Download answers to PS 12

PROBLEM SET 12
1.Refer to the graph shown depicting a perfectly competitive firm. If average variable cost is $3 at
quantity 450, points A through E represent the:
A. firm's total cost curve.
B. firm's total revenue curve.
C. demand for the firm's product.
D. firm's supply curve.
2. A perfectly competitive firm will be profitable if price at the profit-maximizing quantity is above:
A. MC.
B. AVC.
C. ATC.
D. AFC.
3.Based on the information shown, a perfectly competitive profit-maximizing firm would produce:
A. 10 units of output.
B. 20 units of output.
C. 30 units of output.
D. 40 units of output.
Producing less than 30 units reduces profits since the marginal cost of the last 10 units (45) is less
than the marginal revenue (50). Producing more than 30 units reduces profits because the marginal
revenue of the next 10 units (50) is less than marginal cost (55).
4.Refer to the previous table shown. The maximum profit that the perfectly competitive firm
represented by the above data could earn is:
A. $25.
B. $35.
C. $45.
D. $55.
This is the profit at the profit-maximizing output level, where $150 - $105 = $45.
5.
Refer to the table shown. If the market price is $8, a perfectly competitive profit-maximizing firm will
produce:
A. 1 unit of output.
B. 2 units of output.
C. 3 units of output.
D. 4 units of output.
Output would be 3 units because profits increase as long as marginal revenue ($8) is greater than
marginal cost.
Refer to the graph shown, which depicts a perfectly competitive firm. When maximizing profit, the firm
represented will earn per-unit profit roughly equal to:
A. $2.00.
B. $5.
C. $7.50
D. $10.
Since price equals $10 and average total cost is roughly $8.00 at the profit-maximizing output level of
110, profit per unit is approximately $2.00.
7.Refer to the previous graph shown, which depicts a perfectly competitive firm. When it is maximizing
profit, the total profit earned by the firm represented is:
A. $220.
B. $275.
C. $330.
D. $605.
Since per-unit profit is $2.00 and the number of units supplied is 110, total profits equal $2.00 times
110, or $220.
8. Refer to the graph shown. If the firm is producing 120 units of output, profit is equal to:
A. $38.
B. -$38.
C. $0.
D. $30.
Profit is total revenue minus total cost ($48 - $86).
9. Refer to the previous graph shown. If the firm is producing 250 units of output, profit is equal to:
A. $38.
B. -$38.
C. $0.
D. $30.
10.Refer to the previous graph shown. If the firm is producing 450 units of output, profit is equal to:
A. $38.
B. -$30.
C. $0.
D. $30.
11.
Refer to the graph shown. Assuming that the industry operates under conditions of perfect
competition:
A. it is currently in equilibrium.
B. new firms will soon enter the industry.
C. existing firms will leave the industry.
D. firms in the industry are earning zero economic profit.
At a price of $60, price exceeds average total cost, and so firms are making positive economic profits.
This will induce entry in the long run
12. Refer to the preivous graph shown. Assuming that the industry operates under conditions of
perfect competition and that the firms seek to maximize profits, this firm will:
A. produce 800 square feet of construction per month in the short run.
B. produce 1,000 square feet of construction per month in the short run.
C. produce 1,200 square feet of construction in the short run.
D. incur economic losses in the short run.
Profit is at its maximum at that output level, because P = MR = MC. Price equals marginal cost at this
output level in the short run