statements to answer this...

Question 10

Figure 8.5.2
-Higher input prices result in:

Accepted Answer

Higher input prices increase the costs of production, which results in upward shifts of the marginal cost (MC) curve. As a result, firms reduce their output to maintain their profit margins. Therefore, higher input prices result in upward shifts of MC and reductions in output.

Question 11

Figure 8.5.1
-Refer to Figure 8.5.1 above. The dashed portion of the marginal cost curve refers to:

Accepted Answer

The answer of  Figure 8.5.1
-Refer to Figure 8.5.1 above....

Question 12

Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pizza cheese increases (ceteris paribus), what is the expected impact on Ronny's profit-maximizing output decision?

Accepted Answer

In a perfectly competitive market, firms are price-takers and cannot influence the market price. Therefore, when the price of pizza cheese (an input) increases, the firm's marginal cost increases, which means they will be less profitable at each level of output. This would lead Ronny's Pizza House to produce less pizza (output decreases) to maximize their profit.

Question 13

The shutdown decision can be restated in terms of producer surplus by saying that a firm should produce in the short run as long as:

Accepted Answer

In the short run, a firm should produce as long as its total revenue exceeds its total variable cost. The portion of revenue that is above and beyond the variable cost is the producer surplus. Therefore, as long as the producer surplus is positive, the firm should continue to produce.

Question 14

Figure 8.6.3
-Refer to Figure 8.6.3 above. Producer surplus in the figure equals the area:

Accepted Answer

Producer surplus is the difference between the amount a producer is willing to sell a product for and the actual amount received from the buyer. In this figure, producer surplus is the area below the market price (equilibrium price) and above the supply curve. This represents the amount that producers are willing to sell the product for (as shown by the supply curve) but are actually receiving more (as represented by the market price) in the market, thus resulting in surplus.

Question 15

Short-run supply curves for perfectly competitive firms tend to be upward sloping because:

Accepted Answer

The short-run supply curve for a perfectly competitive firm is upward-sloping due to both the law of diminishing marginal returns (which leads to increasing marginal costs) and the fact that fixed costs do not vary with output in the short run. Therefore, both options A and B are correct. Option C, which suggests that marginal fixed costs are zero, is not necessarily true and is not a reason for the upward slope of the supply curve in the short run.

Question 16

Homer's Boat Manufacturing cost function is:  The marginal cost function is:  If Homer can sell all the boats he produces for $1,200, what is his optimal output? Calculate Homer's profit or loss.

Accepted Answer

The answer of Homer's Boat Manufacturing cost function is: ...

Question 17

Figure 8.6.1 -Refer to Figure 8.6.1 above. At price levels P₂ and P₃, the output levels on the industry supply curve equal:

Accepted Answer

The correct output levels at price levels P2 and P3 on the industry supply curve are 15 and 21 units, respectively, as indicated by the given options.

Question 18

A firm's producer surplus equals its economic profit when:

Accepted Answer

Producer surplus equals economic profit when fixed costs are zero because producer surplus is total revenue minus variable costs, and economic profit is total revenue minus total costs (including fixed costs). If fixed costs are zero, these two measures are equal.

Question 19

Sarah's Pretzel plant has the following short-run cost function:  where q is Sarah's output level, w is the cost of a labor hour, and K is the number of pretzel machines Sarah leases. Sarah's short-run marginal cost curve is  At the moment, Sarah leases 10 pretzel machines, the cost of a labor hour is $6.85, and she can sell all the output she produces at $35 per unit. If the cost per labor hour rises to $7.50, what happens to Sarah's optimal level of output and profits?

Accepted Answer

The answer of Sarah's Pretzel plant has the following short-run...

Question 20

A competitive firm sells its product at a price of $0.10 per unit. Its total and marginal cost functions are: TC = 5 - 0.5Q + 0.001Q² MC = -0.5 + 0.002Q, where TC is total cost ($) and Q is output rate (units per time period). a. Determine the output rate that maximizes profit or minimizes losses in the short term. b. If input prices increase and cause the cost functions to become TC = 5 - 0.10Q + 0.002Q² MC = -0.10 + 0.004Q, what will the new equilibrium output rate be? Explain what happened to the profit maximizing output rate when input prices were increased.

Accepted Answer

The answer of A competitive firm sells its product at...

Quiz 8: Profit Maximization and Competitive Supply

Figure 8.6.1 -Refer to Figure 8.6.1 above. The minimum variable cost of the firms in this competitive market is:

Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift?

Producer surplus in a perfectly competitive industry is:

Figure 8.6.2 -Refer to Figure 8.6.2 above. Which area represents producer surplus in this figure?

Figure 8.5.2 -Refer to Figure 8.5.2 above. The shift in the marginal cost curve implies:

In a supply-and-demand graph, producer surplus can be pictured as the:

Figure 8.5.1 -The supply curve for a competitive firm is

Figure 8.5.2 -Higher input prices result in:

Figure 8.5.1 -Refer to Figure 8.5.1 above. The dashed portion of the marginal cost curve refers to:

Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pizza cheese increases (ceteris paribus) , what is the expected impact on Ronny's profit-maximizing output decision?

The shutdown decision can be restated in terms of producer surplus by saying that a firm should produce in the short run as long as:

Figure 8.6.3 -Refer to Figure 8.6.3 above. Producer surplus in the figure equals the area:

Short-run supply curves for perfectly competitive firms tend to be upward sloping because:

Homer's Boat Manufacturing cost function is: The marginal cost function is: If Homer can sell all the boats he produces for $1,200, what is his optimal output? Calculate Homer's profit or loss.

Figure 8.6.1 -Refer to Figure 8.6.1 above. At price levels P₂ and P₃, the output levels on the industry supply curve equal:

A firm's producer surplus equals its economic profit when:

Quiz 8: Profit Maximization and Competitive Supply

Figure 8.6.1 -Refer to Figure 8.6.1 above. The minimum variable cost of the firms in this competitive market is:

Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift?

Producer surplus in a perfectly competitive industry is:

Figure 8.6.2 -Refer to Figure 8.6.2 above. Which area represents producer surplus in this figure?

Figure 8.5.2 -Refer to Figure 8.5.2 above. The shift in the marginal cost curve implies:

In a supply-and-demand graph, producer surplus can be pictured as the:

Figure 8.5.1 -The supply curve for a competitive firm is

Figure 8.5.2 -Higher input prices result in:

Figure 8.5.1 -Refer to Figure 8.5.1 above. The dashed portion of the marginal cost curve refers to:

Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pizza cheese increases (ceteris paribus) , what is the expected impact on Ronny's profit-maximizing output decision?

The shutdown decision can be restated in terms of producer surplus by saying that a firm should produce in the short run as long as:

Figure 8.6.3 -Refer to Figure 8.6.3 above. Producer surplus in the figure equals the area:

Short-run supply curves for perfectly competitive firms tend to be upward sloping because:

Homer's Boat Manufacturing cost function is: The marginal cost function is: If Homer can sell all the boats he produces for $1,200, what is his optimal output? Calculate Homer's profit or loss.

Figure 8.6.1 -Refer to Figure 8.6.1 above. At price levels P2 and P3, the output levels on the industry supply curve equal:

A firm's producer surplus equals its economic profit when:

Figure 8.6.1 -Refer to Figure 8.6.1 above. At price levels P₂ and P₃, the output levels on the industry supply curve equal: