Chapter 11: MANAGERIAL DECISIONS IN COMPETITIVE MARKETS

Multiple Choice

11-1 Which of the following is NOT a condition of a perfect competition:

a. products produced by rival firms are perfect substitutes

b. a single firm cannot affect market supply

c. unrestricted entry and exit

d. industry sales are small

e. each firm has complete knowledge about production and prices

Difficulty: 01 Easy

Topic: Characteristics of Perfect Competition

AACSB: Reflective Thinking

Blooms: Remember

Learning Objective: 11-01

11-2 In a perfectly competitive market

a. a firm must lower price to attract more customers.

b. the additional revenue from selling one more unit of output is less than price.

c. demand facing the industry is perfectly elastic.

d. all of the above

e. none of the above

Difficulty: 01 Easy

Topic: Characteristics of Perfect Competition

AACSB: Reflective Thinking

Blooms: Remember

Learning Objective: 11-01

11-3 For a price-taking firm, marginal revenue

a. is the addition to total revenue from producing one more unit of output.

b. decreases as the firm produces more output.

c. is equal to price at any level of output.

d. both a and b

e. both a and c

Difficulty: 01 Easy

Topic: Demand Facing a Price-Taking Firm

AACSB: Reflective Thinking

Blooms: Remember

Learning Objective: 11-02

11-4 The total cost schedule for a competitive firm is given by:

If market price is $60, how many units of output will the firm produce?

a. Zero units of output because the firm shuts down.

b. 1 unit of output.

c. 2 units of output.

d. 3 units of output.

e. none of the above.

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-5 Total cost schedule for a competitive firm:

If market price is $60, what is the maximum profit the firm can earn?

a. −$10

b. Zero profit, the firm shuts down

c. $75

d. $80

e. $85

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-6 Total cost schedule for a competitive firm:

If market price is $30, how many units of output will the firm produce?

a. 0, the firm shuts down

b. 1

c. 2

d. 3

e. 4

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-7 In a perfectly competitive industry the market price is $25. A firm is currently producing 10,000 units of output; average total cost is $28, marginal cost is $20, and average variable cost is $20. The firm should

a. raise price because the firm is losing money.

b. keep output the same because the firm is producing at minimum average variable cost.

c. produce more because the next unit of output increases profit by $5.

d. produce less because the next unit of output decreased profit by $3.

e. shut down because the firm is losing money.

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-8 Below, the graph on the left shows the short-run marginal cost curve for a typical firm selling in a perfectly competitive industry. The graph on the right shows current industry demand and supply.

If the firm’s demand and marginal revenue curves were drawn in the left-hand graph, what would be the elasticity of demand?

a. zero

b. −6

c. −0.6

d. infinitely elastic

e. unitary

Difficulty: 01 Easy

Topic: Demand Facing a Price-Taking Firm

AACSB: Reflective Thinking

Blooms: Remember

Learning Objective: 11-02

11-9 The graph on the left shows the short-run marginal cost curve for a typical firm selling in a perfectly competitive industry. The graph on the right shows current industry demand and supply.

What is the marginal revenue for the FIRM from selling the 250th unit of output?

a. $10

b. $8

c. $6

d. $4

e. zero

Difficulty: 01 Easy

Topic: Demand Facing a Price-Taking Firm

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-02

11-10 The graph below on the left shows the short-run marginal cost curve for a typical firm selling in a perfectly competitive industry. The graph on the right shows current industry demand and supply.

What output should the firm produce?

a. 200

b. 250

c. 150

d. 300

Difficulty: 01 Easy

Topic: Demand Facing a Price-Taking Firm

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-02

11-11 The graph below shows demand and marginal cost for a perfectly competitive firm. If the firm is producing 100 units of output, increasing output by one unit would ______ the firm’s profit by $______.

a. increase, $3

b. increase, $2

c. decrease, $1

d. increase, $1

e. decrease, $2

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-12 The graph below shows demand and marginal cost for a perfectly competitive firm. If the firm is producing 300 units of output, decreasing output by one unit would ______ the firm’s profit by $______.

a. decrease, $2

b. increase, $2

c. increase, $3

d. decrease, $5

e. increase, $5

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-13 In order to minimize losses in the short run, a perfectly competitive firm should shut down if

a. total revenue is less than total cost.

b. total revenue is less than total fixed cost.

c. total revenue is less than total variable cost.

d. total revenue is less than the difference between total fixed cost and total variable cost.

