Question 1

Market supply is found by

Accepted Answer

The answer of Market supply is found by
...

Question 2

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 P₄,the firm would

Accepted Answer

The answer of Figure 9-9
  Figure 9-9 shows cost...

Question 3

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 P₃,the firm would

Accepted Answer

At price P₂, the firm's marginal revenue (MR) equals its marginal cost (MC), which is lower than the average total cost (ATC) at that output level. Therefore, the firm is not covering all its costs, but it is still earning a contribution to its fixed costs. The firm would make a loss equal to the difference between price and ATC multiplied by the quantity produced. Thus, the firm would lose less than its fixed cost but still incur an economic loss.

Question 4

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 P₄,the firm would produce

Accepted Answer

At price P₃, the demand curve intersects the marginal cost curve at point E. The corresponding quantity produced is Q₃. Any other quantity produced, such as Q₂, would result in a lower profit because the marginal cost would exceed the marginal revenue. Similarly, producing Q₄ or Q₅ would result in lower profits because the marginal revenue would be less than the marginal cost. Therefore, the profit-maximizing quantity is Q₃.

Question 5

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 6

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 P₃,the firm would produce

Accepted Answer

At price P₃, the demand curve intersects the marginal cost curve at point E. The corresponding quantity produced is Q₃. Any other quantity produced, such as Q₂, would result in a lower profit because the marginal cost would exceed the marginal revenue. Similarly, producing Q₄ or Q₅ would result in lower profits because the marginal revenue would be less than the marginal cost. Therefore, the profit-maximizing quantity is Q₃.

Question 7

In the short run,a firm that is operating at a loss has two options.These options are

Accepted Answer

If a firm is operating at a loss in the short run, it may choose to temporarily shut down its operations rather than continuing to produce at a loss. By shutting down temporarily, the firm can avoid further losses and reevaluate its production decisions, pricing strategies, and cost structure to improve profitability in the long run. Reducing output or variable costs may not be sufficient to reverse the firm's losses, and going out of business or adopting new technology may not be feasible or relevant in the short run. Therefore, temporarily shutting down is often the best option for a firm operating at a loss in the short run.

Question 8

If a firm shuts down in the short run it will

Accepted Answer

If a firm shuts down in the short run, it will suffer a loss equal to its fixed costs. This is because even if the firm is not producing anything, it still has to pay its fixed costs such as rent, insurance, and salaries of permanent employees. By shutting down, it avoids paying variable costs associated with producing output, but it cannot avoid fixed costs. Therefore, the firm will incur these fixed costs as losses if it shuts down.

Question 9

How are sunk costs and fixed costs related?

Accepted Answer

The answer of How are sunk costs and fixed costs...

Question 10

If total revenue exceeds fixed cost,a firm

Accepted Answer

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

Question 11

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

Accepted Answer

If total variable cost exceeds total revenue at all output levels, the firm is operating at a loss and should shut down in the short run. This is because the firm is unable to cover its variable costs, let alone fixed costs. It is better to shut down and incur only the fixed costs in the short run rather than incurring both fixed and variable costs by producing.

Question 12

If a firm shuts down in the short run

Accepted Answer

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

Question 13

Ted's Pancake Kitchen suffers a short-run loss.When should Ted decide to shut down rather than continue to produce?

Accepted Answer

Ted should decide to shut down rather than continue to produce if his Pancake Kitchen's revenue is less than its variable costs. This is because variable costs are costs that vary with the level of output, and if revenue cannot cover these costs, then it is not generating enough income to cover the direct costs of producing the pancakes. In this case, it would be more financially beneficial for Ted to shut down operations and save on variable costs rather than continuing to operate at a loss.

Question 14

Marty's Bird House suffers a short-run loss.Marty can reduce his loss below the amount of his total fixed costs by continuing to produce if his revenue

Accepted Answer

Marty should continue producing if his revenue exceeds his variable costs. This is because if he shut down completely, he would still have to pay his fixed costs, but if he continues producing, he can at least cover his variable costs and reduce his losses. If his revenue exceeds his variable costs, he can even start to make a profit.

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.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 16

If a firm shuts down,it

Accepted Answer

The answer of If a firm shuts down,it
...

Question 17

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 P₂,the firm would

Accepted Answer

At price P₂, the firm's marginal revenue (MR) equals its marginal cost (MC), which is lower than the average total cost (ATC) at that output level. Therefore, the firm is not covering all its costs, but it is still earning a contribution to its fixed costs. The firm would make a loss equal to the difference between price and ATC multiplied by the quantity produced. Thus, the firm would lose less than its fixed cost but still incur an economic loss.

Question 18

Ben's Peanut Shoppe suffers a short-run loss.Ben will not choose to shut down if

Accepted Answer

Ben will not shut down his Peanut Shoppe as long as his total revenue exceeds his variable cost, which means he is covering all of his direct costs and some portion of his fixed costs. In the short run, he may incur a loss but he can continue to operate if he can cover his variable costs.

Question 19

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 P₂,the firm would produce

Accepted Answer

At price P₂, the firm would produce the quantity where marginal cost (MC) intersects with marginal revenue (MR), which is Q₂ units. This is the profit-maximizing level of output for the firm.

Question 20

Figure 9-9
  Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.Identify the short-run shut down point for the firm.

Accepted Answer

The short-run shutdown point occurs where the price is equal to the minimum average variable cost (AVC). In the context of a graph, this is typically represented by point 'b'.

Quiz 9: Firms in Perfectly Competitive Markets

Market supply is found by

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 P₄,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 P₃,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 P₄,the firm would produce

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 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₃,the firm would produce