Question 1

For a perfectly competitive firm, what is the price elasticity of demand for the firm's product?

Accepted Answer

Perfectly elastic

Question 2

A competitive firm maximizes profit by producing the quantity at which:

Accepted Answer

$$MR = MC$$

Question 3

If the market price is below the minimum of the average variable cost (AVC) curve, what should a competitive firm do in the short run?

Accepted Answer

Shut down production

Question 4

Which of the following best describes economic profit?

Accepted Answer

$$Economic\ profit = TR - (Explicit\ costs + Implicit\ costs)$$

Question 5

Suppose Jake’s Yumburger stall has total revenue of $$130,000, explicit costs of 80$$,000, and an implicit cost (foregone salary) of $40,000. What is Jake’s economic profit?

Accepted Answer

$$130,000 - (80,000 + 40,000) = 10,000$$

Question 6

In the short run, a competitive firm will continue to produce as long as:

Accepted Answer

$$P \geq AVC$$

Question 7

Which area on a cost curve graph represents the producer’s surplus (rent) for a competitive firm?

Accepted Answer

The area between the price line and the AVC curve, up to the quantity produced

Question 8

If a competitive firm is producing at a quantity where $$P = ATC$$, what is its profit?

Accepted Answer

Zero economic profit

Question 9

Why does the market supply curve slope upward in the short run for a competitive industry?

Accepted Answer

Because each firm’s marginal cost curve is upward-sloping above AVC

Question 10

In long-run equilibrium in a perfectly competitive market with identical firms and no sunk costs, what is true about price, marginal cost, and average cost?

Accepted Answer

$$P = MC = minAC$$

Question 11

A firm’s supply curve in the short run is:

Accepted Answer

The portion of the MC curve above the minimum AVC

Question 12

If a firm is earning zero economic profit, what does this imply about its accounting profit?

Accepted Answer

Accounting profit is equal to implicit costs

Question 13

Suppose the market price falls below a firm’s average total cost but remains above its average variable cost. What should the firm do in the short run?

Accepted Answer

Continue producing to minimize losses

Question 14

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

Accepted Answer

The firm can influence the market price

Question 15

If a firm’s total revenue is $$50,000, total variable cost is 30$$,000, and total fixed cost is $25,000, what is the firm’s profit?

Accepted Answer

$$50,000 - (30,000 + 25,000) = -5,000$$

Question 16

In the context of market supply, what is the difference between intensive and extensive margin adjustments?

Accepted Answer

Intensive margin: existing firms produce more; Extensive margin: new firms enter the market

Question 17

Which of the following best explains why a firm may continue to operate in the short run even if it is making a loss?

Accepted Answer

Because it can cover its variable costs and contribute to fixed costs

Question 18

If the market price is equal to the minimum average total cost, what is the profit of the marginal firm in the long-run equilibrium?

Accepted Answer

Zero profit and zero rent

Question 19

Which of the following is true about producer surplus (rent) in long-run equilibrium for intra-marginal firms?

Accepted Answer

They earn zero profit but positive rent

Question 20

A competitive firm’s average revenue (AR) is always equal to:

Accepted Answer

Market price ($$P)$$

The Competitive Firm and Market Supply Curves: Microeconomics Study Notes

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