Question 1

A firm will make a profit when

Accepted Answer

In order to make a profit, the price (P) must be greater than the average total cost (ATC) because this means that the revenue generated from selling a good or service is sufficient to cover all costs and provide a positive net income. If the price is only greater than the average variable cost (AVC), the firm may still incur losses because it is not covering all costs, including fixed costs. On the other hand, if the price equals the ATC or the marginal cost (MC), the firm is breaking even and not making any profit.

Question 2

A firm will break even when

Accepted Answer

A firm breaks even when the price (P) equals the average total cost (ATC), meaning it covers all its costs without making a profit or loss.

Question 3

Figure 12-6
  
Figure 12-6 shows the demand, marginal cost (MC)and average total cost (ATC)curves for Jason's House of Apples.
-Refer to Figure 12-6.To maximize his profit, Jason should produce the level of output indicated by point

Accepted Answer

The answer of Figure 12-6
  
Figure 12-6 shows the...

Question 4

Figure 12-6
  
Figure 12-6 shows the demand, marginal cost (MC)and average total cost (ATC)curves for Jason's House of Apples.
-Refer to Figure 12-6.If Jason maximizes his profit he will produce the output level indicated by point ________ and his average profit will equal ________.

Accepted Answer

Jason maximizes his profit by producing at the output level where marginal cost equals marginal revenue. This is indicated by point d on the graph. At this output level, Jason's average profit is equal to $3 minus ATC at point d.

Question 5

A perfectly competitive firm will maximize its profit at the level of output where the vertical distance between its total revenue curve and total cost curve is the largest.This is the same level of output where

Accepted Answer

In a perfectly competitive market, the firm is a price taker and faces a horizontal demand curve. Therefore, its marginal revenue equals the price of the good. The firm should produce where marginal cost equals marginal revenue (MC=MR) to maximize profit. Additionally, marginal cost is the derivative of total cost, and marginal revenue is the derivative of total revenue. Therefore, the vertical distance between the two curves will be the largest where their respective derivatives are equal i.e. where MR=MC.

Question 6

Table 12-3
  
Arnie sells basketballs in a perfectly competitive market. Table 12-3 summarizes Arnie's output per day (Q), total cost (TC), average total cost (ATC)and marginal cost (MC).
-Refer to Table 12-3.What price (P)will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?

Accepted Answer

In a perfectly competitive market, firms are price takers, meaning they must accept the market price and cannot influence it. Thus, Arnie will charge the market price of $12.50. To determine his profit, we need to use the formula: profit = total revenue - total cost. We can find his total revenue by multiplying the market price ($12.50) by his output (Q). At a price of $12.50, Arnie's output is 25 basketballs (from the table). Thus, his total revenue is 25 x $12.50 = $312.50. 
To find his total cost, we can use the "TC" column in the table. At an output of 25 basketballs, his total cost is $290. Subtracting this from his total revenue, we get: 
profit = $312.50 - $290 = $22.50 
Therefore, the correct answer is C.

Question 7

Figure 12-7
  
Figure 12-7 illustrates the cost curves of a perfectly competitive firm.
-Refer to Figure 12-7.If the market price is P₁,

Accepted Answer

At price P₁, the firm's ATC is higher than the market price. Therefore, the firm will experience a loss. In such a situation, the firm may consider reducing its production to minimize losses or shut down production in the short run. The other options are incorrect as they do not align with the situation presented in the figure.

Question 8

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC)and average total cost (ATC).Which of the following equations is equal to a firm's profit?

Accepted Answer

Profit is equal to total revenue (which is equal to price times quantity, or P × Q) minus total cost (TC). Therefore, the equation that represents a firm's profit is (P × Q)- TC, which is option B. Option A represents the firm's per unit profit (revenue per unit minus cost per unit), while option C represents the firm's total revenue minus total variable cost. Option D represents the difference between the price and the total cost, but does not take into account the quantity of output produced, so it is not the equation for profit.

