question
Which of the following characteristics relate(s) to perfect competition?
I. An industry is dominated by several large firms.
II. Consumers cannot distinguish one firm's product from another.
III. New firms can easily enter the industry.
A) I and II
B) II and III
C) II
D) III
I. An industry is dominated by several large firms.
II. Consumers cannot distinguish one firm's product from another.
III. New firms can easily enter the industry.
A) I and II
B) II and III
C) II
D) III
answer
B) II and III Consumers cannot distinguish one firm's product from another. New firms can easily enter the industry.
question
Why is the type of product sold in an industry an important characteristic?
A) A firm that can differentiate its product from that of rivals may be able to charge a higher price for a superior product.
B) A firm that sells intangible goods is usually considered a monopoly.
C) Expensive products are usually sold by perfectly competitive firms.
D) Service industries cannot differentiate their products, which makes it easy for new firms to enter the industry.
A) A firm that can differentiate its product from that of rivals may be able to charge a higher price for a superior product.
B) A firm that sells intangible goods is usually considered a monopoly.
C) Expensive products are usually sold by perfectly competitive firms.
D) Service industries cannot differentiate their products, which makes it easy for new firms to enter the industry.
answer
A) A firm that can differentiate its product from that of rivals may be able to charge a higher price for a superior product.
question
Economists assume that firms maximize:
A) the difference between marginal revenue and marginal cost.
B) TR = PQ.
C) Pie = TR - TC.
D) P - ATC, the profit per unit of output.
A) the difference between marginal revenue and marginal cost.
B) TR = PQ.
C) Pie = TR - TC.
D) P - ATC, the profit per unit of output.
answer
C) Pie = TR - TC.
question
The idea that firms pursue actions to maximize profits is:
A) Generally rejected by economists in favor of the idea that firms maximize revenues.
B) A reasonable assumption, because firms that do not maximize profits will see their market share drain away to their profit-maximizing rivals.
C) Easier to accomplish when management has little oversight from shareholders and boards of directors.
D) Refuted by evidence that firms engage in goodwill advertising and other charitable activities.
A) Generally rejected by economists in favor of the idea that firms maximize revenues.
B) A reasonable assumption, because firms that do not maximize profits will see their market share drain away to their profit-maximizing rivals.
C) Easier to accomplish when management has little oversight from shareholders and boards of directors.
D) Refuted by evidence that firms engage in goodwill advertising and other charitable activities.
answer
B) A reasonable assumption, because firms that do not maximize profits will see their market share drain away to their profit-maximizing rivals.
question
(Table 8.1) The level of output where marginal revenue equals marginal cost is:
A) 3.
B) 5.
C) 2.
D) 4.
A) 3.
B) 5.
C) 2.
D) 4.
answer
D) 4
question
(Table 8.2) Suppose that both firms are producing 100 units of output. If the firms want to increase profit, firm A should produce _____ output and firm B should produce _____ output.
A) less; more
B) less; less
C) more; more
D) more; less
A) less; more
B) less; less
C) more; more
D) more; less
answer
A) less; more
question
(Figure 8.1) Which of the following statements is (are) TRUE?
I. The profit-maximizing output level is approximately 9 units.
II. Profits are negative at 16 units of output.
III. Marginal revenue equals marginal cost at 2 and 14 units of output.
A) II and III
B) III
C) I
D) I and II
I. The profit-maximizing output level is approximately 9 units.
II. Profits are negative at 16 units of output.
III. Marginal revenue equals marginal cost at 2 and 14 units of output.
A) II and III
B) III
C) I
D) I and II
answer
D) I and II. The profit-maximizing output level is approximately 9 units. Profits are negative at 16 units of output.
question
A firm should _____ output whenever MR exceeds MC because _____.
A) reduce; revenues will rise by more than costs, increasing the firm's profit
B) reduce; total revenues exceed total costs
C) expand; revenues will rise by more than costs, increasing the firm's profit
D) not change; selling more output will increase marginal revenue by less than marginal cost
A) reduce; revenues will rise by more than costs, increasing the firm's profit
B) reduce; total revenues exceed total costs
C) expand; revenues will rise by more than costs, increasing the firm's profit
D) not change; selling more output will increase marginal revenue by less than marginal cost
answer
C) expand; revenues will rise by more than costs, increasing the firm's profit
question
To maximize profits, a firm should produce where:
A) MR = MC.
B) TR/Q = TC/Q.
C) P = AVC.
D) ATC < P < AVC.
