Q: Which formula correctly expresses profit for a perfectly competitive firm?

$$ \text{Profit} = (\text{Price} - \text{ATC}) \times \text{Quantity} $$

Question 1

In a perfectly competitive market, which of the following is NOT a characteristic of the market structure?

Accepted Answer

Products are differentiated by branding and quality.

Question 2

Suppose the market price for wheat is $$14 per bushel. A farmer's marginal cost (MC) of producing the 5th bushel is 13$$, and the MC of the 6th bushel is $15. What is the profit-maximizing quantity for the farmer to produce?

Accepted Answer

Produce 5 bushels, since MC equals price at the 5th unit.

Question 3

Which formula correctly expresses profit for a perfectly competitive firm?

Accepted Answer

$$ 	ext{Profit} = (	ext{Price} - 	ext{ATC}) 	imes 	ext{Quantity} $$

Question 4

A firm in a perfectly competitive market will shut down in the short run if:

Accepted Answer

Price is less than average variable cost at all output levels.

Question 5

If the market price is above a perfectly competitive firm's average total cost (ATC), what is the firm's economic profit?

Accepted Answer

Positive

Question 6

In the long run, entry and exit of firms in a perfectly competitive market will drive economic profit to:

Accepted Answer

Zero

Question 7

Which of the following best describes the marginal revenue (MR) curve for a perfectly competitive firm?

Accepted Answer

It is horizontal at the market price.

Question 8

A firm’s short-run supply curve in perfect competition is the portion of its marginal cost (MC) curve that lies:

Accepted Answer

Above the average variable cost (AVC) curve

Question 9

If a shift in demand causes the equilibrium price to rise in a perfectly competitive market, what will happen in the long run?

Accepted Answer

New firms will enter, increasing supply and driving price back to the minimum ATC.

Question 10

Producer surplus is defined as:

Accepted Answer

The area below the market price and above the supply curve.

Question 11

Which of the following conditions must be met for allocative efficiency in a perfectly competitive market?

Accepted Answer

$$ MB = MC $$

Question 12

Suppose a firm’s total revenue (TR) is $$500, total variable cost (TVC) is 400$$, and total fixed cost (TFC) is $150. Should the firm produce in the short run?

Accepted Answer

Yes, because TR \u003e TVC

Question 13

If the price of a good is equal to the minimum point of the average total cost (ATC) curve in the long run, what is the firm’s profit?

Accepted Answer

Zero economic profit

Question 14

A perfectly competitive firm is producing at a level where $$ MC \u003e MR . $$What should the firm do to maximize profit?

Accepted Answer

Decrease output

Question 15

Which of the following best describes productive efficiency in the long run for a perfectly competitive market?

Accepted Answer

Firms produce at the lowest possible average total cost.

Question 16

If a new study shows that eating garlic keeps vampires away, causing a surge in demand for garlic, what will happen in the short run and long run in a perfectly competitive garlic market?

Accepted Answer

Short run: price and profit rise; long run: new firms enter, supply increases, and profit returns to zero.

Question 17

Which equation correctly expresses marginal revenue (MR) for a perfectly competitive firm?

Accepted Answer

$$ MR = \frac{\Delta TR}{\Delta Q} $$

Question 18

If a firm’s average variable cost (AVC) is $$10, average total cost (ATC) is 15$$, and the market price is $12, what should the firm do in the short run?

Accepted Answer

Continue producing, since price covers AVC but not ATC

Question 19

In the short run, if a perfectly competitive firm is producing where $$ P \u003c AVC $$, what is the firm’s best option?

Accepted Answer

Shut down and produce zero output

Profit Maximization and Competitive Supply: Study Notes

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