Figure 12-5
Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
22) Refer to Figure 12-5. What is the minimum price the firm requires to produce output?
A) $20
B) $14
C) $5
D) It cannot be determined
23) Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm’s profit?
A) P – ATC
B) (P × Q) – TC
C) (P × Q) – (P × ATC)
D) P – TC
24) Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm’s average profit?
A) P – ATC
B) (P – ATC) × Q
C) (P × Q) – TC
D) P – TC
25) If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit, then
A) marginal revenue is less than price.
B) average total cost is at a minimum.
C) total revenue equals total cost.
D) price exceeds average total cost.
26) What is always true at the quantity where a firm’s average total cost equals average revenue?
A) The firm’s revenue is maximized.
B) The firm’s profit is maximized.
C) The firm breaks even.
D) Marginal cost equals marginal revenue.
27) Profit is the difference between
A) marginal revenue and marginal cost.
B) total revenue and variable cost.
C) total revenue and total explicit cost.
D) total revenue and total cost.
Table 12-3
Quantity
Total Cost
Average Total Cost
Marginal Cost
0
$10.00
—–
—–
1
15.00
$15.00
$5.00
2
17.50
8.75
2.50
3
22.50
7.50
5.00
4
30.00
7.50
7.50
5
40.00
8.00
10.00
6
52.50
8.75
12.50
7
67.50
9.64
15.00
8
85.00
10.63
17.50
9
105.00
11.67
20.00
Arnie sells basketballs in a perfectly competitive market. Table 12-3 summarizes Arnie’s output per day (Q), total cost (TC), average total cost (ATC) and marginal cost (MC).
28) Refer to Table 12-3. What price (P) will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?
A) Price and profit cannot be determined from the information given.
B) P = $12.50; profit = $52.50
C) P = $12.50; profit = $22.50
D) P = $20; profit = $75.00.
29) Refer to Table 12-3. What will Arnie’s output be and how much profit will he earn if the market price of basketballs is $5.00?
A) Q = 1; profit = -$10.
B) Q = 3; profit = -$7.50
C) Q = 0; profit = -$10.00
D) Price and profit cannot be determined from the information given.
30) A firm will break even when
A) P = ATC.
B) P > ATC.
C) P < AVC. D) P = AVC. 31) A firm will make a profit when A) P > AVC.
B) P > ATC.
C) P = ATC.
D) P = MC.
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