A) MR = MC.
B) TR/Q = TC/Q.
C) P = AVC.
D) ATC < P < AVC.
answer
A) MR = MC.
question
(Figure 8.2) The total revenue curve for a perfectly competitive firm is represented by curve:
A) A.
B) B.
C) C.
D) D.
A) A.
B) B.
C) C.
D) D.
answer
B) B.
question
Which of the following statements is (are) TRUE of price-taking firms?
I. TR/Q = P = MR
II. Price takers must lower their price to sell additional units of output because demand curves slope downward.
III. If a price taker decides to increase output, the market price will decrease.
IV. Examples of price takers include McDonald's, Burger King, Wendy's, and SONIC Drive-in.
A) II and III
B) I, II, III, and IV
C) I
D) II and IV
I. TR/Q = P = MR
II. Price takers must lower their price to sell additional units of output because demand curves slope downward.
III. If a price taker decides to increase output, the market price will decrease.
IV. Examples of price takers include McDonald's, Burger King, Wendy's, and SONIC Drive-in.
A) II and III
B) I, II, III, and IV
C) I
D) II and IV
answer
C) I TR/Q = P = MR
question
(Figure 8.3) The graph depicts the perfectly competitive market for walnuts. Which of the following statements is (are) TRUE?
I. The demand curve facing a walnut grower is perfectly elastic at $1.
II. If a walnut grower sold 80,000 pounds of walnuts, his total revenue would be $138,400.
III. If a walnut grower sold one more pound of walnuts, his total revenue would increase by $1.73.
A) I, II, and III
B) II
C) II and III
D) I
I. The demand curve facing a walnut grower is perfectly elastic at $1.
II. If a walnut grower sold 80,000 pounds of walnuts, his total revenue would be $138,400.
III. If a walnut grower sold one more pound of walnuts, his total revenue would increase by $1.73.
A) I, II, and III
B) II
C) II and III
D) I
answer
C) II and III. If a walnut grower sold 80,000 pounds of walnuts, his total revenue would be $138,400. If a walnut grower sold one more pound of walnuts, his total revenue would increase by $1.73.
question
(Figure 8.4) In a perfectly competitive market with 5,000 firms, the equilibrium price and quantity are $0.70 and 3.0 million units. The demand curve facing a firm in this market is represented by:
A) panel a.
B) panel b.
C) panel c.
D) panel d.
A) panel a.
B) panel b.
C) panel c.
D) panel d.
answer
C) panel c.
question
(Figure 8.5) The graph shows a firm's marginal cost curve. This firm operates in a perfectly competitive industry with market demand and supply curves given by Qd = 100 - 8P and QS = -20 + 2P, where Q is measured in millions of units. Based on the figure, how many units of output will the firm produce at the equilibrium price?
A) 1,100
B) 800 C)
1,200
D) 400.
A) 1,100
B) 800 C)
1,200
D) 400.
answer
B) 800.
question
(Figure 8.6) This firm maximizes profit by producing _____ units of output.
A) 3
B) 7
C) 10
D) 12.
A) 3
B) 7
C) 10
D) 12.
answer
C) 10
question
(Figure 8.7) If the market price is $6, this perfectly competitive firm will earn profits of:
A) $27.
B) $54.
C) $18.
D) $78.
A) $27.
B) $54.
C) $18.
D) $78.
answer
A) $27.
question
(Figure 8.8) Which of the following statements is (are) TRUE? I. The firm earns $120 of profit at 24 units of output. II. At prices above $5, the firm earns positive profit. III. At a price of $4, the firm would produce more than 24 units of output to offset the lower price.
A) I
B) II and III
C) II
D) I and III.
A) I
B) II and III
C) II
D) I and III.
answer
C) II.
question
(Figure 8.9) At the profit-maximizing output level, this firm earns profit of:
A) -$60.
B) $48.
C) $60.
D) -$20.
A) -$60.
B) $48.
C) $60.
D) -$20.
answer
D) -$20.
question
(Figure 8.10) Economic profit for this firm can be calculated as:
A) (160 - 130) × 80.
B) (160 × 80) - 30.
C) 80 - 30.
D) (160 - 30) × 80.
A) (160 - 130) × 80.
B) (160 × 80) - 30.
C) 80 - 30.
