question
In a perfectly competitive market, a seller cannot choose to raise the price of its good since all sellers in the market produce identical goods, so raising the price would result in losing all its customers.
All firms in a perfectly competitive market are said to be __________.
All firms in a perfectly competitive market are said to be __________.
answer
price takers
question
To the right is the average total cost curve for a competitive firm.
What is the relationship between the average total cost curve (ATC) and the marginal cost curve (MC)?
1.) Using the 3-point curve drawing tool, draw the marginal cost curve for this firm in a competitive market. Label your curve 'MC'.
Carefully follow the instructions above and only draw the required object. When the ATC curve is decreasing, we know that the MC curve is ___________, and when the ATC curve is increasing, we know that MC is ________________
What is the relationship between the average total cost curve (ATC) and the marginal cost curve (MC)?
1.) Using the 3-point curve drawing tool, draw the marginal cost curve for this firm in a competitive market. Label your curve 'MC'.
Carefully follow the instructions above and only draw the required object. When the ATC curve is decreasing, we know that the MC curve is ___________, and when the ATC curve is increasing, we know that MC is ________________
answer
below the ATC curve
above the ATC curve.
above the ATC curve.
question
What is the difference between accounting profit and economic profit?
answer
Economic profit subtracts both explicit and implicit costs from total revenue, while accounting profit only subtracts explicit costs.
question
Is it possible for accounting profit to be positive and economic profit to be negative?
answer
Yes, this could occur if explicit costs were modest and implicit costs were high.
question
Under which of the following examples is it likely that the accounting profit is positive and the economic profit is negative?
answer
If you open an amusement park in the middle of New York City.
question
Fixing up old houses requires plumbing and carpentry. Jack (who is a jack of all trades but is a master of none) is a decent carpenter and a decent plumber, but is not particularly good at either. He can fix up two houses in a year if he does all of the carpentry and plumbing himself. His wage is $40,000 per year.
Jack's average total cost of fixing up two old houses is ______
Jack's average total cost of fixing up two old houses is ______
answer
20,000
question
George is an excellent plumber and Harriet is an excellent carpenter. George can do all of the plumbing and Harriet can do all of the carpentry to fix up eight houses per year. Each earns a wage of $40,000 per year.
If George and Harriet work together and fix up eight old houses each year, their average cost is
If George and Harriet work together and fix up eight old houses each year, their average cost is
answer
10,000
question
This problem tells us that one of the sources of economies of scale is
answer
specialization
question
If the market price were $10 per bag, this firm would produce
answer
3 bags
question
Assuming free entry and exit of other firms, based on the ATC curve, the price in the long run will be
answer
$8
question
The graph on the right shows the cost curves for a random firm competing in a perfectly competitive market.
Given the shape of the curves, we know that curve A represents __________, curve B represents__________, and curve C represents _________.
Given the shape of the curves, we know that curve A represents __________, curve B represents__________, and curve C represents _________.
answer
MC; ATC; AVC
question
Which of the following equations calculates the profits of a firm?
answer
Total
revenues−Total
costs
revenues−Total
costs
question
When comparing the accounting profit with economic profit, it must be true that the accounting profit is
to___________economic profit.
to___________economic profit.
answer
greater than or equal
question
The graph to the right shows the average total cost (ATC), average variable cost (AVC), marginal cost(MC), and marginal revenue (MR) curves for a firm in a perfectly competitive market.
In order to maximize profits, this firm should produce approximately _________ units of output.
In order to maximize profits, this firm should produce approximately _________ units of output.
answer
11
question
Calculate the price elasticity of supply in the following examples, then determine if supply is relatively elastic or inelastic, or perfectly elastic or inelastic.
When the price of a pen increased from $2.00 to $2.25, the quantity supplied by a firm increased from 200 to 300 pens.
The price elasticity of supply is
When the price of a pen increased from $2.00 to $2.25, the quantity supplied by a firm increased from 200 to 300 pens.
The price elasticity of supply is
answer
3.40
question
In this case, the price elasticity of supply is
answer
relatively elastic
question
When the price of bottled water increased from $2.50 to $3.00, the quantity supplied by a firm increased from 100 to 110 bottles.
