Question 1

In the short run,if price falls below a firm's minimum average total cost,then the firm should shut down.

Accepted Answer

The answer of In the short run,if price falls below...

Question 2

Max Shreck,an accountant,quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner,Sylvia Sidney.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 job and...

Question 3

If,for a given output level,a perfectly competitive firm's price is less than its average variable cost,then the firm

Accepted Answer

If a firm's price is less than its average variable cost, it means that the firm is not covering its variable costs with the revenue earned. In such a situation, the firm should shut down, as continuing to operate would lead to further losses.

Question 4

When a perfectly competitive firm finds that its market price is below its minimum average variable cost,it will sell

Accepted Answer

When the market price is below the minimum average variable cost, the firm is not covering its variable costs, which means it is better for the firm to shut down operations in the short run. In this case, selling any output will only lead to further losses.

Question 5

Table 9-4
 $\begin{array}{|c|c|c|c|}
\hline \text { Quantity } & \begin{array}{c}
\text { Average } \
\text { Fixed Cost }
\end{array} & \begin{array}{c}
\text { Average } \
\text { Variable Cost }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Cost }
\end{array} \
\hline 20 & \$ 40 & \$ 18 & \$ 18 \
\hline 40 & 20 & 14 & 10 \
\hline 60 & 13.1 & 16 & 20 \
\hline 80 & 10 & 22 & 40 \
\hline 100 & 8 & 30 & 62 \
\hline 120 & 6.61 & 40 & 90 \
\hline
\end{array}$ Table 9-4 shows the short-run cost data of a perfectly competitive firm. Assume that output can only be increased in batches of 20 units.
-Refer to Table 9-4.If the market price is $45 the firm will produce

Accepted Answer

The answer of Table 9-4
 \(\begin{array}{|c|c|c|c|}
\hline \text { Quantity }...

Question 6

Figure 9-8
 
-Refer to Figure 9-8.Suppose the firm produces 4,000 units.What does the shaded area labeled B represent?

Accepted Answer

The shaded area labeled B represents the total variable cost, which is the cost that varies with the level of output produced, in this case, 4,000 units.

Question 7

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows:
 $\begin{array}{|l|l|}
\hline \text { Output per Day } & \text { Total Cost } \
\hline 0 & \$ 20 \
\hline 1 & 32 \
\hline 2 & 37 \
\hline 3 & 48 \
\hline 4 & 61 \
\hline 5 & 75 \
\hline 5 & 92 \
\hline 7 & 113 \
\hline 8 & 136 \
\hline
\end{array}$ 
Suppose the current equilibrium price in the teapot market is $15.To maximize profit,how many teapots will Veronica produce,what price will she charge,and how much profit (or loss)will she make? Draw a graph to illustrate your answer.Your graph should include Veronica's demand,ATC,AVC,MC,and MR curves,the price she is charging,the quantity she is producing,and the area representing her profit (or loss).

Accepted Answer

The answer of Suppose Veronica sells teapots in the perfectly...

Question 8

To maximize profit,a firm will produce the level of output where MR = MC.If a firm actually makes a profit depends on the relationship of price to average total cost.What are the three possible relationships between price and average total cost that determine if a firm will make a profit,experience a loss,or break even?

Accepted Answer

The answer of To maximize profit,a firm will produce the...

Question 9

A perfectly competitive firm breaks even at a price equal to its minimum average total cost.

Accepted Answer

In a perfectly competitive market, a firm will aim to produce at the point where price equals marginal cost. However, if the price is only equal to minimum average total cost, the firm will only break even and will not earn any profit. Therefore, a perfectly competitive firm needs to aim for a price higher than its minimum average total cost to earn a profit.

Question 10

If firms do not earn economic profits in a competitive equilibrium,then why would the firms choose to stay in business?

Accepted Answer

The answer of If firms do not earn economic profits...

Question 11

A perfectly competitive firm's supply curve is its

Accepted Answer

The answer of A perfectly competitive firm's supply curve is...

Question 12

For a given quantity,the total profit of a perfectly competitive firm is equal to the vertical distance between the firm's total revenue curve and its total cost curve.

Accepted Answer

This statement is true for a perfectly competitive firm because in perfect competition, the firm is a price-taker and cannot influence the market price. Therefore, the total revenue curve is a straight line with a slope equal to the market price, and the vertical distance between the total revenue and total cost curves represents the profit.

Question 13

Figure 9-9
  Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.If the firm chose to produce at price P₁,the firm would

Accepted Answer

If the firm produces at price P₁, which is below the average total cost, it will incur losses greater than its fixed costs because it cannot cover both its variable and fixed costs.