D) (160 - 30) × 80.
answer
A) (160 - 130) × 80.
question
In the market for lock washers, a perfectly competitive market, the current equilibrium price is $5 per box. Washer King, one of the many producers of washers, has a daily short-run total cost given by TC = 190 + 0.20Q + 0.0025Q2, where Q measures boxes of washers. Washer King's corresponding marginal cost is MC = 0.20 + 0.005Q. How many boxes of washers should Washer King produce per day to maximize profit?
A) 280
B) 960
C) 1,450
D) 2,125.
A) 280
B) 960
C) 1,450
D) 2,125.
answer
B) 960.
question
Suppose the market for relay switches is considered perfectly competitive and is in equilibrium at a price of $5,000 per pallet of relay switches. Callahan Relay produces relay switches at an average total cost given by ATC = and marginal cost given by MC = 2Q, where Q measures pallets of relay switches. If Callahan Relay maximizes profit, how much profit will it earn?
A) $125,000
B) $88,000
C) $2.5 million
D) $4.75 million.
A) $125,000
B) $88,000
C) $2.5 million
D) $4.75 million.
answer
D) $4.75 million.
question
A firm's short-run total cost is TC = 10,100 + 7,700Q - 100Q2 + Q3/3, and its marginal cost is MC = 7,700 - 200Q + Q2. What is the firm's shutdown price?
A) $45
B) $200
C) $1,100
D) $18
A) $45
B) $200
C) $1,100
D) $18
answer
B) $200.
question
Stu owns an ice cream parlor that is usually closed during the winter. This winter, however, Stu is considering opening his business in February instead of March. If Stu opens his store in February, he will earn total revenue of $4,000 for the month, incurring variable costs of $3,500 and fixed costs of $1,500. If the store remains closed during February, Stu will earn no revenues and incur fixed costs of $1,500. Stu should:
A) stay closed in February because he will lose $1,000 if he opens.
B) stay closed in February because the $500 of operating profit is insufficient to cover the $1,500 of fixed costs.
C) open in February because the $4,000 of total revenue exceeds the $1,500 of fixed costs.
D) open in February because the $4,000 of total revenue exceeds the $3,500 of variable costs.
A) stay closed in February because he will lose $1,000 if he opens.
B) stay closed in February because the $500 of operating profit is insufficient to cover the $1,500 of fixed costs.
C) open in February because the $4,000 of total revenue exceeds the $1,500 of fixed costs.
D) open in February because the $4,000 of total revenue exceeds the $3,500 of variable costs.
answer
D) open in February because the $4,000 of total revenue exceeds the $3,500 of variable costs.
question
(Figure 8.11) If this firm operates, it earns a profit of _____, but if it shuts down, it earns a profit of _____.
A) $4,000; $0
B) -$9,000; -$5,000
C) -$5,000; -$9,000
D) -$2,500; -$4,000.
A) $4,000; $0
B) -$9,000; -$5,000
C) -$5,000; -$9,000
D) -$2,500; -$4,000.
answer
B) -$9,000; -$5,000
question
With which of the following scenarios should a perfectly competitive firm shut down in the short run?
I. P = $80, VC = $180,000, and Q = 2,000
II. TR = $45,000, AVC = $500, ATC = $600, and Q = $84
III. P = $11.55, ATC = $15, and AFC = $2
A) II
B) III
C) II and III
D) I and III.
I. P = $80, VC = $180,000, and Q = 2,000
II. TR = $45,000, AVC = $500, ATC = $600, and Q = $84
III. P = $11.55, ATC = $15, and AFC = $2
A) II
B) III
C) II and III
D) I and III.
answer
D) I and III. P = $80, VC = $180,000, and Q = 2,000. TR = $45,000, AVC = $500, ATC = $600, and Q = $84.
question
The perfectly competitive firm's short-run supply curve is:
A) the portion of its marginal cost curve that lies above average variable cost.
B) the portion of its marginal cost curve that lies above average total cost.
C) its average variable cost curve, which lies above marginal revenue.
D) its average total cost curve, which lies above marginal revenue.
A) the portion of its marginal cost curve that lies above average variable cost.
B) the portion of its marginal cost curve that lies above average total cost.
C) its average variable cost curve, which lies above marginal revenue.
D) its average total cost curve, which lies above marginal revenue.
answer
A) the portion of its marginal cost curve that lies above average variable cost.
question
(Figure 8.12) The perfectly competitive firm's short-run supply curve is represented by points:
A) B, C, and D.
B) A, B, C, and D.
C) E, B, C, and D.
D) B, C, and H.
A) B, C, and D.
B) A, B, C, and D.
C) E, B, C, and D.
