Question 1

If a competitive firm has TC = q³/3 + 25 and faces a market price of P = 49, what is the firm's maximum profit?

Accepted Answer

The answer of If a competitive firm has TC =...

Question 2

In a market, demand is given by P = 150 - 3Q and Supply is given by P = 2Q + 10. Find the equilibrium price and quantity and determine the impact of a technological innovation on consumer surplus.

Accepted Answer

The answer of In a market, demand is given by...

Question 3

If each firm is initially earning positive profits in a perfectly competitive industry, then there will be entry of new firms, price will fall, and the output of each firm will fall in the long- run equilibrium.

Accepted Answer

In the long-run equilibrium of a perfectly competitive industry, new firms will enter the market, leading to an increase in supply and a decrease in price. The decrease in price will result in a decrease in the profits of each firm, and as a result, their output will also decrease to reach a point where they earn only normal profits. Therefore, the statement is true.

Question 4

A competitive firm:
A)does not have a supply curve.
B)has a supply curve only if it earns a profit.
C)has a supply curve equal to its marginal cost curve above the minimum AVC point.
D)has a supply curve equal to its marginal cost curve.

Accepted Answer

A competitive firm's supply curve is indeed its marginal cost curve above the minimum point of the average variable cost (AVC). This is because the firm will only supply output at prices that cover its AVC, and marginal cost pricing is a characteristic of competitive markets.

Question 5

Suppose that TC = 2Q³- 18Q²+ 100Q + 50. If price, P, equals 100, the firm's maximum profit is: A)120. B)154. C)166. D)186.

Accepted Answer

To find the maximum profit, we need to differentiate TC with respect to Q, set that equal to zero, and solve for Q. Then, we can plug that Q value back into the original equation to find the corresponding price and maximum profit.

Taking the derivative of TC with respect to Q, we get:
MC = 2S1U1P1 - 18S1U1P12

Setting MC equal to zero and solving for Q, we get:
2S1U1P1 - 18S1U1P12 = 0
Simplifying:
S1U1P1 - 9S1U1P12 = 0
S1U1P1 = 9S1U1P12
P1/P12 = 9

So, the firm should produce when the ratio of the price of good 1 to the price of good 2 is 9. We can find Q by plugging this into the demand equation for good 1:
Q = 100 - P1 = 100 - 900/10 = 10

Now, we can find the corresponding price:
P = 100 + 2(10)(1) - 18(10)(1/2) + 100 + 50
P = 166

Finally, we can find the profit by plugging Q and P into the total profit function:
π = PQ - TC
π = (10)(166) - 2(10)(1)(166) - 13(10)(1/2)(166) + (10)(1/2)(166) - 100(10) - 50
π = 1660 - 332 - 1079 + 83 - 1000 - 50
π = 154

Therefore, the firm's maximum profit is $154, and the best choice is C.

Question 6

Pencils are produced in a perfectly competitive industry. The demand function for pencils is given by D(p)=100- p. Average cost of producing y units is given by AC(y)=4+(2- y)². a)Determine the individual supply curve of each firm and find the long run industry supply curve under the assumption of free- entry. b)What are the long run equilibrium prices and quantities? c)How many firms enter the industry?

Accepted Answer

The answer of Pencils are produced in a perfectly competitive...

Question 7

Since long- run economic profits for a competitive firm are always zero, it will never pay a competitive firm to adopt a cost- reducing innovation.

Accepted Answer

While it is true that long-run economic profits for a competitive firm are zero, adopting a cost-reducing innovation can allow the firm to lower its production costs and increase its profits in the short run. This can provide an advantage over other firms in the market and increase market share. Additionally, if other firms also adopt the innovation, it can lead to lower prices for consumers, which can increase demand for the product and benefit the firm.

Question 8

What is meant by a Pareto optimal allocation?

Accepted Answer

The answer of What is meant by a Pareto optimal...

Question 9

Individuals offer goods for sale because:
A)individuals are entrepreneurial by nature.
B)they don't want the goods.
C)individuals are altruists.
D)individuals anticipate gains from exchange.

Accepted Answer

Individuals offer goods for sale because they anticipate gains from exchange, such as receiving money or goods that they value more than the item they are selling. It is a rational decision based on self-interest.