Question 14

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows:
 $\begin{array}{|l|l|}
\hline \text { Output per Day } & \text { Total Cost } \
\hline 0 & \$ 20 \
\hline 1 & 32 \
\hline 2 & 37 \
\hline 3 & 48 \
\hline 4 & 61 \
\hline 5 & 75 \
\hline 6 & 92 \
\hline 7 & 113 \
\hline 8 & 136\
\hline
\end{array}$ 
Suppose the current equilibrium price in the teapot market is $10.To maximize profit,how many teapots will Veronica produce,what price will she charge,and how much profit (or loss)will she make? Draw a graph to illustrate your answer.Your graph should include Veronica's demand,ATC,AVC,MC,and MR curves,the price she is charging,the quantity she is producing,and the area representing her profit (or loss).

Accepted Answer

The answer of Suppose Veronica sells teapots in the perfectly...

Question 15

Figure 9-9
  Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.At price P₁,the firm would produce

Accepted Answer

At price P₁, if it is below the firm's average variable cost, the firm would choose to produce zero units to minimize losses.

Question 16

Maximizing average profit is equivalent to maximizing total profit.

Accepted Answer

The answer of Maximizing average profit is equivalent to maximizing...

Question 17

Max Shreck,an accountant,quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner,Sylvia Sidney.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, as it remains constant regardless of the level of business activity in the tattoo parlor.

Question 18

If price is equal to average variable cost,then a perfectly competitive firm breaks even.

Accepted Answer

The answer of If price is equal to average variable...

Question 19

Table 9-4
 $\begin{array}{|c|c|c|c|}
\hline \text { Quantity } & \begin{array}{c}
\text { Average } \
\text { Fixed Cost }
\end{array} & \begin{array}{c}
\text { Average } \
\text { Variable Cost }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Cost }
\end{array} \
\hline 20 & \$ 40 & \$ 18 & \$ 18 \
\hline 40 & 20 & 14 & 10 \
\hline 60 & 13.1 & 16 & 20 \
\hline 80 & 10 & 22 & 40 \
\hline 100 & 8 & 30 & 62 \
\hline 120 & 6.61 & 40 & 90 \
\hline
\end{array}$ Table 9-4 shows the short-run cost data of a perfectly competitive firm. Assume that output can only be increased in batches of 20 units.
-Refer to Table 9-4.If the market price is $45,the firm

Accepted Answer

The firm will produce where marginal cost equals market price. At 80 units, the price ($45) is greater than average total cost (sum of average fixed cost and average variable cost, $32), resulting in a profit. Total profit = (Price - Average Total Cost) x Quantity = ($45 - $32) x 80 = $1,040.

Question 20

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows:
 $\begin{array}{|l|l|}
\hline \text { Output per Day } & \text { Total Cost } \
\hline 1 & \$ 20 \
\hline 1 & 32 \
\hline 3 & 37 \
\hline 3 & 48 \
\hline 4 & 61 \
\hline 5 & 75 \
\hline 6 & 92 \
\hline 7 & 113 \
\hline 8 & 136\
\hline
\end{array}$ 
Suppose the current equilibrium price in the teapot market is $20.To maximize profit,how many teapots will Veronica produce,what price will she charge,and how much profit (or loss)will she make? Draw a graph to illustrate your answer.Your graph should include Veronica's demand,ATC,AVC,MC,and MR curves,the price she is charging,the quantity she is producing,and the area representing her profit (or loss).

Accepted Answer

The answer of Suppose Veronica sells teapots in the perfectly...

Quiz 9: Firms in Perfectly Competitive Markets

In the short run,if price falls below a firm's minimum average total cost,then the firm should shut down.

If,for a given output level,a perfectly competitive firm's price is less than its average variable cost,then the firm

When a perfectly competitive firm finds that its market price is below its minimum average variable cost,it will sell

Figure 9-8 -Refer to Figure 9-8.Suppose the firm produces 4,000 units.What does the shaded area labeled B represent?

A perfectly competitive firm breaks even at a price equal to its minimum average total cost.

If firms do not earn economic profits in a competitive equilibrium,then why would the firms choose to stay in business?

A perfectly competitive firm's supply curve is its

For a given quantity,the total profit of a perfectly competitive firm is equal to the vertical distance between the firm's total revenue curve and its total cost curve.

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.If the firm chose to produce at price P₁,the firm would

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₁,the firm would produce

Maximizing average profit is equivalent to maximizing total profit.

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

If price is equal to average variable cost,then a perfectly competitive firm breaks even.