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-03

11-14 Below, the graph on the left shows the short−run cost curves for a firm in a perfectly competitive market, and the graph on the right shows the current market conditions in this industry. In order to maximize profit, how much output should the firm produce?

a. 20 units

b. 40 units

c. 50 units

d. 60 units

e. 80 units

Difficulty: 02 Medium

Topic: Demand Facing a Price-Taking Firm

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-02

11-15 Below, the graph on the left shows the short−run cost curves for a firm in a perfectly competitive market, and the graph on the right shows the current market conditions in this industry. What is the maximum amount of profit the firm can earn?

a. $ 50

b. $ 40

c. $ 80

d. $150

Difficulty: 03 Hard

Topic: Profit Maximization in the Short-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-16 Below, the graph on the left shows the short−run cost curves for a firm in a perfectly competitive market, and the graph on the right shows the current market conditions in this industry. What do you expect to happen in the long-run?

a. Market supply will decrease.

b. Market price will decrease.

c. The firm's profit will decrease.

d. both b and c

e. all of the above

Difficulty: 01 Easy

Topic: Characteristics of Perfect Competition

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-01

11-17 Which of the following is NOT a characteristic of long-run equilibrium for a perfectly competitive firm?

a. Price is greater than long-run average cost.

b. Price is equal to long-run marginal cost.

c. Economic profit is zero.

d. The firm produces the output level at which long-run average cost is at its minimum.

Difficulty: 01 Easy

Topic: Characteristics of Perfect Competition

AACSB: Reflective Thinking

Blooms: Remember

Learning Objective: 11-01

11-18 When total fixed costs increase,

a. the profit-maximizing level of output falls.

b. the firm may be forced to shut down if total fixed costs get too high.

c. economic profit decreases.

d. both a and b

e. both b and c

Difficulty: 02 Medium

Topic: Fixed costs

Topic: Profit Maximization in the Short-Run

Blooms: Understand

Learning Objective: 11-03

11-19 A competitive firm will maximize profit by producing the level of output at which

a. the last unit of output produced adds the same amount to total revenue as to total cost.

b. the additional revenue from the last unit of output produced exceeds the additional cost of the last unit by the largest amount.

c. the firm's total revenue exceeds total cost by the largest amount.

d. both a and b

e. both a and c

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-03

11-20 Firm A and firm B both have total revenues of $200,000 and total costs of $250,000; firm A has total fixed costs of $40,000, while firm B has total fixed costs of $70,000. Which of the following statements are true in the short run?

1. Firm A should operate.

b. Firm B should operate.

c. Firm A should shut down.

d. Firm B should shut down.

e. both b and c

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-21 When a perfect competitive industry is in long-run equilibrium,

a firms have no incentive to enter or exit the industry.

b. market price is equal to minimum long−run average cost.

c. each firm earns a normal rate of return.

d. each firm earns a normal profit.

e. all of the above

Difficulty: 02 Medium

Topic: Profit Maximization in the Long Run

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-04

11-22 Which of the following is NOT a characteristic of an increasing cost competitive industry? As the industry expands output in the long run,

a. the equilibrium price of product remains constant in the long run.

b. the prices of some inputs rise.

c. the long-run average cost of production increases at every level of output.

d. the number of firms increase.

e. none of the above

Difficulty: 01 Easy

Topic: Profit Maximization in the Long Run

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-04

11-23 Which of the following is NOT a characteristic of a constant cost competitive industry? As the industry expands output in the long run,

a. the equilibrium price of the product remains constant in the long run.

b. input prices remain constant.

c. the cost of production remains constant.

d. the number of firms remain constant.

e. none of the above

Difficulty: 01 Easy

Topic: Profit Maximization in the Long Run

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-04

11-24 Firms in a perfectly competitive market made positive economic profits last period. This period,

a. market supply will increase.

b. market price will rise.

c. the firm will produce more.

d. the firm's profits will increase.

Difficulty: 02 Medium

Topic: Profit Maximization in the Long Run

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-04

11-25 Suppose that a perfectly competitive industry is in long-run equilibrium. The price of a complement good decreases. What will happen?

a. Next period a typical firm will increase output.

b. Next period a typical firm will earn positive economic profit.

c. Some firms will be forced to exit the industry.

d. both a and b

e. all of the above will happen

Topic: Profit Maximization in the Long Run

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-04

11-26 The table below shows a competitive firm's short-run production function. Labor is the firm's only variable input, and market price for the firm's product is $2 per unit.

How much does the fifth unit of labor add to the firm's total revenue?

a. $160

b. $80

c. $60

d. $40

e. $10

Difficulty: 02 Medium

Topic: Profit-Maximizing Input Usage

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-05

11-27 The table below shows a competitive firm's short-run production function. Labor is the firm's only variable input, and market price for the firm's product is $2 per unit.