Question 10

Which of the following constitutes a necessary condition for profit- maximization for a perfectly competitive firm?
A)SMC is equal to price
B)AFC is convex.
C)price is equal to AVC
D)AVC is at a minimum

Accepted Answer

In a perfectly competitive market, a firm maximizes profits by producing where marginal cost (SMC) equals price. This is because in such a market, the firm is a price-taker and cannot influence the market price. Therefore, it must set its output level such that producing one more unit would cost more than what it would earn in revenue, which is represented by SMC=price. The other options, such as the shape of the average fixed cost curve (AFC), or the level of average variable cost (AVC), do not directly affect the profit-maximizing output level in a perfectly competitive market.

Question 11

Assume that the domestic beer industry is an increasing cost industry currently in a long run equilibrium.
a)What is meant by a long run equilibrium?
b)Suppose society's demand for beer increases. Explain precisely what happens to the price and output of beer for a typical firm and for the industry as a whole in both the short run and long run. Illustrate your argument with the appropriate graphs.

Accepted Answer

The answer of Assume that the domestic beer industry is...

Question 12

Suppose a perfectly competitive firm has the short- run cost function C(y)= 125 + y². Use the derivative formula or marginal cost to determine the firm's output level and profit at prices of $30 and $20. At what price does the firm reach the shut- down point?

Accepted Answer

The answer of Suppose a perfectly competitive firm has the...

Question 13

Suppose that lots of companies make widgets. Tim's is a representative competitive firm in this industry and has TC = 10q²+ 5q + 40. i)At what market price will Tim's break even? ii)What is the shut down price for Tim's? iii)What is the equation for Tim's short- run supply curve? iv)Suppose that demand for widgets is P = 95 - Q. If there are a total of 30 widgets traded in the market, how many widgets will Tim's make and how many firms are competing against Tim's? v)Will there be entry or exit in the widget industry, why?

Accepted Answer

The answer of Suppose that lots of companies make widgets....

Question 14

Supply curves are:
A)orthogonal to demand curves.
B)negatively sloped.
C)positively sloped.
D)parallel to demand curves.

Accepted Answer

Supply curves are positively sloped, meaning that as the price of a product increases, the quantity supplied of that product also increases.

Question 15

A firm has total cost given by TC = q³- 20q²+ 200q + 576. Suppose the firm faces a marginal revenue curve given by P = 200. i)What is the optimal quantity for this firm to produce? ii)Calculate the firm's profit, fixed cost, and variable cost if it produces 12 units of output? iii)What effect would each of the following have on MC? a)The price of the variable input decreases. b)The price of the fixed input increases. c)A technological improvement increases the returns to scale of the production process.

Accepted Answer

The answer of A firm has total cost given by...

Question 16

In a competitive equilibrium, the market price is:
A)determined by a Walrasian auctioneer.
B)the cost of resources needed for another unit.
C)less than the cost of resources needed for another unit.
D)greater than the cost of resources needed for another unit.

Accepted Answer

The answer of In a competitive equilibrium, the market price...

Question 17

Suppose the total cost to produce quantity q is TC(q)= q²/10+250. If this firm is a price- taker and the market price is p = 10, then the firm's output will be: A)0. B)100. C)25. D)50.

Accepted Answer

The answer of Suppose the total cost to produce quantity...

Question 18

Mattel Toys Inc. is a competitive firm which produces Barbie dolls according to the cost function: C = Q²/20 where Q is the number of dolls produced. The dolls sell for $10 each. After losing a court case, Mattel Toys is ordered to pay a license fee to Toys R Us. i)If the license fee is $500, regardless of how many dolls Mattel Toys produces, what happens to Mattel's cost function? To the marginal cost function? To the level of output? ii). If the license fee is $5 per doll, what happens to Mattel's cost function? To the marginal cost function? To the level of output?

Accepted Answer

The answer of Mattel Toys Inc. is a competitive firm...

Question 19

The market for widgets is competitive and demand is given by P = 75 - 2Q while supply is given by P = 15 + Q. What price and quantity will trade in the market? What are consumer surplus and producer surplus in this market?

Accepted Answer

The answer of The market for widgets is competitive and...

