Question 1

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₁,the firm would produce A) Q₁ units. B) Q₃ units. C) Q₅ units. D) zero units.

Accepted Answer

At price P1, if it is below the firm's average variable cost, the firm would not cover its variable costs and would choose to produce zero units to minimize losses.

Question 2

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₃,the firm would A) lose an amount equal to its fixed cost. B) lose an amount more than fixed cost. C) lose an amount less than fixed cost. D) break even.

Accepted Answer

The answer of Figure 7-7  Figure 7-7 shows cost...

Question 3

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₂,the firm would produce A) Q₂ units. B) Q₃ units. C) Q₄ units. D) zero units.

Accepted Answer

At price P2, the firm's marginal cost (MC) is equal to its marginal revenue (MR) at output Q2. Therefore, the firm would produce Q2 units at price P2.

Question 4

If total variable cost exceeds total revenue at all output levels,a perfectly competitive firm
A) should produce in the short run.
B) is making short-run profits.
C) should shut down in the short run.
D) has covered its fixed cost.

Accepted Answer

When a firm's total variable cost exceeds total revenue at all output levels, it means that the firm is not generating enough revenue to cover even its variable costs. This indicates that the firm is incurring losses in the short run. In such a situation, the firm should shut down in the short run as continuing production will only result in further losses. By shutting down, the firm can avoid its variable costs and minimize its losses. If the firm is able to cover its fixed costs, it should still shut down in the short run as it cannot even cover its variable costs. Therefore, option C is the best choice.

Question 5

If a firm shuts down it
A) will suffer a loss equal to its fixed costs.
B) will produce nothing but must pay its variable costs.
C) will produce nothing but must pay its fixed and variable costs.
D) will earn enough revenue to cover its variable costs but not all of its fixed costs.

Accepted Answer

The answer of If a firm shuts down it
A) will...

Question 6

Figure 7-7  Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm.
-Refer to Figure 7-7.Identify the firm's short-run supply curve.
A) the marginal cost curve
B) the marginal cost curve from a and above
C) the marginal cost curve from b and above
D) the marginal cost curve from d and above

Accepted Answer

In the short run, a firm's supply curve is the portion of its marginal cost curve that lies above the average variable cost curve. Point "b" typically represents the shutdown point where the price equals the minimum average variable cost.

Question 7

If a firm shuts down in the short run,
A) its loss equals zero.
B) its loss equals its fixed cost.
C) it makes zero economic profit.
D) its total revenue is not large enough to cover its fixed cost.

Accepted Answer

The answer of If a firm shuts down in the...

Question 8

If total revenue exceeds fixed cost,a firm
A) should produce in the short run.
B) has covered its variable cost.
C) is making short-run profits.
D) may or may not produce in the short run, depending on whether total revenue covers variable cost.

Accepted Answer

The answer of If total revenue exceeds fixed cost,a firm
A)...

Question 9

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₄,the firm would produce A) Q₃ units. B) Q₄ units. C) Q₅ units. D) Q₆ units.

Accepted Answer

The answer of Figure 7-7  Figure 7-7 shows cost...

Question 10

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₂,the firm would A) lose an amount equal to its fixed cost. B) lose an amount more than fixed cost. C) lose an amount less than fixed cost. D) break even.

Accepted Answer

At price P₂, the firm's marginal cost curve (MC) intersects its marginal revenue curve (MR) at output Q1. At this output level, the firm's total revenue (TR) is less than its total variable cost (TVC), but greater than its total fixed cost (TFC). Thus, the firm incurs a loss equal to its total fixed cost (TFC). Since TFC is a sunk cost and the firm would incur this cost regardless of whether it produced or not, the best choice for the firm is to produce at this level to minimize its loss. Therefore, the correct answer is C, lose an amount less than fixed cost.

Question 11

If a firm shuts down in the short run it will
A) break even.
B) declare bankruptcy.
C) suffer a loss equal to its variable costs.
D) suffer a loss equal to its fixed costs.

Accepted Answer

If a firm shuts down in the short run, it will suffer a loss equal to its fixed costs. This is because even if the firm is not producing anything, it still has to pay its fixed costs such as rent, insurance, and salaries of permanent employees. By shutting down, it avoids paying variable costs associated with producing output, but it cannot avoid fixed costs. Therefore, the firm will incur these fixed costs as losses if it shuts down.

Question 12

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₄,the firm would A) lose an amount equal to its fixed cost. B) make a profit. C) lose an amount less than fixed cost. D) make a normal profit.

Accepted Answer

The answer of Figure 7-7  Figure 7-7 shows cost...

Question 13

Ben's Peanut Shoppe suffers a short-run loss.Ben will not choose to shut down if
A) his Shoppe's total revenue exceeds his fixed cost.
B) his Shoppe's total revenue exceeds his variable cost.
C) his Shoppe's total revenue exceeds his implicit costs.
D) his Shoppe's total revenue exceeds his capital costs.