If the wage rate is $200, how many units of labor will the firm employ?

a. 3

b. 4

c. 5

d. 6

e. 0, the firm shuts down

Difficulty: 02 Medium

Topic: Profit-Maximizing Input Usage

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-05

11-28 The table below shows a competitive firm's short-run production function. Labor is the firm's only variable input, and market price for the firm's product is $2 per unit.

If the wage rate is $200, the firm should

a. shut down because average revenue product is $200, which is less than marginal revenue product.

b. shut down because average revenue product is $228, which is greater than the wage rate.

c. produce because average revenue product is $200, which is less than marginal revenue product.

d. produce because average revenue product is $245, which is greater than the wage rate.

Difficulty: 02 Medium

Topic: Profit-Maximizing Input Usage

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-05

11-29 The table below shows a competitive firm's short-run production function. Labor is the firm's only variable input, and market price for the firm's product is $2 per unit.

If market price for the firm's product increases to $5, how many units of labor will the firm employ at a wage rate of $200?

a. 0, the firm shuts down

b. 4

c. 5

d. 6

e. 7

Difficulty: 02 Medium

Topic: Profit-Maximizing Input Usage

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-05

11-30 A competitive firm will maximize profit by hiring the amount of an input at which

a. the last unit of the input hired adds the same amount to total revenue as to total cost.

b. the additional revenue from the last unit of the input hired exceeds the additional cost of the last unit by the largest amount.

c. the last unit of the input hired adds the same amount to total output as to total cost.

d. the additional output from the last unit of the input hired exceeds the additional cost of the last unit by the largest amount.

Difficulty: 02 Medium

Topic: Profit-Maximizing Input Usage

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-05

11-31 A firm in a competitive industry faces a market price for output of $25 and a wage rate of $750. At the current level of employment (50 units of labor), the marginal product of labor is 20. In order to maximize profit, the firm should

a. hire less labor because the firm is suffering a loss of $12,500.

b. hire less labor because hiring the last unit of labor decreased profit by 250.

c. hire more labor because hiring another unit of labor would increase profit by $500.

d. keep the level of employment the same because the firm is earning a profit of $500.

Difficulty: 02 Medium

Topic: Profit-Maximizing Input Usage

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-05

11-32

The graph above shows cost curves for a perfectly competitive firm. If market price is $5, how much output will the firm produce?

a. 0 units

1. 200 units.
2. 500 units.
3. 600 units

Difficulty: 02 Medium

Topic: Profit-Maximization in the Short Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-33

The graph above shows cost curves for a perfectly competitive firm. If market price is $5, how much profit will the firm earn?

a $600

b. $900

c. $3,000

d. −$600

Difficulty: 02 Medium

Topic: Profit-Maximization in the Short Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-34

The graph above shows cost curves for a perfectly competitive firm. If market price is $3, how much profit will the firm earn?

a. $200

b. −$200

c. $400

d. −$400

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-35

The graph above shows cost curves for a perfectly competitive firm. If market price is $2, how much profit will the firm earn?

a. $600

b. −$600

c. zero

d. $400

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-36

The graph above shows cost curves for a perfectly competitive firm. The firm will break even if price is:

a. $2

b. $3.90

c. $5

d. $6

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-37 Which of the following CANNOT be true at any output along a perfectly competitive firm's short-run supply curve?

a. Average total cost is greater than marginal cost.

b. Marginal cost is greater than average total cost.

c. Average variable cost is greater than marginal cost.

d. Marginal cost is greater than average variable cost.

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-03

11-38 In a perfectly competitive market,

a. a firm can attract more customers by lowering its price.

b. a firm can sell as much as it wants at the existing market price.

c. the additional revenue from selling one more unit of output is less than the market price.

d. both a and c

e. both b and c

Difficulty: 01 Easy

Topic: Characteristics of Perfect Competition

AACSB: Reflective Thinking

Blooms: Remember

Learning Objective: 11-01

11-39 To answer the question, refer to the following figure, showing the marginal revenue product (MRP) and the average revenue product (ARP) curves of a perfectly competitive firm hiring a single variable input, labor.

If the wage is $20, how many workers will the firm hire?

a. 225

b. 175

c. 200

d. zero

Difficulty: 01 Easy

Topic: Profit-Maximizing Input Usage

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-05

11-40 To answer the question, refer to the following figure, showing the marginal revenue product (MRP) and the average revenue product (ARP) curves of a perfectly competitive firm hiring a single variable input, labor.