Question 20

The aggregate demand curve is the:
A)horizontal sum of consumers' demand functions.
B)demand side of the market for sand and gravel.
C)horizontal sum of suppliers' demand functions.
D)vertical sum of consumers' demand functions.

Accepted Answer

The aggregate demand curve represents the total demand for goods and services in an economy and is derived by adding up the individual demand curves of all consumers in that economy. Therefore, the correct answer is A, as it describes the process of adding up individual demand curves horizontally to obtain the aggregate demand curve.

Quiz 8: The Theory of Perfect Competition

If a competitive firm has TC = q³/3 + 25 and faces a market price of P = 49, what is the firm's maximum profit?

In a market, demand is given by P = 150 - 3Q and Supply is given by P = 2Q + 10. Find the equilibrium price and quantity and determine the impact of a technological innovation on consumer surplus.

If each firm is initially earning positive profits in a perfectly competitive industry, then there will be entry of new firms, price will fall, and the output of each firm will fall in the long- run equilibrium.

A competitive firm:

Suppose that TC = 2Q³- 18Q²+ 100Q + 50. If price, P, equals 100, the firm's maximum profit is:

Since long- run economic profits for a competitive firm are always zero, it will never pay a competitive firm to adopt a cost- reducing innovation.

What is meant by a Pareto optimal allocation?

Individuals offer goods for sale because:

Which of the following constitutes a necessary condition for profit- maximization for a perfectly competitive firm?

Suppose a perfectly competitive firm has the short- run cost function C(y)= 125 + y². Use the derivative formula or marginal cost to determine the firm's output level and profit at prices of $30 and $20. At what price does the firm reach the shut- down point?

Supply curves are:

In a competitive equilibrium, the market price is:

Suppose the total cost to produce quantity q is TC(q) = q²/10+250. If this firm is a price- taker and the market price is p = 10, then the firm's output will be:

The market for widgets is competitive and demand is given by P = 75 - 2Q while supply is given by P = 15 + Q. What price and quantity will trade in the market? What are consumer surplus and producer surplus in this market?

The aggregate demand curve is the:

Quiz 8: The Theory of Perfect Competition

If a competitive firm has TC = q3/3 + 25 and faces a market price of P = 49, what is the firm's maximum profit?

In a market, demand is given by P = 150 - 3Q and Supply is given by P = 2Q + 10. Find the equilibrium price and quantity and determine the impact of a technological innovation on consumer surplus.

If each firm is initially earning positive profits in a perfectly competitive industry, then there will be entry of new firms, price will fall, and the output of each firm will fall in the long- run equilibrium.

A competitive firm:

Suppose that TC = 2Q3 - 18Q2 + 100Q + 50. If price, P, equals 100, the firm's maximum profit is:

Since long- run economic profits for a competitive firm are always zero, it will never pay a competitive firm to adopt a cost- reducing innovation.

What is meant by a Pareto optimal allocation?

Individuals offer goods for sale because:

Which of the following constitutes a necessary condition for profit- maximization for a perfectly competitive firm?

Suppose a perfectly competitive firm has the short- run cost function C(y)= 125 + y2. Use the derivative formula or marginal cost to determine the firm's output level and profit at prices of $30 and $20. At what price does the firm reach the shut- down point?

Supply curves are:

In a competitive equilibrium, the market price is:

Suppose the total cost to produce quantity q is TC(q) = q2/10+250. If this firm is a price- taker and the market price is p = 10, then the firm's output will be:

The market for widgets is competitive and demand is given by P = 75 - 2Q while supply is given by P = 15 + Q. What price and quantity will trade in the market? What are consumer surplus and producer surplus in this market?

The aggregate demand curve is the:

If a competitive firm has TC = q³/3 + 25 and faces a market price of P = 49, what is the firm's maximum profit?

Suppose that TC = 2Q³- 18Q²+ 100Q + 50. If price, P, equals 100, the firm's maximum profit is:

Suppose a perfectly competitive firm has the short- run cost function C(y)= 125 + y². Use the derivative formula or marginal cost to determine the firm's output level and profit at prices of $30 and $20. At what price does the firm reach the shut- down point?

Suppose the total cost to produce quantity q is TC(q) = q²/10+250. If this firm is a price- taker and the market price is p = 10, then the firm's output will be: