Q: Refer to the first cost curve graph (with P = MR = MC = 25 and ATC = 15 at Q = 50). What is the firm's profit at the equilibrium quantity?

$$Profit = (P - ATC) \times Q = (25 - 15) \times 50 = 500$$

Q: In the second cost curve graph (with P = MR = MC = 10 and ATC = 12 at Q = 200), what does the shaded area labeled 'Loss' represent?

$$Loss = (ATC - P) \times Q = (12 - 10) \times 200 = 400$$

Q: A firm’s short-run cost is given by $$TC = FC + VC. If $$fixed costs are $$100$$ and variable costs are $$5Q$$, what is the total cost when $$Q = 20$$?

$$TC = 100 + 5 \times 20 = 200$$

Question 1

Refer to the first cost curve graph (with P = MR = MC = 25 and ATC = 15 at Q = 50). What is the firm's profit at the equilibrium quantity?

Accepted Answer

$$Profit = (P - ATC) 	imes Q = (25 - 15) 	imes 50 = 500$$

Question 2

In the second cost curve graph (with P = MR = MC = 10 and ATC = 12 at Q = 200), what does the shaded area labeled 'Loss' represent?

Accepted Answer

$$Loss = (ATC - P) 	imes Q = (12 - 10) 	imes 200 = 400$$

Question 3

Which of the following best describes the invisible hand in a perfectly competitive market?

Accepted Answer

Self-interested individuals, acting without external guidance, maximize total social surplus at equilibrium.

Question 4

Suppose the government imposes a price ceiling below the equilibrium price in the sanitizer market (see the last graph). What is the most likely outcome?

Accepted Answer

A shortage, as quantity demanded exceeds quantity supplied at the price ceiling.

Question 5

If a firm in a perfectly competitive market is producing where $$P = MC = MR$$ but $$P \u003c ATC$$, what should the firm expect in the long run?

Accepted Answer

Firms will exit the market, causing supply to decrease and price to rise until $$P = min\ ATC.$$

Question 6

Which area in the standard supply and demand graph (with areas A and B) represents consumer surplus at equilibrium?

Accepted Answer

Area A

Question 7

If the price of one good increases, what will a rational consumer do according to the buyers’ equilibrium condition?

Accepted Answer

Reallocate spending to equalize marginal utility per dollar across goods.

Question 8

In the context of the invisible hand across industries, what happens when firms in an industry are earning positive economic profits?

Accepted Answer

New firms enter, increasing supply and driving price down to $$P = min\ ATC.$$

Question 9

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

Accepted Answer

Firms can influence the market price.

Question 10

Suppose a new virus causes a sudden increase in demand for sanitizer (see the sanitizer market graph). If the government sets a maximum price below the new equilibrium, what is the deadweight loss?

Accepted Answer

The area between the demand and supply curves from the quantity supplied at the price ceiling to the equilibrium quantity.

Question 11

A firm’s short-run cost is given by $$TC = FC + VC. If $$fixed costs are $$100$$ and variable costs are $$5Q$$, what is the total cost when $$Q = 20$$?

Accepted Answer

$$TC = 100 + 5 	imes 20 = 200$$

Question 12

If a firm is producing at a quantity where $$MC \u003c MR$$, what should the firm do to maximize profit?

Accepted Answer

Increase output until $$MC = MR.$$

Question 13

Which of the following best describes deadweight loss?

Accepted Answer

The reduction in social surplus resulting from market intervention.

Question 14

If the market price is set above equilibrium, what will happen in a competitive market?

Accepted Answer

A surplus will occur as quantity supplied exceeds quantity demanded.

Question 15

Which equation represents the buyers’ equilibrium condition for two goods, $$X$$ and $$Y$$?

Accepted Answer

$$\frac{MU_X}{P_X} = \frac{MU_Y}{P_Y}$$

Question 16

In the long run, what is the equilibrium condition for a perfectly competitive firm?

Accepted Answer

$$P = min\ ATC$$

Question 17

If a government sets a price floor above equilibrium, which area on a supply and demand graph represents the deadweight loss?

Accepted Answer

The area between the supply and demand curves from the equilibrium quantity to the quantity sold at the price floor.

Question 18

Which of the following is true about producer surplus?

Accepted Answer

It is the area above the supply curve and below the market price.

Question 19

A firm faces $$P = MR = 20$$, $$MC = 20$$, and $$ATC = 18 at $$its profit-maximizing output. What is the firm's profit per unit?

Accepted Answer

$$Profit\ per\ unit = P - ATC = 20 - 18 = 2$$

Microeconomics: The Invisible Hand, Market Equilibrium, and Surplus

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