If the wage is $15, how many workers will the firm hire?

a. 250

b. zero

c. 100

d. 200

Difficulty: 01 Easy

Topic: Profit-Maximizing Input Usage

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-05

11-41 To answer the question, refer to the following figure, showing the marginal revenue product (MRP) and the average revenue product (ARP) curves of a perfectly competitive firm hiring a single variable input, labor.

If the wage is above $______, the firm will shut down and hire zero workers in the short run.

a. $41

b. $30

c. $34

d. $32

Difficulty: 02 Medium

Topic: Profit-Maximizing Input Usage

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-05

11-42 Economic rent

a. is the payment to a more productive resource above its opportunity cost.

b. cannot be earned in long-run competitive equilibrium.

c. is competed away in the long run.

d. both b and c

e. all of the above

Difficulty: 01 Easy

Topic: Profit Maximization in the Long-Run

AACSB: Reflective Thinking

Blooms: Remember

Learning Objective: 11-04

11-43 In long-run competitive equilibrium it is possible for firm owners to

a. earn economic profit but not rent.

b. earn rent but not economic profit.

c. earn both economic profit and rent.

d. both b and c

e. either a, b, or c

Difficulty: 02 Medium

Topic: Profit-Maximizing Input Usage

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-05

11-44 In a perfectly competitive market

a. a firm faces a perfectly elastic demand because there is unrestricted entry and exit.

b. if a firm raises its price, it will lose some, but not all, of its customers.

c. when a firm sells another unit of output, the addition to total revenue is equal to market price.

d. all of the above

e. none of the above

Difficulty: 01 Easy

Topic: Demand Facing a Price-Taking Firm

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-02

11-45

The figure above shows cost curves for a perfectly competitive firm. Suppose that market price is $2.60. A firm producing 800 units of output

a. is earning the maximum amount of profit, $880.

b. is earning the maximum amount of profit, $2,080.

c. should produce 500 units of output instead, to earn profits of $500.

d. should produce 1100 units of output instead, to earn profits of $1,100.

e. should shut down

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-46

The figure above shows cost curves for a perfectly competitive firm. A profit-maximizing firm will break even when market price is:

a. $0.60

b. $0.80

c. $1.50

d. $1.60

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-47

The figure above shows cost curves for a perfectly competitive firm. If market price is $0.70, a profit-maximizing firm will produce _____ units of output and earn profits of _____.

a. 500, −$450

b. 500, −$50

c. zero, −$450

d. zero, −$400

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-48 In a competitive industry the market-determined price is $12. A firm is currently producing 50 units of output; average total cost is $10, marginal cost is $15, and average variable cost is $7. In order to maximize profit, the firm should:

a. produce more because the firm is earning a profit of $100.

b. keep output the same because the firm is earning a profit of $100.

c. produce more because the next unit of output increases profit by $2.

d. produce less because the last unit of output decreased profit by $3.

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-03

11-49 Consider the short-run supply curve for a perfectly competitive industry. In general, which of the following statements are true?

a. The short-run industry supply is obtained by horizontally summing the supply curves of all the individual firms in the industry.

b. The industry supply curve tends to be flatter (more elastic) than the horizontal sum of all the industrial firms' supply curves.

c. Short-run supply for a perfectly competitive industry is flat for constant cost industries.

d. both a and b

e. a, b and c are true in general

Difficulty: 02 Medium

Topic: Profit Maximization in the Long-Run

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-04

11-50 In a competitive market characterized by increasing costs, the long-run industry supply curve

a. gives the minimum long-run average cost of production at various levels of industry output.

b. gives the long-run marginal cost of production at various levels of industry output.

c. is upward sloping.

d. both a and b

e. a, b, and c

Difficulty: 02 Medium

Topic: Profit Maximization in the Long-Run

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-04

11-51 Firms that employ exceptionally productive resources

a. have lower costs than other firms in the industry and are able to earn positive economic profit in the long run.

b. earn zero economic profit.

c. will typically have to pay the exceptional resource economic rent equal to the reduction in cost due to employing the exceptionally productive resource.

d. both a and b

e. both b and c

Difficulty: 02 Medium

Topic: Profit Maximization in the Long-Run

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-04

11-52 Suits Only, a dry-cleaning firm that specializes in cleaning business suits, operates in a perfectly competitive market. Robin Smith, an exceptionally talented manager, has been hired to manage Suits Only. In the dry-cleaning business, a manager typically makes a salary of $400 per week. Suits Only faces the long-run average and marginal costs shown in the figure below. In long-run competitive equilibrium, the market price for cleaning a business suit is $4.50.

Given the above, the typical dry-cleaning firm has a minimum long-run average cost of cleaning a business suit equal to $________ and the typical dry-cleaning firm earns economic profit equal to $______.

a. $4.50, $0

b. $2, $2.50 per suit cleaned

c. $3, $1.50 per suit cleaned

d. $2, $0

Difficulty: 02 Medium

Topic: Profit Maximization in the Long-Run

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-04

11-53 Suits Only, a dry-cleaning firm that specializes in cleaning business suits, operates in a perfectly competitive market. Robin Smith, an exceptionally talented manager, has been hired to manage Suits Only. In the dry-cleaning business, a manager typically makes a salary of $400 per week. Suits Only faces the long-run average and marginal costs shown in the figure below. In long-run competitive equilibrium, the market price for cleaning a business suit is $4.50.

Given the above, Robin Smith is probably going to negotiate a salary of $______ per week, $______ of which is economic rent.

a. $400, $0

b. $475, $75

c. $500, $100

d. $500, $500

Difficulty: 02 Medium

Topic: Profit Maximization in the Long-Run

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-04

11-54 Suits Only, a dry-cleaning firm that specializes in cleaning business suits, operates in a perfectly competitive market. Robin Smith, an exceptionally talented manager, has been hired to manage Suits Only. In the dry-cleaning business, a manager typically makes a salary of $400 per week. Suits Only faces the long-run average and marginal costs shown in the figure below. In long-run competitive equilibrium, the market price for cleaning a business suit is $4.50.

Given the above, if Robin Smith buys Suits Only and continues to manage it herself, she will

a. earn zero economic profit.

b. earn $75 in economic rent per week.

c. earn $75 in economic profit each week.

d. both a and b.

Difficulty: 02 Medium

Topic: Profit Maximization in the Long-Run

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-04

11-55 The short-run market supply in a perfectly competitive market is the horizontal summation of the firms' marginal cost curves when

a. increases in industry output do not affect input prices.

b. increases in industry output lead to increases in input prices.

c. increases in industry output lead to increases in market price.

d. increases in industry output do not affect market price.

Difficulty: 02 Medium

Topic: Profit Maximization in the Short-Run

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-03

11-56 Below, the graph on the left shows long-run average and marginal cost for a typical firm in a perfectly competitive industry. The graph on the right shows demand and long-run supply for an increasing-cost industry.

What output will the firm produce?

a. 250

b. 300

c. 350

d. 400

Difficulty: 01 Easy

Topic: Profit Maximization in the Long-Run

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 11-04

11-57 Below, the graph on the left shows long-run average and marginal cost for a typical firm in a perfectly competitive industry. The graph on the right shows demand and long-run supply for an increasing-cost industry.

How much profit will the firm earn?

a. zero

b. $2,600

c. $3,100

d. $3,750

e. $6,000

Difficulty: 02 Medium

Topic: Profit Maximization in the Long-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-04

11-58 Below, the graph on the left shows long-run average and marginal cost for a typical firm in a perfectly competitive industry. The graph on the right shows demand and long-run supply for an increasing-cost industry.

If this were a constant-cost industry, what would be the price when the industry gets to long-run competitive equilibrium?

a. between $35 and $20

b. $35

c. $20

d. below $20

e. above $35

Difficulty: 02 Medium

Topic: Profit Maximization in the Long-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-04

11-59 Below, the graph on the left shows long-run average and marginal cost for a typical firm in a perfectly competitive industry. The graph on the right shows demand and long-run supply for an increasing-cost industry.

If this were an increasing cost industry, what would be the price when the industry gets to long-run competitive equilibrium?

a. between $35 and $15

b. $35

c. $15

d. below $15

e. above $35

Difficulty: 02 Medium

Topic: Profit Maximization in the Long-Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-04

11-60 A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:

where P is price, M is income, and is the price of a key input. The forecasts for the next year are = $15,000 and = $20. Average variable cost is estimated to be

Total fixed cost will be $6,000 next year. What is the price forecast for next year?

a. $12

b. $20

c. $60

d. $68

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-61 A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:

where P is price, M is income, and is the price of a key input. The forecasts for the next year are = $15,000 and = $20. Average variable cost is estimated to be

Total fixed cost will be $6,000 next year. What is the firm's minimum average variable cost?

a. $ 2

b. $ 6

c. $ 8

d. $20

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-62 A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:

where P is price, M is income, and is the price of a key input. The forecasts for the next year are = $15,000 and = $20. Average variable cost is estimated to be

Total fixed cost will be $6,000 next year. What is the profit-maximizing output choice for the firm?

a. 3,000 units

b. 4,000 units

c. 5,000 units

d. 6,000 units

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-63 A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:

where P is price, M is income, and is the price of a key input. The forecasts for the next year are = $15,000 and = $20. Average variable cost is estimated to be

Total fixed cost will be $6,000 next year. What will the firm's profit (loss) be?

a. $20,000

b. $26,000

c. $30,000

d. $36,000

e. −$6,000, the firm shuts down and loses only its fixed costs.