D) B, C, and H.
answer
A) B, C, and D.
question
A street vendor's annual license fee was recently increased by the city. The street vendor's:
A) marginal cost curve will shift out, along with her average variable cost curve.
B) marginal cost curve will shift in, along with her average variable cost curve.
C) marginal and average variable cost curves will not be affected.
D) total variable cost curve will rotate upward.
A) marginal cost curve will shift out, along with her average variable cost curve.
B) marginal cost curve will shift in, along with her average variable cost curve.
C) marginal and average variable cost curves will not be affected.
D) total variable cost curve will rotate upward.
answer
C) marginal and average variable cost curves will not be affected.
question
Pitch (a sticky black substance made from petroleum) is a key input in the production of clay targets. If the price of pitch falls, clay target manufacturers will encounter a(n) _____ shift of their marginal cost curve and a(n)_____ shift of their average variable cost.
A) inward; inward
B) outward; outward
C) inward; outward
D) outward; inward.
A) inward; inward
B) outward; outward
C) inward; outward
D) outward; inward.
answer
B) outward; outward.
question
(Figure 8.13) What could have caused the supply and average variable cost curves to shift outward?
A) a decrease in average fixed costs
B) a decrease in wages
C) an increase in input prices
D) an increase in rental payments or property taxes.
A) a decrease in average fixed costs
B) a decrease in wages
C) an increase in input prices
D) an increase in rental payments or property taxes.
answer
B) a decrease in wages.
question
Suppose a perfectly competitive industry has 300 firms, and the short-run supply curve for each firm is given by Q = 2P. What is the short-run industry supply curve?
A) QS = 150P
B) QS = 600
C) QS = 600P
D) QS = 300 + 2P.
A) QS = 150P
B) QS = 600
C) QS = 600P
D) QS = 300 + 2P.
answer
C) QS = 600P.
question
In a perfectly competitive market with 50 firms, output is zero at prices less than $20. At prices of $20 to $29.99, each firm will produce 1 unit of output. At any price of $30 or more, each firm will produce 3 units of output. At a price of $27, the industry produces _____ units, and at a price of $35, the industry produces _____units.
A) 16.67; 50
B) 50; 150
C) 30; 75
D) 9; 45.
A) 16.67; 50
B) 50; 150
C) 30; 75
D) 9; 45.
answer
B) 50; 150
question
(Figure 8.14) In this perfectly competitive industry, there are 100 firms with a short-run supply curve represented by S1 and 50 firms with a short-run supply curve represented by S2. At a market price of $4.50, industry output is:
A) 700.
B) 250.
C) 1,050.
D) 500.
A) 700.
B) 250.
C) 1,050.
D) 500.
answer
D) 500.
question
In a perfectly competitive market with 2,000 firms, output is zero at prices less than $10. At prices of $10 to $19.99, each firm will produce 100 units of output. At any price of $20 or more, each firm will produce 300 units of output. As this industry expands output, however, prices of the key inputs to production increase substantially. The total industry output at a market price of $33 is:
A) between 200,000 and 800,000.
B) 600,000 or less.
C) greater than 600,000.
D) 800,000.
A) between 200,000 and 800,000.
B) 600,000 or less.
C) greater than 600,000.
D) 800,000.
answer
B) 600,000 or less.
question
Which of the following statements is (are) TRUE?
I. As market prices increase, industry output rises because individual firms have upward-sloping marginal cost curves.
II. As market prices increase, industry output rises because high-cost producers enter the industry.
III. As market prices increase, industry output rises because individual firms have upward-sloping short-run supply curves.
A) I, II, and III
B) II and III
C) III
D) II.
I. As market prices increase, industry output rises because individual firms have upward-sloping marginal cost curves.
II. As market prices increase, industry output rises because high-cost producers enter the industry.
III. As market prices increase, industry output rises because individual firms have upward-sloping short-run supply curves.
A) I, II, and III
B) II and III
C) III
D) II.
answer
A) I, II, and III As market prices increase, industry output rises because individual firms have upward-sloping marginal cost curves. As market prices increase, industry output rises because high-cost producers enter the industry. As market prices increase, industry output rises because individual firms have upward-sloping short-run supply curves.
question
A perfectly competitive firm maximizes profit by producing 500 units of output, selling each unit for $10. The firm's average variable cost is $7 and average fixed cost is $2. What is the firm's producer surplus?
A) $500
B) $1,500
C) $1,000
D) $1.
