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Exam 10: Firms in Perfectly Competitive Markets

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Question 41

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Figure 10.7 -Refer to Figure 10.7.Suppose the prevailing price is $20 and the firm is currently producing 1,350 units.In the long-run equilibrium, the firm represented in the diagram

A) will continue to produce the same quantity.
B) will reduce its output to 1,100 units.
C) will reduce its output to 750 units.
D) will cease to exist.

E) B) and D)
F) A) and B)

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Question 42

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Figure 10.2 -Refer to Figure 10.2.Suppose the firm is currently producing Q₂ units.What happens if it expands output to Q₃ units?

A) Its profit increases by the size of the vertical distance df.
B) It makes less profit.
C) It incurs a loss.
D) It will be moving toward its profit maximizing output.

E) B) and D)
F) C) and D)

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Question 43

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Assume that after a banner year in Canadian farm exports in 2014, farmers are expected to break even in 2015.This means that at the quantity being produced in 2015,

For a perfectly competitive firm, which of the following is not true at profit maximization?

Without government subsidization, the conversion of farmland in the United Kingdom from conventional to organic production will generally cause a farmer's

Which of the following is not a characteristic of a perfectly competitive market structure?

Assuming a market price of $4, fill in the columns in the following table.What is the profit-maximizing level of production? What are the two ways to determine the profit-maximizing level of production? $\begin{array}{|c|c|c|c|c|c|}\hline \text { Quantity } & \begin{array}{c}\text { Total } \\\text { Revenue } \\(T R)\end{array} & \begin{array}{c}\text { Total Cost } \\(T C)\end{array} & \text { Profit } & \begin{array}{c}\text { Marginal } \\\text { Revenue } \\(M R)\end{array} & \begin{array}{c}\text { Marginal } \\\text { Cost }(M C)\end{array} \\\hline 0 & & 3 & & & \\\hline 1 & & 5 & & & \\\hline 2 & & 6 & & & \\\hline 3 & & 9 & & & \\\hline 4 & & 14 & & & \\\hline 5 & & 20 & & & \\\hline 6 & & 28 & & & \\\hline 7 & & 40 & & & \\\hline\end{array}$

An increase in demand for Canadian farm exports will ________ the market prices for these exports and ________ economic profit in these markets.

Figure 10.4 Figure 10.4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 10.4.If the market price is $30 and if the firm is producing output, what is the amount of its total variable cost?

Using two graphs, illustrate how a positive technological change in the market for notebook computers could eliminate short-run economic profit for a firm in that market.On the first graph, use a supply and demand graph to illustrate the positive technological change.On the second graph, use demand, ATC, MC and MR curves to illustrate the elimination of economic profit resulting from the positive technological change.Explain what is taking place in each graph.

Writing in the New York Times on the technology boom of the late 1990s, Michael Lewis argues, "The sad truth, for investors, seems to be that most of the benefits of new technologies are passed right through to consumers free of charge." What does Lewis means by the benefits of new technology being "passed right through to consumers free of charge"?

An industry's long-run supply curve shows

Figure 10.11 -Refer to Figure 10.11.Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run.Which of the diagrams in the figure depicts what happens to in the industry as it transitions to along run equilibrium?

If a firm's fixed cost exceeds its total revenue, the firm should stop production by shutting down temporarily.

Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterizes the industry if, as demand for tuna increases, fishing boats have to go farther into the ocean to harvest tuna?

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

Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize profits the firm should

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

Figure 10.4 Figure 10.4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 10.4.What is the amount of its total fixed cost?

Suppose there are economies of scale in the production of a specialized memory chip that is used in manufacturing microwaves.This suggests that the microwave industry is a decreasing-cost industry.