Question 1

Figure 10.6
  
Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 10.6.At price P₂, the firm would produce

Accepted Answer

At price P₁, the firm would face a marginal cost of P₃, which is higher than the price. Therefore, the firm would not produce any units as it would incur losses. The profit-maximizing quantity for this firm would be where the marginal cost intersects with the marginal revenue, which is at point E, producing Q₂ units at a price of P₂.

Question 2

Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Mary Pickford.The lease has five years remaining and requires a monthly payment of $4,000.The lease

Accepted Answer

The lease payment of $4,000 per month is a fixed cost of operating the tattoo parlor since it does not vary with the level of output or activity of the business. It is a necessary expense to maintain the physical space where the business operates and is a recurring cost that must be paid regardless of how many tattoos are done or how many customers visit the parlor.

Question 3

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

Accepted Answer

If the total variable cost exceeds total revenue at all output levels, the firm is not able to cover its variable costs, let alone its fixed costs. Therefore, it should shut down in the short run to minimize its losses. By shutting down, the firm will avoid incurring any additional variable costs and will only be responsible for covering its fixed costs, which it may be able to do by selling off any assets it has.

Question 4

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The fixed cost of production is $20,000.The price of each good is $10.Should the firm continue to produce in the short run?

Accepted Answer

The answer of A perfectly competitive firm produces 3,000 units...

Question 5

Figure 10.6
  
Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 10.6.Identify the short-run shut down point for the firm.

Accepted Answer

The short-run shutdown point for a firm occurs where the price is equal to the minimum average variable cost (AVC). At point b, the firm is covering its variable costs but not its fixed costs, indicating the shutdown point.

Question 6

In the short run, a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

Accepted Answer

The answer of In the short run, a firm that...

Question 7

In the short run, if a firm shuts down it avoids its variable cost but not its fixed cost.

Accepted Answer

When a firm shuts down, it stops producing and incurs zero variable costs. However, it still incurs fixed costs such as rent and salaries for contracted employees.

Question 8

Figure 10.6
  
Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 10.6.At price P₂, the firm would

Accepted Answer

At price P₂, the firm would produce a quantity where the marginal cost is equal to the market price. This would result in a total revenue that is just enough to cover the variable costs of producing that quantity. The firm would not be able to cover its fixed costs, but it would not be losing more than its fixed costs either. Therefore, the firm would lose an amount less than its fixed cost at price P₂.

Question 9

Figure 10.6
  
Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 10.6.At price P₃, the firm would

Accepted Answer

The answer of Figure 10.6
  
Figure 10.6 shows cost...

Question 10

Figure 10.6
  
Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 10.6.Identify the firm's short-run supply curve.

Accepted Answer

In the short run, a firm's supply curve is the portion of its marginal cost curve that lies above the average variable cost curve. This typically starts from point b and above on the marginal cost curve.

Question 11

Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Mary Pickford.The lease has five years remaining and requires a monthly payment of $4,000.Max's explicit cost amounts to $3,000 per month more than his revenue.Should Max continue operating his business?

Accepted Answer

The answer of Max Shreck, an accountant, quit his $80,000-a-year...

Question 12

Figure 10.6
  
Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 10.6.At price P₄, the firm would produce

Accepted Answer

At price P₄, the firm would produce Q₄ units where MC=MR, maximizing profits. At any higher output, the marginal cost would be greater than the marginal revenue, reducing profits. Any lower output would mean a missed opportunity for profit.

Question 13

If total revenue exceeds fixed cost, a firm

Accepted Answer

The answer of If total revenue exceeds fixed cost, a...

Question 14

Figure 10.6
  
Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 10.6.At price P₃, the firm would produce

Accepted Answer

The answer of Figure 10.6
  
Figure 10.6 shows cost...

Question 15

Figure 10.6
  
Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 10.6.At price P₁, the firm would produce

Accepted Answer

At price P₁, the firm would face a marginal cost of P₃, which is higher than the price. Therefore, the firm would not produce any units as it would incur losses. The profit-maximizing quantity for this firm would be where the marginal cost intersects with the marginal revenue, which is at point E, producing Q₂ units at a price of P₂.

Question 16

Figure 10.6
  
Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 10.6.At price P₁, the firm would

Accepted Answer

At price P₁, if the firm is losing more than its fixed costs, it indicates that the price is below the average variable cost, leading to losses greater than just the fixed costs.

Question 17

If a firm shuts down in the short run,

Accepted Answer

The answer of If a firm shuts down in the...

Question 18

In the short run, if a firm shuts down its maximum loss equals the amount of its fixed cost.

Accepted Answer

In the short run, if a firm shuts down, it still has to pay its fixed costs but saves on variable costs. Therefore, the maximum loss equals the amount of its fixed cost.

Question 19

Market supply is found by

Accepted Answer

The answer of Market supply is found by
...

Question 20

Figure 10.6
  
Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 10.6.At price P₄, the firm would

Accepted Answer

At price P₄, the firm will produce output level Q₂, where marginal cost equals marginal revenue. The price at this output level is higher than the average total cost (ATC) curve, indicating that the firm is making a profit since it is able to cover all its costs and earn a surplus. Therefore, the correct option is B, make a profit.

Quiz 10: Firms in Perfectly Competitive Markets

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.At price P₂, the firm would produce

Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Mary Pickford.The lease has five years remaining and requires a monthly payment of $4,000.The lease

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The fixed cost of production is $20,000.The price of each good is $10.Should the firm continue to produce in the short run?

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.Identify the short-run shut down point for the firm.

In the short run, a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

In the short run, if a firm shuts down it avoids its variable cost but not its fixed cost.

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.At price P₂, the firm would

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.At price P₃, the firm would

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.Identify the firm's short-run supply curve.

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.At price P₄, the firm would produce

If total revenue exceeds fixed cost, a firm

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.At price P₃, the firm would produce

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.At price P₁, the firm would produce

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.At price P₁, the firm would

If a firm shuts down in the short run,

In the short run, if a firm shuts down its maximum loss equals the amount of its fixed cost.

Market supply is found by

Figure 10.6 Figure 10.6 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 10.6.At price P₄, the firm would