Q: Suppose a firm in a perfectly competitive market has $$P = 10$$, $$ATC = 8$$, and produces $$q = 50$$ units. What is the firm's profit?

$$\Pi = q(P - ATC) = 50 \times (10 - 8) = 100$$

Question 1

Which of the following best describes the condition for a perfectly competitive firm to maximize its profit in the short run?

Accepted Answer

Produce where $$P = MC$$ and $$P \geq AVC$$

Question 2

A firm faces the following total cost function: $$TC = 80 + 4q. $$What is the fixed cost (FC) and variable cost (VC) for this firm?

Accepted Answer

$$FC = 80$$, $$VC = 4q$$

Question 3

Suppose a firm in a perfectly competitive market has $$P = 10$$, $$ATC = 8$$, and produces $$q = 50$$ units. What is the firm's profit?

Accepted Answer

$$\Pi = q(P - ATC) = 50 	imes (10 - 8) = 100$$

Question 4

If the marginal cost (MC) of producing the 10th unit is $$5$$, and the market price is $$7$$, what should a profit-maximizing firm do?

Accepted Answer

Produce more than 10 units, since $$P \u003e MC$$

Question 5

Which of the following statements about sunk costs is correct?

Accepted Answer

Sunk costs should not affect current production decisions because they cannot be recovered.

Question 6

A firm’s short-run supply curve is best described as:

Accepted Answer

The portion of the marginal cost (MC) curve above the minimum average variable cost (AVC).

Question 7

If a firm’s total cost function is $$TC = 100 + 2q^2$, what is the average total cost (ATC) function?

Accepted Answer

$$ATC = \frac{100}{q} + 2q$$

Question 8

In the long run, if firms in a perfectly competitive market are earning positive economic profits, what will happen?

Accepted Answer

New firms will enter the market, increasing supply and driving economic profits to zero.

Question 9

Which of the following best describes economies of scale?

Accepted Answer

Average total cost decreases as output increases.

Question 10

A firm’s marginal product of labor (MPL) increases as more workers are hired due to:

Accepted Answer

Specialization of labor.

Question 11

Suppose the price elasticity of supply for a good is $$\epsilon = 0.5. If $$the price increases by 10%, what is the expected percentage change in quantity supplied?

Accepted Answer

5% increase

Question 12

Which of the following is true at the minimum point of the average total cost (ATC) curve?

Accepted Answer

$$MC = ATC$$

Question 13

A firm is considering shutting down in the short run. Which condition must be true for shutdown to be optimal?

Accepted Answer

$$P \u003c AVC$$

Question 14

If a firm’s opportunity cost of running a business is $$50,000$$, its accounting profit is $$80,000$$, and its total revenue is $$200,000$$, what is its economic profit?

Accepted Answer

$$30,000$$

Question 15

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

Accepted Answer

Firms can influence the market price.

Question 16

Producer surplus is best described as:

Accepted Answer

The difference between the price received and the minimum willingness to accept.

Question 17

If the market price is $$P = 50$$ and the minimum willingness to accept for the 25th unit is $$25$$, what is the producer surplus for that unit?

Accepted Answer

$$25$$

Question 18

In the long-run equilibrium of a perfectly competitive market, what is true about economic profit?

Accepted Answer

All firms earn zero economic profit.

Question 19

A firm’s long-run supply curve is:

Accepted Answer

The portion of the marginal cost (MC) curve above the minimum point of the long-run average total cost (ATC) curve.

Question 20

If a firm’s marginal cost (MC) is increasing and is above average total cost (ATC), what is happening to ATC?

Accepted Answer

ATC is increasing.

Sellers and Incentives: The Firm's Production Decisions, Costs, and Market Dynamics

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