Question 1

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

Accepted Answer

In the short run, a firm should choose to shut down temporarily rather than continuing to produce or reducing output. This is because by shutting down, the firm can avoid incurring any variable costs, which would further increase its losses. Additionally, by shutting down temporarily, the firm can reevaluate its operations and potentially make changes to reduce costs or increase revenue in the long run. Going out of business or declaring bankruptcy should only be considered as a last resort when other options have been exhausted. Adopting new technology or changing the size of its physical plant may not be feasible options for a firm that is currently operating at a loss.

Question 2

Figure 9-9
  
Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.At price P₃,the firm would produce

Accepted Answer

At price P₃, the marginal cost curve intersects the demand curve. This means that producing Q₃ units would result in the highest profit for the firm. Producing less than Q₃ would mean that the firm is not fully utilizing its production capacity, while producing more than Q₃ would result in higher costs than revenue.

Question 3

If total revenue exceeds fixed cost,a firm

Accepted Answer

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

Question 4

Figure 9-9
  
Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.At price P₂,the firm would produce

Accepted Answer

The answer of Figure 9-9
  
Figure 9-9 shows cost...

Question 5

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

Accepted Answer

Ben's Peanut Shoppe will not choose to shut down if his total revenue exceeds his variable cost. This is because if the total revenue is greater than the variable cost, he is still covering the costs of producing the product in the short-run. However, if the total revenue is less than the variable cost, he is unable to cover the cost of producing the product and will have to shut down in the short-run. Therefore, option B is the best choice.

Question 6

Figure 9-9
  
Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.Identify the short-run shut down point for the firm.

Accepted Answer

The answer of Figure 9-9
  
Figure 9-9 shows cost...

Question 7

Figure 9-9
  
Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.At price P₄,the firm would

Accepted Answer

The answer of Figure 9-9
  
Figure 9-9 shows cost...

Question 8

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

Accepted Answer

If total variable cost exceeds total revenue at all output levels, it means that the firm is not covering its variable costs and is losing money with each unit produced. In the short run, the firm should shut down and minimize its losses by avoiding variable costs. This is because continuing to produce in the short run would only increase losses, while shutting down would allow the firm to avoid variable costs and wait for better market conditions to resume production in the long run.

Question 9

Market supply is found by

Accepted Answer

The answer of Market supply is found by
...

Question 10

Figure 9-9
  
Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.Identify the firm's short-run supply curve.

Accepted Answer

The answer of Figure 9-9
  
Figure 9-9 shows cost...

Question 11

If a firm shuts down in the short run it will

Accepted Answer

In the short run, the firm cannot recover its fixed costs. If it shuts down, it must still pay its fixed costs but will have no revenue to cover them. Therefore, the firm will suffer a loss equal to its fixed costs if it shuts down in the short run.

Question 12

Ted's Pancake Kitchen suffers a short-run loss.When should Ted decide to shut down rather than continue to produce?

Accepted Answer

In the short-run, when a business suffers a loss, it is optimal to continue production as long as the revenue generated is sufficient to cover the variable costs. The fixed costs cannot be recovered in the short-run and deciding to shut down would result in incurring additional costs. Therefore, the best choice is A - if the revenue is less than the variable costs, it is optimal to shut down in the short-run.

Question 13

How are sunk costs and fixed costs related?

Accepted Answer

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

Question 14

A perfectly competitive firm produces 3,000 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?

Accepted Answer

The answer of A perfectly competitive firm produces 3,000 units...

Question 15

If a firm shuts down it

Accepted Answer

The answer of If a firm shuts down it
...

Question 16

Figure 9-9
  
Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.At price P₄,the firm would produce

Accepted Answer

At price P₃, the demand curve intersects the marginal cost curve at point E. The corresponding quantity produced is Q₃. Any other quantity produced, such as Q₂, would result in a lower profit because the marginal cost would exceed the marginal revenue. Similarly, producing Q₄ or Q₅ would result in lower profits because the marginal revenue would be less than the marginal cost. Therefore, the profit-maximizing quantity is Q₃.

Question 17

Figure 9-9
  
Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.At price P₃,the firm would

Accepted Answer

At price P₂, the firm's marginal revenue (MR) equals its marginal cost (MC), which is lower than the average total cost (ATC) at that output level. Therefore, the firm is not covering all its costs, but it is still earning a contribution to its fixed costs. The firm would make a loss equal to the difference between price and ATC multiplied by the quantity produced. Thus, the firm would lose less than its fixed cost but still incur an economic loss.

Question 18

Figure 9-9
  
Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.At price P₂,the firm would

Accepted Answer

At price P₂, the firm's marginal revenue (MR) equals its marginal cost (MC), which is lower than the average total cost (ATC) at that output level. Therefore, the firm is not covering all its costs, but it is still earning a contribution to its fixed costs. The firm would make a loss equal to the difference between price and ATC multiplied by the quantity produced. Thus, the firm would lose less than its fixed cost but still incur an economic loss.

Question 19

Figure 9-9
  
Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.At price P₁,the firm would

Accepted Answer

At price P₂, the firm's marginal revenue (MR) equals its marginal cost (MC), which is lower than the average total cost (ATC) at that output level. Therefore, the firm is not covering all its costs, but it is still earning a contribution to its fixed costs. The firm would make a loss equal to the difference between price and ATC multiplied by the quantity produced. Thus, the firm would lose less than its fixed cost but still incur an economic loss.

Question 20

If a firm shuts down in the short run

Accepted Answer

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

Quiz 9: Firms in Perfectly Competitive Markets

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

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₃,the firm would produce

If total revenue exceeds fixed cost,a firm

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₂,the firm would produce

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

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.Identify the short-run shut down point for the firm.

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₄,the firm would

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

Market supply is found by

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.Identify the firm's short-run supply curve.

If a firm shuts down in the short run it will

Ted's Pancake Kitchen suffers a short-run loss.When should Ted decide to shut down rather than continue to produce?

How are sunk costs and fixed costs related?

A perfectly competitive firm produces 3,000 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?

If a firm shuts down it

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₄,the firm would produce

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₃,the firm would

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₂,the firm would

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₁,the firm would

If a firm shuts down in the short run