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-64 A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:

where P is price, M is income, and is the price of a key input. The forecasts for the next year are = $15,000 and = $20. Average variable cost is estimated to be

Total fixed cost will be $6,000 next year. Suppose that income next year is forecasted to be $10,000 instead. What is the revised price forecast for next year?

a. $5.00

b. $7.50

c. $15.75

d. $10.50

e. $12.00

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-65 A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:

where P is price, M is income, and is the price of a key input. The forecasts for the next year are = $15,000 and = $20. Average variable cost is estimated to be

Total fixed cost will be $6,000 next year. Suppose income next year is forecasted to be $10,000 instead. What is the profit-maximizing output choice for the firm?

a. 8,000

b. 5,548

c. 3,480

d. 2,167

e. zero

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-66 A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:

where P is price, M is income, and is the price of a key input. The forecasts for the next year are = $15,000 and = $20. Average variable cost is estimated to be

Total fixed cost will be $6,000 next year. Suppose that income next year is forecasted to be $10,000 instead. What will the firm’s profit (loss) be?

a. zero

b. $2,500

c. −$3,550

1. −$2,856
2. −$6,000

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-67 A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:

where P is price, M is income, and is the price of a key input. The forecasts for the next year are = $15,000 and = $20. Average variable cost is estimated to be

Total fixed cost will be $6,000 next year. Suppose that income for next year is forecasted to be $9,000 instead. What is the revised price forecast for next year?

a. $ 3

b. $ 5

c. $15

d. $18

e. none of the above

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-68 A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:

where P is price, M is income, and is the price of a key input. The forecasts for the next year are = $15,000 and = $20. Average variable cost is estimated to be

Total fixed cost will be $6,000 next year. Suppose that income for next year is forecasted to be $9,000 instead. What is the profit-maximizing output choice for the firm?

a. 1,000 units

b. 1,860 units

c. 2,000 units

d. 2,860 units

e. none of the above

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-69 A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:

where P is price, M is income, and is the price of a key input. The forecasts for the next year are = $15,000 and = $20. Average variable cost is estimated to be

Total fixed cost will be $6,000 next year. Suppose that income for next year is forecasted to be $9,000 instead. What will the firm's profit (loss) be?

a. zero

b. −$6,000

c. −$7,934

d. −$8,000

e. none of the above

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-70 Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:

Demand:

Supply:

where Q is quantity, P is the price of the product, M is income, and is the input price. The manager of the perfectly competitive firm uses time−series data to obtain the following forecasted values of M and for 2021:

The manager also estimates the average variable cost function to be

Total fixed costs will be $2,000 in 2021. What is the price forecast for 2021?

a. $2

b. $2.50

c. $2.75

d. $3

e. none of the above

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-71 Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:

Demand:

Supply:

where Q is quantity, P is the price of the product, M is income, and is the input price. The manager of the perfectly competitive firm uses time−series data to obtain the following forecasted values of M and for 2021:

The manager also estimates the average variable cost function to be

Total fixed costs will be $2,000 in 2021. Average variable cost reaches its minimum value of _____ units of output.

a. 1,000

b. 1,500

c. 2,000

d. 2,500

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-72 Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:

Demand:

Supply:

where Q is quantity, P is the price of the product, M is income, and is the input price. The manager of the perfectly competitive firm uses time−series data to obtain the following forecasted values of M and for 2021:

The manager also estimates the average variable cost function to be

Total fixed costs will be $2,000 in 2021. The minimum value of average variable cost is $_____.

a. $0.50

b. $0.75

c. $0.975

d. $1.00

e. $2.15

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-73 Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:

Demand:

Supply:

where Q is quantity, P is the price of the product, M is income, and is the input price. The manager of the perfectly competitive firm uses time−series data to obtain the following forecasted values of M and for 2021:

The manager also estimates the average variable cost function to be

Total fixed costs will be $2,000 in 2021. The manager _____ produce since _____________.