A) $500
B) $1,500
C) $1,000
D) $1.
answer
B) $1,500.
question
(Figure 8.15) Which of the following statements is (are) TRUE?
I. Producer surplus = TR - VC = $25 - $15.
II. The shaded area between the demand curve and marginal cost represents producer surplus and equals $10.
III. The firm's profit = $10 - FC.
A) I, II, and III
B) II
C) I and III
D) III.
I. Producer surplus = TR - VC = $25 - $15.
II. The shaded area between the demand curve and marginal cost represents producer surplus and equals $10.
III. The firm's profit = $10 - FC.
A) I, II, and III
B) II
C) I and III
D) III.
answer
A) I, II, and III. Producer surplus = TR - VC = $25 - $15. The shaded area between the demand curve and marginal cost represents producer surplus and equals $10. The firm's profit = $10 - FC.
question
A perfectly competitive industry has 100 high-cost producers, each with a short-run supply curve given by QH = 16P, and 100 low-cost producers, each with a short-run supply curve given by QL = 24P. The industry demand curve is given by Qd = 100,000 - 1,000P. At market equilibrium, industry producer surplus is:
A) $800,000.
B) $20,000.
C) $4,000.
D) $1.2 million.
A) $800,000.
B) $20,000.
C) $4,000.
D) $1.2 million.
answer
A) $800,000.
question
In a perfectly competitive industry, the equilibrium price is $56 and the minimum average total cost of the industry's firms is $40. If this is a constant-cost industry, we can expect that in the long run, firms will _____ the market, shifting the industry's short-run supply curve _____.
A) enter; outward until the minimum average total cost rises to $56.
B) enter; outward until the new equilibrium price is $40.
C) enter; inward until firms are making positive profit.
D) exit; inward until firms are breaking even.
A) enter; outward until the minimum average total cost rises to $56.
B) enter; outward until the new equilibrium price is $40.
C) enter; inward until firms are making positive profit.
D) exit; inward until firms are breaking even.
answer
B) enter; outward until the new equilibrium price is $40.
question
(Figure 8.16) Which panel shows a representative firm (operating in a perfectly competitive industry) in a long-run equilibrium?
A) panel a
B) panel b
C) panel c
D) panel d.
A) panel a
B) panel b
C) panel c
D) panel d.
answer
B) panel b.
question
Which of the following statements is (are) TRUE?
I. Free entry to a perfectly competitive industry results in the industry's firms earning zero economic profit in the long run, except for the most efficient producers, who may earn economic rent.
II. In a perfectly competitive market, long-run equilibrium is characterized by LMC < P < LATC.
III. If a competitive industry is in long-run equilibrium, a decrease in demand causes firms to earn negative profit because the market price will fall below average total cost.
A) I, II, and III
B) II and III
C) I and III
D) I.
I. Free entry to a perfectly competitive industry results in the industry's firms earning zero economic profit in the long run, except for the most efficient producers, who may earn economic rent.
II. In a perfectly competitive market, long-run equilibrium is characterized by LMC < P < LATC.
III. If a competitive industry is in long-run equilibrium, a decrease in demand causes firms to earn negative profit because the market price will fall below average total cost.
A) I, II, and III
B) II and III
C) I and III
D) I.
answer
C) I and III. Free entry to a perfectly competitive industry results in the industry's firms earning zero economic profit in the long run, except for the most efficient producers, who may earn economic rent. If a competitive industry is in long-run equilibrium, a decrease in demand causes firms to earn negative profit because the market price will fall below average total cost.
question
(Figure 8.17) Initially, the constant-cost industry was in long-run equilibrium at point A when the demand for the good increased to D2. How much output will be produced in the long run as a result of the demand increase?
A) 3,000
B) 5,000
C) 6,000
D) 7,000.
A) 3,000
B) 5,000
C) 6,000
D) 7,000.
answer
C) 6,000.
question
In a perfectly competitive market, each firm has a long-run total cost given by LTC = 100Q - 10Q2 + 1/3Q3 and long-run marginal cost curve given by LMC = 100 - 20Q + Q2. What is the market's long-run equilibrium price?
A) $8.50
B) $33
C) $70
D) $25.
A) $8.50
B) $33
C) $70
D) $25.
answer
D) $25.
question
In a perfectly competitive industry, the long-run equilibrium price is $12. If a technological innovation lowers production costs, the long-run equilibrium price will:
A) fall below $12.
B) initially fall but then return to $12.
C) initially rise but then return to $12.
D) rise above $12.
A) fall below $12.
