Question 1

Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-3. If the market price is $10, what is the firm's total revenue?
A)$15
B)$30
C)$35
D)$50

Accepted Answer

The answer of Figure 14-3
Suppose a firm operating in a...

Question 2

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the short run but trying to remain open?
A)Pa
B)Pb
C)Pc
D)Pd

Accepted Answer

At price Pc, the firm's total revenue (TR) equals its variable costs (VC) but is less than its total costs (TC), resulting in negative economic profits. However, in the short run, the firm will still produce and try to remain open as long as price covers its variable costs, which it does at Pc. At prices lower than Pc, the firm would shut down in the short run.

Question 3

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-2. If the market price is Pb, in the short run the firm will earn
A)positive economic profits.
B)negative economic profits but will try to remain open.
C)negative economic profits and will shut down.
D)zero economic profits.

Accepted Answer

The answer of Figure 14-2
Suppose a firm operating in a...

Question 4

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-2. If the market price is Pc, in the short run the firm will earn
A)positive economic profits.
B)negative economic profits but will try to remain open.
C)negative economic profits and will shut down.
D)zero economic profits.

Accepted Answer

The answer of Figure 14-2
Suppose a firm operating in a...

Question 5

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. If the market price is $4.00, the firm will earn
A)positive economic profits in the short run.
B)negative economic profits in the short run but remain in business.
C)negative economic profits and shut down.
D)zero economic profits in the short run.

Accepted Answer

At a market price of $4.00, the firm's marginal cost (MC) exceeds the price, so the firm will produce at the quantity where MC = price (i.e. Q1 in the graph). This means the firm's total revenue (TR) will be $4.00 x Q1 = $20. However, the firm's total cost (TC) at Q1 is $28, which means it is incurring a loss of $8 ($20 - $28). Since the firm's average variable cost (AVC) is greater than the price, it is better for the firm to shut down and minimize its losses (i.e. incur a loss equal to its fixed costs of $10) instead of continuing to produce and incurring an even larger loss. Therefore, the firm will shut down in the short run and earn negative economic profits.

Question 6

Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-3. If the market price is $6, what is the firm's short-run economic profit?
A)$0
B)$12
C)$15
D)$18

Accepted Answer

In the short-run, the firm will produce where marginal cost (MC) equals the market price ($6), which occurs at an output of 8 units. At this output level, the firm's total cost (TC) is $48, which means its total revenue (TR) is also $48. Since the firm's total revenue just covers its total cost, its economic profit is $0.

Question 7

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. The firm should shut down if the market price is
A)above $8.
B)above $6.30 but less than $8.
C)above $4.50 but less than $6.30.
D)less than $4.50.

Accepted Answer

The firm should shut down if the market price is less than the minimum point of the average variable cost curve. In this case, the minimum point of the AVC curve is $4.50, so the firm should shut down if the price is less than $4.50.

Question 8

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. If the market price is $6.30, the firm will earn
A)positive economic profits in the short run.
B)negative economic profits in the short run but remain in business.
C)negative economic profits and shut down.
D)zero economic profits in the short run.

Accepted Answer

The answer of Figure 14-1
Suppose that a firm in a...

Question 9

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-2. Which of the four prices corresponds to a firm earning positive economic profits in the short run?
A)Pa
B)Pb
C)Pc
D)Pd

Accepted Answer

The answer of Figure 14-2
Suppose a firm operating in a...

Question 10

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-2. If the market price is Pd, in the short run the firm will earn
A)positive economic profits.
B)negative economic profits but will try to remain open.
C)negative economic profits and will shut down.
D)zero economic profits.

Accepted Answer

In the short run, the firm will produce where MR=MC, which occurs at Q1. At that level of output, the average variable cost (AVC) is higher than the market price (Pd), meaning the firm is making negative economic profits. However, since the price is above the average fixed cost (AFC), the firm will continue to operate in the short run. If the market price remains at Pd in the long run, the firm will eventually shut down as it cannot cover its total costs. Therefore, the best choice is C.

Question 11

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. If the market price rises above $6.30, the firm will earn
A)positive economic profits in the short run.
B)negative economic profits in the short run but remain in business.
C)negative economic profits and shut down.
D)zero economic profits in the short run.

Accepted Answer

At a price above $6.30, the firm can earn positive economic profits in the short run. This is because the market price is above both the average total cost and average variable cost curves, indicating that the firm can cover all of its costs and still have some revenue remaining as profit.

Question 12

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-2. If the market price is Pa, in the short run the firm will earn
A)positive economic profits.
B)negative economic profits but will try to remain open.
C)negative economic profits and will shut down.
D)zero economic profits.

Accepted Answer

The answer of Figure 14-2
Suppose a firm operating in a...

Question 13

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the short run and shutting down?
A)Pa
B)Pb
C)Pc
D)Pd

Accepted Answer

The answer of Figure 14-2
Suppose a firm operating in a...