Question 9

Figure 12-6
  
Figure 12-6 shows the demand, marginal cost (MC)and average total cost (ATC)curves for Jason's House of Apples.
-Refer to Figure 12-6.Jason is currently producing 20 thousand pounds of apples.To maximize his profit Jason should

Accepted Answer

The answer of Figure 12-6
  
Figure 12-6 shows the...

Question 10

Figure 12-7
  
Figure 12-7 illustrates the cost curves of a perfectly competitive firm.
-Refer to Figure 12-7.If the market price is P₂, the firm

Accepted Answer

At price P₂, the firm covers its average total costs, resulting in zero economic profit, which is breaking even, and produces quantity Q₂.

Question 11

Figure 12-6
  
Figure 12-6 shows the demand, marginal cost (MC)and average total cost (ATC)curves for Jason's House of Apples.
-Refer to Figure 12-6.Which of the following statements is true?

Accepted Answer

Jason should produce where MC equals $3 (point d) where he will maximize his profit. At this point, the MC curve intersects the ATC curve at its lowest point, which means that Jason is producing at the minimum ATC. Moreover, at this production level, the revenue from selling the apples exceeds the cost of producing them, which generates a profit for Jason. Therefore, producing at point d is the best option for Jason.

Question 12

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC)and average total cost (ATC).Which of the following equations is equal to a firm's average profit?

Accepted Answer

Average profit is calculated as total profit divided by quantity, which is (Total Revenue - Total Cost) / Quantity. Since Total Revenue is P × Q and Total Cost is TC, average profit is (P × Q - TC) / Q, which simplifies to P - ATC.

Question 13

Figure 12-7
  
Figure 12-7 illustrates the cost curves of a perfectly competitive firm.
-Refer to Figure 12-7.If the market price is P₃, the firm

Accepted Answer

At P₃, the market price is above both the average variable cost (AVC) and the average total cost (ATC) curves. Therefore, the firm will make a profit at the quantity of output where marginal cost (MC) equals market price, which is shown as Q₂ on the graph.

Question 14

Figure 12-5
  
Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 12-5.What is the minimum price the firm requires to produce output?

Accepted Answer

The minimum price required to produce output is the point where the marginal cost curve intersects the average variable cost curve, which is $5 in this case. At any price below this point, the firm would not be covering its variable costs and would shut down in the short run. Therefore, the best choice is C.

Question 15

Figure 12-8
 
-Refer to Figure 12-8.Suppose the market price is $120.Which of the following is true?

Accepted Answer

At a market price of $120, the firm's total cost (TC) is greater than total revenue (TR), which means it is experiencing losses. The area of A represents the firm's total cost (TC) while the area of B represents the firm's total revenue (TR). The difference between TC and TR (which is A) is the loss the firm is experiencing.

Question 16

Table 12-3
  
Arnie sells basketballs in a perfectly competitive market. Table 12-3 summarizes Arnie's output per day (Q), total cost (TC), average total cost (ATC)and marginal cost (MC).
-Refer to Table 12-3.What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Accepted Answer

At a market price of $5, Arnie will produce the output level where MC = P. This occurs at a quantity of 3 units (where MC = $5). At this output level, Arnie's total cost is $22, so his ATC is $7.33 ($22/3). Arnie's revenue at this output level is $15 (3 units x $5 per unit). Arnie's profit is revenue minus total cost, which is -$7. This means that he is making a loss of $7.50 per day. Therefore, the correct answer is B.

Question 17

What is always true at the quantity where a firm's average total cost equals average revenue?

Accepted Answer

When a firm's average total cost equals average revenue, it is operating at the breakeven point, which means it is neither making a profit nor incurring a loss. Therefore, the firm breaks even at this point. Choice A is not always true, as revenue may not necessarily be maximized at this point since it depends on the market structure and demand conditions. Choice B is not always true because profit can be maximized at a different quantity where marginal revenue equals marginal cost. Choice D is not always true because marginal cost can be greater or less than marginal revenue at this quantity.