B) initially fall but then return to $12.
C) initially rise but then return to $12.
D) rise above $12.
answer
A) fall below $12.
question
Suppose the market for sprouts is in long-run equilibrium. In the short run, what will happen if an E. coli outbreak reduces the demand for sprouts?
A) The marginal cost curve will shift downward for each producer, leaving prices unchanged.
B) The market price of sprouts will fall, causing each firm to produce fewer sprouts.
C) Existing firms will expand output to make up for the decrease in demand.
D) The marginal cost curve will shift upward for each producer, causing prices to rise and profits to fall.
A) The marginal cost curve will shift downward for each producer, leaving prices unchanged.
B) The market price of sprouts will fall, causing each firm to produce fewer sprouts.
C) Existing firms will expand output to make up for the decrease in demand.
D) The marginal cost curve will shift upward for each producer, causing prices to rise and profits to fall.
answer
B) The market price of sprouts will fall, causing each firm to produce fewer sprouts.
question
Suppose the long-run equilibrium price in a perfectly competitive market is $100. When demand increases, if it is a(n) _____ industry, the long-run equilibrium price will _____ to reflect a _____ long-run average total cost.
A) decreasing-cost; rise; lower
B) increasing-cost; rise; lower
C) decreasing-cost; fall; lower
D) increasing-cost; fall; higher.
A) decreasing-cost; rise; lower
B) increasing-cost; rise; lower
C) decreasing-cost; fall; lower
D) increasing-cost; fall; higher.
answer
C) decreasing-cost; fall; lower
question
(Figure 8.18) Which of the following statements is (are) TRUE?
I. In the long run, this firm will produce 500 units of output.
II. In the short run, this firm produces 600 units of output.
III. The long-run equilibrium price is $4. IV. At a price of $5, new firms will eventually enter the market, eliminating this firm's economic profits.
A) I, II, III, and IV
B) III and IV
C) I and II
D) III
I. In the long run, this firm will produce 500 units of output.
II. In the short run, this firm produces 600 units of output.
III. The long-run equilibrium price is $4. IV. At a price of $5, new firms will eventually enter the market, eliminating this firm's economic profits.
A) I, II, III, and IV
B) III and IV
C) I and II
D) III
answer
A)I, II, III, and IV I. In the long run, this firm will produce 500 units of output. II. In the short run, this firm produces 600 units of output. III. The long-run equilibrium price is $4. IV. At a price of $5, new firms will eventually enter the market, eliminating this firm's economic profits.
question
Suppose that a firm is earning a 12% return on capital in a perfectly competitive industry, and the market return outside the industry is 9.5%. Which of the following statements is (are) TRUE?
A) In the short run, the firm is making a below-market return of 2.5%.
B) In the short run, the firm is making a negative return on capital of 2.5%.
C) In the long run, the firm's return on capital will be 0%.
D) In the long run, the firm's return on capital will be 9.5%.
A) In the short run, the firm is making a below-market return of 2.5%.
B) In the short run, the firm is making a negative return on capital of 2.5%.
C) In the long run, the firm's return on capital will be 0%.
D) In the long run, the firm's return on capital will be 9.5%.
answer
D) In the long run, the firm's return on capital will be 9.5%.
question
(Figure 8.19) The graph represents three perfectly competitive firms. Which of the following statements is (are) TRUE?
I. In the long run, each firm will produce the same quantity of output.
II. Firm 1 is the highest-cost producer and Firm 3 is the lowest-cost producer.
III. Firm 3 will produce the most output in the long run.
A) II
B) III
C) II and III
D) I.
I. In the long run, each firm will produce the same quantity of output.
II. Firm 1 is the highest-cost producer and Firm 3 is the lowest-cost producer.
III. Firm 3 will produce the most output in the long run.
A) II
B) III
C) II and III
D) I.
answer
C) II and III. II. Firm 1 is the highest-cost producer and Firm 3 is the lowest-cost producer. III. Firm 3 will produce the most output in the long run.
question
In a perfectly competitive industry, there are two types of firms: low-cost producers and high-cost producers. The minimum average total cost of the high-cost producers is $150. The low-cost producers have a long-run total cost curve given by LTC = 150Q - 15Q2 + 0.4Q3, where LMC = 150 - 30Q + 1.2Q2. How much economic rent does the low-cost producer earn?
A) $3,125
B) $14,000
C) $710
D) $45,000.
A) $3,125
B) $14,000
C) $710
D) $45,000.
answer
A) $3,125
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