Question 1

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $10, at the profit-maximizing level of output, the firm's total revenue is

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Question 2

The table gives data for a purely competitive firm. When the firm produces 3 units of output, it makes an economic

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Question 3

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $10, the firm's profit-maximizing level of output would be

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Question 4

A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its

Accepted Answer

A purely competitive firm should continue to produce in the short run as long as its total revenue is enough to cover its total variable costs, even if it's not covering its total fixed costs. This is because, in the short run, fixed costs are sunk and unavoidable, whereas variable costs are incurred with each unit of production. If the firm can cover its variable costs, it can contribute to fixed costs and potentially minimize losses.

Question 5

In the short run, a purely competitive firm will always make an economic profit if

Accepted Answer

In the short run, a purely competitive firm will make an economic profit if the price (P) it receives for its product is greater than its average total cost (ATC) of production. This is because economic profit is calculated as total revenue minus total costs, and if the price per unit exceeds the cost per unit, the firm will earn a profit.

Question 6

A purely competitive firm's short-run supply curve is

Accepted Answer

A purely competitive firm's short-run supply curve is upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve. This is because the firm will only supply output at a price that covers its average variable costs in the short run.

Question 7

If a purely competitive firm shuts down in the short run,

Accepted Answer

In the short run, if a purely competitive firm shuts down, it will still incur its total fixed costs (such as rent, insurance, and salaries) because these costs must be paid regardless of the level of production. However, it can avoid variable costs (like materials and labor directly associated with production) by not producing any output. Therefore, the loss it realizes is equal to its total fixed costs.

Question 8

As president and owner of the Sour Grapes Lemonade Company, you face the costs shown. To maximize your financial well-being, you should

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Question 9

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $10, and total fixed costs equal zero, the firm's economic profit (or loss)is

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Question 10

Suppose that at 500 units of output, marginal revenue is equal to marginal cost. The firm is selling its output at $5 per unit, and average total cost at 500 units of output is $6. On the basis of this information, we

Accepted Answer

The information given does not provide enough detail to determine whether the firm should continue producing or shut down in the short run. The decision to produce or shut down depends on whether the price covers the average variable costs, which is not specified.

Question 11

If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing

Accepted Answer

In the short run, a firm will continue to produce as long as the price (or marginal revenue) covers the average variable cost, even if it's not covering total costs. This is because, in the short run, fixed costs are sunk and unavoidable, so the firm aims to cover its variable costs to minimize losses.

Question 12

The table gives data for a purely competitive firm. The marginal revenue from the third unit of output is

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Question 13

Suppose you find that the price of your product is less than minimum AVC. You should

Accepted Answer

When the price of a product is less than the minimum average variable cost (AVC), the firm cannot cover its variable costs, let alone any fixed costs. Therefore, continuing production would lead to losses greater than the total fixed costs, making shutting down the most financially prudent decision in the short run.

Question 14

Which of the following is not a valid generalization concerning the relationship between price and costs for a purely competitive seller in the short run?

Accepted Answer

In a purely competitive market in the short run, price does not have to be at least equal to average total cost for a firm to operate. Firms may operate at a loss, where price is less than average total cost, as long as the price covers the average variable cost.

Question 15

The MR = MC rule can be restated for a purely competitive seller as P = MC because

Accepted Answer

In a purely competitive market, the price a firm receives for its product is constant, meaning each additional unit sold adds exactly its price to total revenue. This aligns with the MR = MC rule, where MR (marginal revenue) for a purely competitive firm is equal to the price (P) of the product, because the firm is a price taker in the market.

Question 16

A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should

Accepted Answer

In the short run, a firm should continue to operate as long as it can cover its variable costs, even if it's incurring a loss. Here, the total revenue ($900) is greater than the total variable cost ($800), meaning the firm can cover its variable costs and part of its fixed costs. Shutting down would result in a loss equal to the total fixed costs ($200), which is greater than the current loss of $100 ($1000 total cost - $900 total revenue). Therefore, continuing to produce minimizes the firm's losses compared to shutting down.

Question 17

A profit-maximizing firm in the short run will expand output

Accepted Answer

A profit-maximizing firm will continue to produce additional units as long as the revenue from selling an additional unit (marginal revenue) is greater than the cost of producing that additional unit (marginal cost). This is because producing and selling that unit adds to the firm's profit.

Question 18

In the short run, the individual competitive firm's supply curve is that segment of the

Accepted Answer

In the short run, a competitive firm's supply curve is represented by the portion of the marginal cost curve that lies above the average variable cost curve. This is because a firm will only supply output at prices that cover its average variable costs, and the marginal cost curve indicates the additional cost of producing one more unit of output.

Question 19

The data in the accompanying table indicates that this firm is selling its output in a(n)

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Question 20

Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation

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Quiz 10: Pure Competition in the Short Run

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $10, at the profit-maximizing level of output, the firm's total revenue is

The table gives data for a purely competitive firm. When the firm produces 3 units of output, it makes an economic

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $10, the firm's profit-maximizing level of output would be

A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its

In the short run, a purely competitive firm will always make an economic profit if

A purely competitive firm's short-run supply curve is

If a purely competitive firm shuts down in the short run,

As president and owner of the Sour Grapes Lemonade Company, you face the costs shown. To maximize your financial well-being, you should

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $10, and total fixed costs equal zero, the firm's economic profit (or loss) is

Suppose that at 500 units of output, marginal revenue is equal to marginal cost. The firm is selling its output at $5 per unit, and average total cost at 500 units of output is $6. On the basis of this information, we

If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing

The table gives data for a purely competitive firm. The marginal revenue from the third unit of output is

Suppose you find that the price of your product is less than minimum AVC. You should

Which of the following is not a valid generalization concerning the relationship between price and costs for a purely competitive seller in the short run?

The MR = MC rule can be restated for a purely competitive seller as P = MC because

A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should

A profit-maximizing firm in the short run will expand output

In the short run, the individual competitive firm's supply curve is that segment of the

The data in the accompanying table indicates that this firm is selling its output in a(n)

Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation