Question 1

Figure 8-7  Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm.
-Refer to Figure 8-7.Identify the short-run shut down point for the firm.

Accepted Answer

The short-run shutdown point is where the market price (P) falls below the minimum point of the average variable cost (AVC) curve, which is at point b in the given diagram. At this point, the firm is not able to cover its variable costs even in the short run, and it should shut down to minimize losses. Therefore, B is the correct answer.

Question 2

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₃,the firm would produce

Accepted Answer

At price P₃, the demand curve intersects with the marginal cost curve at point A. This means that producing Q₃ units will maximize the firm's profit. Any decrease or increase in production would result in lower profits for the firm. Therefore, the best choice for the firm is to produce Q₃ units at price P₃.

Question 3

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₂,the firm would produce

Accepted Answer

At price P₂, the firm would produce Q₂ units because in typical supply and demand models, a firm's production level corresponds to the price at which it can sell its goods. The notation suggests a specific quantity associated with a specific price, indicating that at price P₂, the firm is willing and able to produce Q₂ units.

Question 4

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₁,the firm would

Accepted Answer

The answer of Figure 8-7  Figure 8-7 shows cost...

Question 5

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₃,the firm would

Accepted Answer

The answer of Figure 8-7  Figure 8-7 shows cost...

Question 6

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₄,the firm would

Accepted Answer

At the intersection of the demand and marginal cost curve (point E in the graph), the firm maximizes its profit. At the price P₄, the firm's marginal cost is equal to its marginal revenue, which is also equal to the market price. Therefore, the firm is making positive economic profit (total revenue exceeds total cost) at this price.

Question 7

A perfectly competitive firm produces 3000 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

In the short run, a firm should continue to produce as long as it can cover its variable costs, even if it's incurring a loss, because shutting down would mean a loss equal to total fixed costs. Here, the variable cost is $16,000 ($36,000 total cost - $20,000 fixed cost), and the revenue from producing 3000 units at $10 each is $30,000. Since the revenue exceeds the variable cost, the firm is minimizing its loss by continuing to produce.

Question 8

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₂,the firm would

Accepted Answer

At price P₂, the demand for the firm's output is lower than its total cost (including fixed cost). Therefore, the firm would not be able to cover all its costs and would be making a loss. However, this loss would be less than its fixed cost, as the firm would still be generating some revenue to cover its variable costs. Therefore, the firm would be losing an amount less than its fixed cost. The only option that represents this situation is choice C.

Question 9

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

Accepted Answer

If total variable cost exceeds total revenue, the firm is not even covering its variable costs, let alone its fixed costs. In this situation, the firm should shut down in the short run to minimize losses.

Question 10

If a firm shuts down it

Accepted Answer

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

Question 11

How are sunk costs and fixed costs related?

Accepted Answer

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

Question 12

Market supply is found by

Accepted Answer

The answer of Market supply is found by
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Question 13

Figure 8-7  Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm.
-Refer to Figure 8-7.Identify the firm's short-run supply curve.

Accepted Answer

The firm's short-run supply curve is the portion of the marginal cost curve that lies above the average variable cost curve. In typical diagrams, this is represented from point b upwards, as it is the point where the marginal cost curve intersects the average variable cost curve, indicating the minimum price at which the firm is willing to supply any output.

Question 14

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

Accepted Answer

If Ben's Shoppe's total revenue exceeds his variable cost, then he is still covering his variable costs and contributing to his fixed costs. This means that it is still more profitable for him to continue operating in the short-run, even if he is experiencing a loss. Option A is incorrect because the total revenue exceeding fixed costs alone is not enough to cover variable costs. Option C is incorrect because implicit costs do not affect short-run decisions. Option D is incorrect because capital costs are a long-run consideration, not a short-run consideration.

Question 15

If total revenue exceeds fixed cost,a firm

Accepted Answer

The answer of If total revenue exceeds fixed cost,a firm
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Question 16

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 can choose to shut down temporarily rather than continue producing. By shutting down temporarily, the firm can avoid incurring additional variable costs and reduce its losses. Continuing to produce would only add to the losses since the firm would still have to pay for its variable costs while earning less revenue than its total costs. However, if the firm expects to operate profitably in the long run, it should not exit the market permanently.

Question 17

If a firm shuts down in the short run it will

Accepted Answer

In the short run, fixed costs cannot be avoided as they are committed costs that cannot be recovered. Thus, if a firm shuts down in the short run, it will still have to bear its fixed costs and will incur a loss equal to these costs. The answer is not A because breaking even implies earning zero economic profits, but in this case, the firm will suffer losses. The answer is not B because declaring bankruptcy is a legal proceeding that is not necessarily related to a firm shutting down in the short run. The answer is not C because variable costs are avoidable, unlike fixed costs.

Question 18

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₄,the firm would produce

Accepted Answer

At price P₄, the demand and marginal revenue curves intersect with the marginal cost curve, indicating that the firm should produce the quantity where MC = MR, which is Q₄ units. This is because producing more or less than Q₄ units would result in lower profits for the firm.

Question 19

If a firm shuts down in the short run,

Accepted Answer

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

Question 20

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₁,the firm would produce

Accepted Answer

The answer of Figure 8-7  Figure 8-7 shows cost...

Quiz 8: Firms in Perfectly Competitive Markets

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.Identify the short-run shut down point for the firm.

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P3,the firm would produce

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P2,the firm would produce

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P1,the firm would

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P3,the firm would

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P4,the firm would

A perfectly competitive firm produces 3000 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 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P2,the firm would

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

If a firm shuts down it

How are sunk costs and fixed costs related?

Market supply is found by

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.Identify the firm's short-run supply curve.

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

If total revenue exceeds fixed cost,a firm

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

If a firm shuts down in the short run it will

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P4,the firm would produce

If a firm shuts down in the short run,

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P1,the firm would produce

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₃,the firm would produce

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₂,the firm would produce

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₁,the firm would

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₃,the firm would

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₄,the firm would

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₂,the firm would

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₄,the firm would produce

Figure 8-7 Figure 8-7 shows cost and demand curves facing a profit-maximising,perfectly competitive firm. -Refer to Figure 8-7.At price P₁,the firm would produce