Question 18

Profit is the difference between

Accepted Answer

Profit is defined as the difference between total revenue and total cost. Total cost includes both explicit (out-of-pocket) and implicit (opportunity) costs. Therefore, option D - total revenue and total cost is the correct answer. Option A is incorrect because it only factors in the change in revenue and cost for one additional unit produced. Option B is incorrect because it only considers the variable costs and not the fixed costs which are also a part of the total cost. Option C only factors in the explicit costs and not the implicit costs.

Question 19

If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit, then

Accepted Answer

If price equals marginal cost, then the firm is producing at the efficient level of output where it is maximizing its profit. If the firm is earning an economic profit, then price must be greater than average total cost, hence choice D is correct. Choices A, B, and C are incorrect as they do not necessarily hold true in this scenario.

Question 20

Figure 12-8
 
-Refer to Figure 12-8.Suppose the firm produces 4,000 units.What does the shaded area labeled A represent?

Accepted Answer

The shaded area labeled A represents the total fixed cost, which is the cost that does not change with the level of output produced.

Quiz 12: Firms in Perfectly Competitive Markets

A firm will make a profit when

A firm will break even when

Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6.To maximize his profit, Jason should produce the level of output indicated by point

Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6.If Jason maximizes his profit he will produce the output level indicated by point and his average profit will equal .

A perfectly competitive firm will maximize its profit at the level of output where the vertical distance between its total revenue curve and total cost curve is the largest.This is the same level of output where

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7.If the market price is P₁,

Letters are used to represent the terms used to answer this question: price (P) , quantity of output (Q) , total cost (TC) and average total cost (ATC) .Which of the following equations is equal to a firm's profit?

Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6.Jason is currently producing 20 thousand pounds of apples.To maximize his profit Jason should

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7.If the market price is P₂, the firm

Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6.Which of the following statements is true?

Letters are used to represent the terms used to answer this question: price (P) , quantity of output (Q) , total cost (TC) and average total cost (ATC) .Which of the following equations is equal to a firm's average profit?

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7.If the market price is P₃, the firm

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.What is the minimum price the firm requires to produce output?

Figure 12-8 -Refer to Figure 12-8.Suppose the market price is $120.Which of the following is true?

What is always true at the quantity where a firm's average total cost equals average revenue?

Profit is the difference between

If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit, then

Figure 12-8 -Refer to Figure 12-8.Suppose the firm produces 4,000 units.What does the shaded area labeled A represent?

Quiz 12: Firms in Perfectly Competitive Markets

A firm will make a profit when

A firm will break even when

Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6.To maximize his profit, Jason should produce the level of output indicated by point

Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6.If Jason maximizes his profit he will produce the output level indicated by point ________ and his average profit will equal ________.

A perfectly competitive firm will maximize its profit at the level of output where the vertical distance between its total revenue curve and total cost curve is the largest.This is the same level of output where

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7.If the market price is P₁,

Letters are used to represent the terms used to answer this question: price (P) , quantity of output (Q) , total cost (TC) and average total cost (ATC) .Which of the following equations is equal to a firm's profit?

Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6.Jason is currently producing 20 thousand pounds of apples.To maximize his profit Jason should

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7.If the market price is P₂, the firm

Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6.Which of the following statements is true?

Letters are used to represent the terms used to answer this question: price (P) , quantity of output (Q) , total cost (TC) and average total cost (ATC) .Which of the following equations is equal to a firm's average profit?

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7.If the market price is P₃, the firm

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.What is the minimum price the firm requires to produce output?

Figure 12-8 -Refer to Figure 12-8.Suppose the market price is $120.Which of the following is true?

What is always true at the quantity where a firm's average total cost equals average revenue?

Profit is the difference between

If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit, then

Figure 12-8 -Refer to Figure 12-8.Suppose the firm produces 4,000 units.What does the shaded area labeled A represent?

Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. -Refer to Figure 12-6.If Jason maximizes his profit he will produce the output level indicated by point and his average profit will equal .