Question 1

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows:
 $$\begin{array} { | c | c | } 
\hline \text { Output per Day } & \text { Total Cost } \
\hline 0 & \$ 20 \
\hline 1 & 32 \
\hline 2 & 37 \
\hline 3 & 48 \
\hline 4 & 61 \
\hline 5 & 75 \
\hline 6 & 92 \
\hline 7 & 113 \
\hline 8 & 136 \
\hline
\end{array}$$ 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 2

Maximizing average profit is equivalent to maximizing total profit.

Accepted Answer

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

Question 3

A perfectly competitive firm's supply curve is its

Accepted Answer

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

Question 4

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 shows cost and demand...

Question 5

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

Accepted Answer

In perfect competition, a firm's profit is maximized at the output level where marginal cost (MC) equals price (P), which is also the level where average total cost (ATC) is minimized. At this point, the firm earns zero economic profit and breaks even. Therefore, the price equal to the minimum ATC is the price at which the firm breaks even.

Question 6

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 7

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 is the definition of profit for a perfectly competitive firm in microeconomics. The difference between total revenue and total cost represents the profit earned by the firm.

Question 8

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

Accepted Answer

If the price is less than the average variable cost, the firm is not covering all of its variable costs and is experiencing losses. In this case, it is better for the firm to shut down and minimize its losses.

Question 9

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows:
 $$\begin{array} { | c | c | } 
\hline \text { Output per Day } & \text { Total Cost } \
\hline 0 & \$ 20 \
\hline 1 & 32 \
\hline 2 & 37 \
\hline 3 & 48 \
\hline 4 & 61 \
\hline 5 & 75 \
\hline 6 & 92 \
\hline 7 & 113 \
\hline 8 & 136 \
\hline
\end{array}$$ Suppose the current equilibrium price in the teapot market is $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 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.The lease

Accepted Answer

The lease is a fixed cost because it remains constant for the next five years and does not vary with the level of output or sales.

Question 11

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

Accepted Answer

At price P1, the firm is likely operating below its average total cost, resulting in losses greater than its fixed costs.

Question 12

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 13

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 14

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 15

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 16

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

Accepted Answer

If the market price is below the minimum average variable cost, the firm cannot cover its variable costs through sales. In this case, the firm should shut down temporarily and produce zero output. By doing so, it can avoid incurring further losses and conserve its remaining resources. Selling at a loss would only worsen the situation for the firm.

Question 17

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 18

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows:
 $$\begin{array} { | c | c | } 
\hline \text { Output per Day } & \text { Total Cost } \
\hline 0 & \$ 20 \
\hline 1 & 32 \
\hline 2 & 37 \
\hline 3 & 48 \
\hline 4 & 61 \
\hline 5 & 75 \
\hline 6 & 92 \
\hline 7 & 113 \
\hline 8 & 136 \
\hline
\end{array}$$ Suppose the current equilibrium price in the teapot market is $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 19

$$\begin{array} { | c | c | c | c | } 
\hline \text { Quantity } & \begin{array} { c } 
\text { Average } \
\text { Fixed Cost }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Variable Cost }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Cost }
\end{array} \
\hline 20 & \$ 40 & \$ 18 & \$ 18 \
\hline 40 & 20 & 14 & 10 \
\hline 60 & 13.1 & 16 & 20 \
\hline 80 & 10 & 22 & 40 \
\hline 100 & 8 & 30 & 62 \
\hline 120 & 6.61 & 40 & 90 \
\hline
\end{array}$$ Table 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 $45, the firm should produce where MR=MC. From the table, we can see that the MC of the 80th unit is $45, which is equal to the market price. Any additional unit will bring additional revenue that is greater than the cost. Therefore, the best choice is for the firm to produce 80 units.

Question 20

$$\begin{array} { | c | c | c | c | } 
\hline \text { Quantity } & \begin{array} { c } 
\text { Average } \
\text { Fixed Cost }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Variable Cost }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Cost }
\end{array} \
\hline 20 & \$ 40 & \$ 18 & \$ 18 \
\hline 40 & 20 & 14 & 10 \
\hline 60 & 13.1 & 16 & 20 \
\hline 80 & 10 & 22 & 40 \
\hline 100 & 8 & 30 & 62 \
\hline 120 & 6.61 & 40 & 90 \
\hline
\end{array}$$ Table 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 \[\begin{array} { | c | c |...

Quiz 12: Firms in Perfectly Competitive Markets

Maximizing average profit is equivalent to maximizing total profit.

A perfectly competitive firm's supply curve is its

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

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,why would the firms choose to stay in business?

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.

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

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

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

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

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

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

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