Q: If the market price is $$1.13$$, the average total cost (ATC) is $$0.93$$, and the firm produces $$1,225$$ units, what is the firm’s profit?

$$Profit = (1.13 - 0.93) \times 1,225 = 245$$

Question 1

Which of the following is NOT a condition of a perfectly competitive market?

Accepted Answer

Firms can influence the market price by changing their output.

Question 2

In the short run, which of the following is true about a fixed factor of production?

Accepted Answer

It cannot be changed regardless of the level of output.

Question 3

Suppose a cheese factory employs 3 workers and produces 321 boxes of cheese per day. If hiring a fourth worker increases output to 444 boxes, what is the marginal product of the fourth worker?

Accepted Answer

$$123$$

Question 4

Which formula correctly represents marginal cost (MC)?

Accepted Answer

$$MC = \frac{\Delta TC}{\Delta Q}$$

Question 5

If a firm’s total cost (TC) is $$560$$ when producing $$558$$ units, and $$632$$ when producing $$664$$ units, what is the marginal cost of increasing output from $$558 to$$ $$664$$ units?

Accepted Answer

$$MC = \frac{632 - 560}{664 - 558} = \frac{72}{106} \approx 0.68$$

Question 6

A firm in a perfectly competitive market maximizes profit by producing the quantity where:

Accepted Answer

$$MC = MR$$

Question 7

If the market price is $$1.13$$, the average total cost (ATC) is $$0.93$$, and the firm produces $$1,225$$ units, what is the firm’s profit?

Accepted Answer

$$Profit = (1.13 - 0.93) 	imes 1,225 = 245$$

Question 8

In the short run, a firm should shut down if:

Accepted Answer

$$P \u003c min(AVC)$$

Question 9

Which of the following best describes producer surplus?

Accepted Answer

The area below the market price and above the supply (MC) curve.

Question 10

If a firm is experiencing economies of scale, what happens to average total cost (ATC) as output increases?

Accepted Answer

ATC decreases as output increases.

Question 11

Which of the following is true in the long-run equilibrium of a perfectly competitive market?

Accepted Answer

$$P = min(ATC)$$

Question 12

A firm’s economic profit is zero in the long run. This means:

Accepted Answer

The firm is covering both its explicit and implicit costs.

Question 13

If the price elasticity of supply is greater than 1, supply is considered:

Accepted Answer

Elastic

Question 14

Suppose a firm’s total revenue is $$1,000$$ and its explicit costs are $$700$$ while its implicit costs are $$200. $$What is the firm’s economic profit?

Accepted Answer

$$1,000 - 700 - 200 = 100$$

Question 15

Which of the following best explains why the marginal cost curve eventually increases as output rises?

Accepted Answer

Diminishing marginal product of the variable input.

Question 16

If a firm’s average variable cost (AVC) is $$0.70$$ and the market price is $$0.67$$, what should the firm do in the short run?

Accepted Answer

Shut down, because $$P \u003c AVC.$$

Question 17

Which of the following is a real-world example of a variable input in the short run for a car manufacturing plant?

Accepted Answer

The number of workers hired each week.

Question 18

If a firm faces a market price below its minimum average total cost (ATC) in the long run, what will happen?

Accepted Answer

The firm will exit the market.

Question 19

Which of the following best describes diseconomies of scale?

Accepted Answer

Average total cost increases as output increases.

Question 20

A firm’s supply curve in the short run is best described as:

Accepted Answer

The portion of the marginal cost curve above the average variable cost curve.

Sellers and Incentives in Perfect Competition: Production, Costs, and Profit Maximization

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