Question 1

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows:
  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 2

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

Accepted Answer

If a perfectly competitive firm's price is less than its average variable cost, it means the firm is not even covering its variable costs, let alone making a profit. In this situation, the firm should shut down in the short run to minimize its losses. Continuing to operate would only result in further losses. Therefore, the best choice is B.

Question 3

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 marginal cost is $150 which is higher than the market price. So, the firm incurs a loss equal to the area A, which is the difference between total cost and total revenue at the quantity where MC=MR. Therefore, option C is correct. Option A and B are incorrect because at $120, the total revenue does not cover the total cost plus a profit margin represented by areas A and A+B. Option D is incorrect because the firm incurs a loss.

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 would not be able to cover at least its variable costs of production. Therefore, it is better for the firm to shut down, produce no output, and minimize its losses. Selling any output at a loss would only increase its losses.

Question 5

A perfectly competitive firm's supply curve is its

Accepted Answer

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

Question 6

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 7

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

Accepted Answer

The answer of Figure 12-8 
-Refer to Figure 12-8.Suppose the...

Question 8

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

Accepted Answer

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

Question 9

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 10

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 11

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

Accepted Answer

In perfect competition, firms will produce at the point where price equals marginal cost, which also happens to be the point where price equals minimum average total cost. At this point, the firm breaks even and earns zero economic profit.

Question 12

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows:
  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...

Question 13

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 in the short run, where the quantity produced is fixed and the firm can only adjust its output level. In the long run, the total profit of a perfectly competitive firm is zero as new firms enter the market and competition drives down prices.

Question 14

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9.At price P₁,the firm would produce

Accepted Answer

The answer of Figure 12-9  Figure 12-9 shows cost...

Question 15

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

Accepted Answer

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

Question 16

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

Accepted Answer

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

Question 17

Table 12-4
  Table 12-4 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 12-4.If the market price is $45 the firm will produce

Accepted Answer

At a market price of $45, the firm will produce where MR = MC. The marginal cost of the 80th unit is $45, which is equal to the market price. Any additional units produced would have a marginal cost higher than the market price, so it is not profitable to produce more than 80 units.

Question 18

Maximizing average profit is equivalent to maximizing total profit.

Accepted Answer

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

Question 19

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows:
  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 20

Table 12-4
  Table 12-4 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 12-4.If the market price is $45,the firm

Accepted Answer

The answer of Table 12-4
  Table 12-4 shows the...

Quiz 12: Firms in Perfectly Competitive Markets

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

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

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

A perfectly competitive firm's supply curve is its

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

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

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

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

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 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9.At price P1,the firm would produce

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

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

Table 12-4 Table 12-4 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 12-4.If the market price is $45 the firm will produce

Maximizing average profit is equivalent to maximizing total profit.

Table 12-4 Table 12-4 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 12-4.If the market price is $45,the firm

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9.At price P₁,the firm would produce