Question 14

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. If the market price is $5.00, the firm will earn
A)positive economic profits in the short run.
B)negative economic profits in the short run but remain in business.
C)negative economic profits and shut down.
D)zero economic profits in the short run.

Accepted Answer

The answer of Figure 14-1
Suppose that a firm in a...

Question 15

Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-3. If the market price is $10, what is the firm's total cost?
A)$15
B)$30
C)$35
D)$50

Accepted Answer

At the market price of $10, the firm's total cost is equal to the sum of average variable cost and average fixed cost multiplied by output. AVC at Q=3 is $5, and AFC at Q=3 is approximately $5. Therefore, TC= $10(Q) + $5(Q) + $5(Q) = $20(Q). To find Q, we set price equal to marginal cost, which is the same as the firm's supply curve. At a price of $10, the quantity supplied is 3. Thus, the firm's total cost is $60 ($20 per unit * 3 units).

Question 16

Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-2. Which of the four prices corresponds to a firm earning zero economic profits in the short run?
A)Pa
B)Pb
C)Pc
D)Pd

Accepted Answer

In the short run, a firm will earn zero economic profits when the price is equal to its average total cost (ATC) at the profit-maximizing output level. Looking at the graph, the ATC curve intersects with the demand curve at point B. Therefore, the price corresponding to zero economic profit for this firm is Pb.

Question 17

Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-3. If the market price is $10, what is the firm's short-run economic profit?
A)$9
B)$15
C)$30
D)$50

Accepted Answer

To determine the firm's short-run economic profit, we need to find the quantity of output where the marginal cost curve intersects the market price. In this case, the intersection point is at a quantity of 3, as shown in the graph. At a quantity of 3, the marginal cost is $10, which is equal to the market price.

To find the firm's short-run economic profit, we need to calculate the total revenue and total cost at this quantity. Total revenue is simply the market price times the quantity, which is $10 x 3 = $30. Total cost is the sum of the fixed cost and variable cost at this quantity, which is $5 + $10 x 3 + $3 x 3^2 = $32.

Therefore, the firm's short-run economic profit is total revenue minus total cost, which is $30 - $32 = -$2.

Since the firm is making a negative profit, the best choice would be to shut down in the short run to minimize losses. However, if the firm believes that the market will improve in the long run, it may choose to continue operating in the short run and try to improve its efficiency and reduce costs.

Question 18

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. If the market price falls below $4.50, the firm will earn
A)positive economic profits in the short run.
B)negative economic profits in the short run but remain in business.
C)negative economic profits in the short run and shut down.
D)zero economic profits in the short run.

Accepted Answer

At any price below $4.50, the firm's marginal cost curve will be above the market price, causing the firm to produce where MR=MC at a quantity of 5. At this output level, the firm's total cost is $25 and its total revenue is only $22.50. Therefore, the firm will incur losses equal to $2.50 per unit of output. Since it cannot cover its variable costs (which are greater than its revenue), it will shut down in the short run.

Question 19

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. The firm will earn a negative economic profit but remain in business in the short run if the market price is
A)above $6.30 but less than $8.
B)above $6.30.
C)less than $6.30 but more than $4.50.
D)less than $4.50.

Accepted Answer

The answer of Figure 14-1
Suppose that a firm in a...

Question 20

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. The firm will earn a positive economic profit in the short run if the market price is
A)above $6.30.
B)less than $6.30 but more than $4.50.
C)less than $4.50.
D)exactly $6.30.

Accepted Answer

The firm will produce where MC=P, which is at a quantity of 20 in this case. At a quantity of 20, the ATC is $6.30. Therefore, if the market price is above $6.30, the firm will earn a positive economic profit.

Quiz 14: Firms in Competitive Markets

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. If the market price is $10, what is the firm's total revenue?

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the short run but trying to remain open?

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. If the market price is Pb, in the short run the firm will earn

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. If the market price is Pc, in the short run the firm will earn

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price is $4.00, the firm will earn

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. If the market price is $6, what is the firm's short-run economic profit?

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. The firm should shut down if the market price is

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price is $6.30, the firm will earn

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. Which of the four prices corresponds to a firm earning positive economic profits in the short run?

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. If the market price is Pd, in the short run the firm will earn

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price rises above $6.30, the firm will earn

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. If the market price is Pa, in the short run the firm will earn

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the short run and shutting down?

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price is $5.00, the firm will earn

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. If the market price is $10, what is the firm's total cost?

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-2. Which of the four prices corresponds to a firm earning zero economic profits in the short run?

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-3. If the market price is $10, what is the firm's short-run economic profit?

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. If the market price falls below $4.50, the firm will earn

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. The firm will earn a negative economic profit but remain in business in the short run if the market price is

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: -Refer to Figure 14-1. The firm will earn a positive economic profit in the short run if the market price is