Accepted Answer

In the short run, a firm will shut down if its total revenue is less than its variable cost. This is because in the short run, the firm cannot adjust its fixed costs, so if it cannot even cover its variable costs, it will always make a larger loss by continuing operation than by shutting down. However, if the total revenue exceeds the variable cost, then the firm is covering its variable costs and making some contribution towards its fixed costs and profit. Therefore, it would not make sense for Ben to shut down the shop if the total revenue exceeds his variable costs.

Question 14

Figure 7-7  Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm.
-Refer to Figure 7-7.Identify the short-run shutdown point for the firm.
A) a
B) b
C) c
D) d

Accepted Answer

The answer of Figure 7-7  Figure 7-7 shows cost...

Question 15

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The fixed cost of production is $20 000.The price of each good is $10.Should the firm continue to produce in the short run?
A) No, it should shut down because it is incurring a loss.
B) Yes, it should continue to produce because its price exceeds its average fixed cost.
C) Yes, it should continue to produce because it is minimising its loss.
D) There is insufficient information to answer the question.

Accepted Answer

In the short run, a firm should continue to produce as long as it can cover its variable costs, even if it's incurring a loss, because shutting down would mean a loss equal to total fixed costs. Here, the variable cost is $16,000 ($36,000 total cost - $20,000 fixed cost), and the revenue from producing 3000 units at $10 each is $30,000. Since the revenue exceeds the variable cost, the firm is minimizing its loss by continuing to produce.

Question 16

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₃,the firm would produce A) Q₂ units. B) Q₃ units. C) Q₄ units. D) Q₅ units.

Accepted Answer

At price P₃, the point where the demand and marginal cost curves intersect, the firm would produce Q₃ units, which is the profit-maximizing output level for the firm in the short run.

Question 17

How are sunk costs and fixed costs related?
A) They are not related in any way.
B) Sunk costs cannot be recovered and fixed costs can be avoided by shutting down.
C) In the short run they are equal to each other.
D) In the long run they are equal to each other.

Accepted Answer

The answer of How are sunk costs and fixed costs...

Question 18

Market supply is found by
A) vertically summing the relevant part of each individual producer's marginal cost curve.
B) horizontally summing the relevant part of each individual producer's marginal cost curve.
C) vertically summing each individual producer's average total cost curve.
D) horizontally summing each individual producer's average total cost curve.

Accepted Answer

The answer of Market supply is found by
A) vertically summing...

Question 19

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₁,the firm would A) lose an amount equal to its fixed cost. B) lose an amount more than fixed cost. C) lose an amount less than fixed cost. D) break even.

Accepted Answer

At price P1, the firm is unable to cover its total costs, including both fixed and variable costs, leading to a loss greater than just the fixed costs.

Question 20

In the short run,a firm that is operating at a loss has two options.These options are
A) to reduce output or reduce its variable costs.
B) to go out of business or declare bankruptcy.
C) to shut down temporarily or continue to produce.
D) to adopt new technology or change the size of its physical plant.

Accepted Answer

A firm that is operating at a loss should choose to shut down temporarily rather than continue to produce. This is because in the short run, the firm's fixed costs cannot be changed, and continuing to produce will only add to the losses. By shutting down temporarily, the firm can avoid further losses until conditions improve, and it can either resume production or go out of business if necessary. Option A is not the best choice as reducing output may not generate enough savings to cover the fixed costs, while reducing variable costs may affect the quality of the product. Option B is not feasible as declaring bankruptcy is not a desirable option for any business. Option D may not be relevant as changing the size of the physical plant or adopting new technology may require substantial investment that the firm may not have in the short run.

Quiz 7: Consumer Choice and Elasticity

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P1,the firm would produce

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P3,the firm would

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P2,the firm would produce

If total variable cost exceeds total revenue at all output levels,a perfectly competitive firm

If a firm shuts down it

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.Identify the firm's short-run supply curve.

If a firm shuts down in the short run,

If total revenue exceeds fixed cost,a firm

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P4,the firm would produce

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P2,the firm would

If a firm shuts down in the short run it will

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P4,the firm would

Ben's Peanut Shoppe suffers a short-run loss.Ben will not choose to shut down if

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.Identify the short-run shutdown point for the firm.

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The fixed cost of production is $20 000.The price of each good is $10.Should the firm continue to produce in the short run?

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P3,the firm would produce

How are sunk costs and fixed costs related?

Market supply is found by

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P1,the firm would

In the short run,a firm that is operating at a loss has two options.These options are

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₁,the firm would produce

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₃,the firm would

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₂,the firm would produce

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₄,the firm would produce

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₂,the firm would

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₄,the firm would

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₃,the firm would produce

Figure 7-7 Figure 7-7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7-7.At price P₁,the firm would