a. should; $3 > $0.975

b. should; $2.75 > $0.75

c. should not; $2 < $2.15

d. should not; $0.50 < $1.00

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-74 Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:

Demand:

Supply:

where Q is quantity, P is the price of the product, M is income, and is the input price. The manager of the perfectly competitive firm uses time−series data to obtain the following forecasted values of M and for 2021:

The manager also estimates the average variable cost function to be

Total fixed costs will be $2,000 in 2021. The marginal cost function is:

a. SMC = 3.0 − 0.0027Q + 0.0000009Q²

b. SMC = 3.0 − 0.00135Q + 0.00000045Q²

c. SMC = 3.0Q − 0.0027Q² + 0.0000009Q³

d. SMC = 3.0 − 0.0054Q + 0.0000018Q²

e. none of the above

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-75 Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:

Demand:

Supply:

where Q is quantity, P is the price of the product, M is income, and is the input price. The manager of the perfectly competitive firm uses time−series data to obtain the following forecasted values of M and for 2021:

The manager also estimates the average variable cost function to be

Total fixed costs will be $2,000 in 2021. The optimal level of production for the firm is

a. 1,000

b. 1,500

c. 2,000

d. 2,500

e. none of the above

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-76 Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:

Demand:

Supply:

where Q is quantity, P is the price of the product, M is income, and is the input price. The manager of the perfectly competitive firm uses time−series data to obtain the following forecasted values of M and for 2021:

The manager also estimates the average variable cost function to be

Total fixed costs will be $2,000 in 2021. The profit (loss) is

a. $2,600

b. $2,000

c. $4,000

d. $3,250

e. none of the above

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-77 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts product price to be $28 in 2021. Bartech's average variable cost function is estimated to be

Bartech expects to face fixed costs of $12,000 in 2021. At what level of output will Bartech's average variable cost reach its minimum value?

a. 2,000 units

b. 3,000 units

c. 4,000 units

d. 5,000 units

e. 6,000 units

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-78 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts product price to be $28 in 2021. Bartech's average variable cost function is estimated to be

Bartech expects to face fixed costs of $12,000 in 2021. What is the minimum average variable cost?

a. $0

b. $5.50

c. $6.00

d. $6.50

e. $7.00

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-79 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts product price to be $28 in 2021. Bartech's average variable cost function is estimated to be

Bartech expects to face fixed costs of $12,000 in 2021. The profit-maximizing (or loss-minimizing) output for Bartech is

a. 0 units

b. 500 units

c. 1,000 units

d. 2,000 units

e. 6,000 units

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-80 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts product price to be $28 in 2021. Bartech's average variable cost function is estimated to be

Bartech expects to face fixed costs of $12,000 in 2021. How much profit (loss) does Bartech, Inc. expect to earn?

a. −$2,500

b. $96,000

c. $127,000

d. $156,000

e. $166,000

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-81 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts product price to be $28 in 2021. Bartech's average variable cost function is estimated to be

Bartech expects to face fixed costs of $12,000 in 2021. Now, suppose that the 2021 price forecast is drastically revised downward to $5. What is Bartech's profit-maximizing (or loss-minimizing) output for 2021?

a. 0 units

b. 1,000 units

c. 2,000 units

d. 3,000 units

e. 4,000 units

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-82 Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts product price to be $28 in 2021. Bartech's average variable cost function is estimated to be

Bartech expects to face fixed costs of $12,000 in 2021. Now, suppose that the 2021 price forecast is drastically revised downward to $5. Under the revised forecast how much profit (loss) does Bartech, Inc. expect to earn?

a. $0

b. −$12,000

c. $2,500

d. $16,000

e. $18,000

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-83 Radon Research Corporation (RRC) is one of 24 firms in Albuquerque testing homes for dangerous levels of radon gas. There is a standard test that all testing companies use. The manager of RRC wants to know the number of homes to test in 2021in order to maximize the firm’s profit. The manager forecasted a price of $160 for radon tests in 2021. The firm’s marginal cost was estimated as

where Q is the number of tests performed each week. RRC’s fixed cost will be $250 per week. The average variable cost at RRC is

a. 200 − 30Q + 1.6Q²

b. 200Q − 15Q² + 0.8Q³

c. 100 − 10Q + 0.4Q²

d. 200 − 7.5Q + 0.2667Q²

e. none of the above

Difficulty: 03 Hard

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-84 Radon Research Corporation (RRC) is one of 24 firms in Albuquerque testing homes for dangerous levels of radon gas. There is a standard test that all testing companies use. The manager of RRC wants to know the number of homes to test in 2021in order to maximize the firm’s profit. The manager forecasted a price of $160 for radon tests in 2021. The firm’s marginal cost was estimated as

where Q is the number of tests performed each week. RRC’s fixed cost will be $250 per week. How many radon tests per week should be undertaken?