The price elasticity of supply is
The price elasticity of supply is
answer
0.52
question
In this case, the price elasticity of supply is
answer
relatively inelastic
question
Even though the price of an acre of land increased from $6,000 to $10,000, the quantity supplied did not change.
The price elasticity of supply is
The price elasticity of supply is
answer
0
question
In this case, the price elasticity of supply is
answer
perfectly inelastic
question
he International Space Station (ISS) is a habitable satellite that was launched by NASA and space agencies of other countries. In 2009, NASA was considering shutting down the ISS within the next 5 to 6 years. Among those who were opposed to this idea of de-orbiting the ISS was Senator Bill Nelson, who was quoted as saying "If we've spent a hundred billion dollars, I don't think we want to shut it down in 2015."
The "hundred billion dollars" that Senator Nelson is referring to is known as
The "hundred billion dollars" that Senator Nelson is referring to is known as
answer
sunk cost
question
Given this information, the senator's comment is___________,
since these types of costs _________affect current and future decisions.
since these types of costs _________affect current and future decisions.
answer
flawed, should not
question
You are planning to build an apartment building. Your market research department estimates that your revenues will be $850,000. Your engineering department estimates the cost will be $550,000. You started construction and spent $150,000 to build the foundation when the recession begins. This causes the market research department to revise its revenue estimates downward to $399,950.
Should you complete the apartment building?
Should you complete the apartment building?
answer
No, the remaining cost to build is
$400,000
and you only expect to earn
$399,950;
you will ignore the
$150,000
spent since it is a sunk cost.
$400,000
and you only expect to earn
$399,950;
you will ignore the
$150,000
spent since it is a sunk cost.
question
Producer surplus is the difference between the___________ and the _______
answer
price consumers pay, supply curve
question
The graph on the right shows the long-run average total cost curve for a perfectly competitive firm.
Refer to points A, B, and C on the graph and identify where the firm would experience economies of scale, constant returns to scale, and diseconomies of scale.
At point A, the firm experiences
At point B, the firm experiences
At point C, the firm experiences
Refer to points A, B, and C on the graph and identify where the firm would experience economies of scale, constant returns to scale, and diseconomies of scale.
At point A, the firm experiences
At point B, the firm experiences
At point C, the firm experiences
answer
economies of scale
constant returns to scale
diseconomies of scale
constant returns to scale
diseconomies of scale
question
A firm is experiencing economies of scale when its______declines as more output is produced.
answer
average total cost
question
Do firms 1 and 2 experience economies of scale? Or do they experience diseconomies of scale?
answer
Firm 1 is experiencing economies of scale, while firm 2 is experiencing diseconomies of scale.
question
Minimum efficient scale is the lowest level of output where long-run average total cost is minimized.
Firm 3's minimum efficient scale occurs when the output is ______ unit(s).
Firm 3's minimum efficient scale occurs when the output is ______ unit(s).
answer
3
question
According to your graph, when some sellers
enter
a competitive market, the equilibrium price ____
and the equilibrium quantity ______
enter
a competitive market, the equilibrium price ____
and the equilibrium quantity ______
answer
decreases, increases
question
You are one of 5 identical firms (i.e., you all have the same costs) that sell widgets. Each day you have a fixed cost of $9 to operate. The marginal cost of your first widget is $1; second is $2; third $3; fourth $7; and for the fifth it is $8. You have a capacity constraint of 5, and you can only produce a whole number of widgets.
The average variable cost (AVC) for a firm that produces 2 widgets is
The average variable cost (AVC) for a firm that produces 2 widgets is
answer
1.50
question
The market-level quantity supplied given the market price of a widget is $2.50 is
answer
10 widgets
question
Suppose the market-level demand is fixed at 18. In other words, there is perfectly inelastic demand.
In the short run, the equilibrium price will be
In the short run, the equilibrium price will be
answer
7
question
If firms are perfectly competitive, the equilibrium price in the long run will be
answer
$5 and the equilibrium quantity will be 3 units.
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