Question 1

Suppose a firm in perfect competition faces a market price of $$20. Its marginal cost (MC) at various output levels is as follows: 15 at q=3$$, $$20 at q=4, 25 at q=5. $$What is the profit-maximizing output for this firm?

Accepted Answer

q = 4

Question 2

Which of the following statements about Average Fixed Cost (AFC) is correct?

Accepted Answer

AFC declines as output increases.

Question 3

Given Total Fixed Cost (TFC) of $$100 and Total Variable Cost (TVC) of 75 at q = 5$$, what is the Average Total Cost (ATC) at this output level?

Accepted Answer

$35

Question 4

If Marginal Cost (MC) is less than Average Total Cost (ATC) at a given output, what is happening to ATC as output increases?

Accepted Answer

ATC is decreasing.

Question 5

A firm has the following costs at q = 4: TFC = $$10, TVC = 30. $$What is the Average Variable Cost (AVC) at this output?

Accepted Answer

$7.50

Question 6

Which of the following best describes the relationship between Marginal Cost (MC) and Average Variable Cost (AVC)?

Accepted Answer

MC intersects AVC at AVC's minimum point.

Question 7

In the short run, why does Marginal Cost (MC) eventually rise as output increases?

Accepted Answer

Because of diminishing marginal product from fixed inputs.

Question 8

A perfectly competitive firm’s demand curve is:

Accepted Answer

Perfectly elastic at the market price.

Question 9

If a firm’s Total Revenue (TR) is $$60 and its Total Cost (TC) is 40 at a $$certain output, what is its profit?

Accepted Answer

$20

Question 10

Which formula correctly expresses Marginal Cost (MC)?

Accepted Answer

$$MC = \frac{\Delta TC}{\Delta q}$$

Question 11

Suppose a firm’s Total Fixed Cost (TFC) is $50 and it produces 10 units. What is its Average Fixed Cost (AFC)?

Accepted Answer

$$AFC = \frac{50}{10} = 5$$

Question 12

A firm in perfect competition will continue to produce additional units as long as:

Accepted Answer

$$MR \u003e MC$$

Question 13

If Total Variable Cost (TVC) is $108 at q = 8, what is the Average Variable Cost (AVC)?

Accepted Answer

$$AVC = \frac{108}{8} = 13.5$$

Question 14

Which of the following is NOT a characteristic of perfect competition?

Accepted Answer

There are significant barriers to entry.

Question 15

If a firm’s Marginal Cost (MC) is $$12 at q = 4 and the market price is 15$$, what should the firm do to maximize profit?

Accepted Answer

Increase output.

Question 16

Which cost curve is the firm’s short-run supply curve in perfect competition?

Accepted Answer

The Marginal Cost (MC) curve above the minimum AVC.

Question 17

If Total Cost (TC) is $$168.50 at q = 10 and Total Fixed Cost (TFC) is 100$$, what is the Average Total Cost (ATC) at this output?

Accepted Answer

$$ATC = \frac{168.50}{10} = 16.85$$

Question 18

Which of the following best explains why the Average Total Cost (ATC) and Average Variable Cost (AVC) curves get closer as output increases?

Accepted Answer

Because Average Fixed Cost (AFC) decreases.

Question 19

A firm’s Total Revenue (TR) is given by which formula?

Accepted Answer

$$TR = P 	imes q$$

Question 20

If a firm’s Marginal Revenue (MR) is always equal to the market price, what type of market structure is this?

Accepted Answer

Perfect competition

Short-Run Costs and Output Decisions in Perfect Competition

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