a. 12.5

b. 15.5

c. 16.8

d. 17.3

e. 20

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-85 Radon Research Corporation (RRC) is one of 24 firms in Albuquerque testing homes for dangerous levels of radon gas. There is a standard test that all testing companies use. The manager of RRC wants to know the number of homes to test in 2021in order to maximize the firm’s profit. The manager forecasted a price of $160 for radon tests in 2021. The firm’s marginal cost was estimated as

where Q is the number of tests performed each week. RRC’s fixed cost will be $250 per week. The weekly profit (loss) at RRC in 2021will be

a. $121

b. $320

c. $86

1. −$61
2. −$121

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-86 Sport Tee Corporation manufactures T-shirts bearing the logos of professional football teams. The wholesale market for sport T-shirts is perfectly competitive. The manager forecasts the wholesale price of T-shirts next year to be $7.00. The firm’s estimated marginal cost is

where Q is the number of T-shirts produced and sold each month. Sport Tee Corporation will have a fixed cost of $2,000 per month. Average variable cost at Sport Tee is

a. 12 − 0.01Q + 0.0000024Q²

b. 12 − 0.0025Q + 0.000000266Q²

c. 12 − 0.0001Q + 0.000001Q²

d. 12Q − 0.0025Q² + 0.000000266Q³

e. none of the above

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-87 Sport Tee Corporation manufactures T-shirts bearing the logos of professional football teams. The wholesale market for sport T-shirts is perfectly competitive. The manager forecasts the wholesale price of T-shirts next year to be $7.00. The firm’s estimated marginal cost is

where Q is the number of T-shirts produced and sold each month. Sport Tee Corporation will have a fixed cost of $2,000 per month. To maximize profit how many T-shirts should be produced and sold each month?

a. 1,000

b. 2,000

c. 3,000

d. 4,000

e. 5,000

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-88 Sport Tee Corporation manufactures T-shirts bearing the logos of professional football teams. The wholesale market for sport T-shirts is perfectly competitive. The manager forecasts the wholesale price of T-shirts next year to be $7.00. The firm’s estimated marginal cost is

where Q is the number of T-shirts produced and sold each month. Sport Tee Corporation will have a fixed cost of $2,000 per month. At the profit-maximizing level of output total revenue will be

a. $10,000

b. $15,000

c. $20,000

d. $25,000

e. $35,000

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-89 Sport Tee Corporation manufactures T-shirts bearing the logos of professional football teams. The wholesale market for sport T-shirts is perfectly competitive. The manager forecasts the wholesale price of T-shirts next year to be $7.00. The firm’s estimated marginal cost is

where Q is the number of T-shirts produced and sold each month. Sport Tee Corporation will have a fixed cost of $2,000 per month. Monthly profit will be

a. −$2,000

b. −$1,150

c. $4,250

d. $3,400

e. $2,250

Difficulty: 02 Medium

Topic: Implementing the Profit-Maximizing Output Decision

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-06

11-90 Good W is produced in a competitive industry with increasing costs of production. The figure below shows how a typical firm’s long-run average cost curve shifts upward as industry output of good W expands. With 50 firms in the industry, each firm faces an identical long-run average cost curve given by LAC. With 80 firms in the industry, each firm faces an identical long-run average cost curve given by LAC’. And with 120 firms in the industry, each firm faces an identical long-run average cost curve given by LAC’’.

When there are 50 firms in the industry in long-run competitive equilibrium, each one of the firms in the industry produces _________ units of good W.

a. 500

b. 600

c. 800

d. 1,000

Difficulty: 02 Medium

Topic: Profit Maximization in the Long Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-04

11-91 Good W is produced in a competitive industry with increasing costs of production. The figure below shows how a typical firm’s long-run average cost curve shifts upward as industry output of good W expands. With 50 firms in the industry, each firm faces an identical long-run average cost curve given by LAC. With 80 firms in the industry, each firm faces an identical long-run average cost curve given by LAC’. And with 120 firms in the industry, each firm faces an identical long-run average cost curve given by LAC’’.

When there are 50 firms in the industry in long-run competitive equilibrium, the long-run marginal cost (LMC) for each one of the firms producing good W is $_______.

a. $6

b. $10

c. $16

d. cannot be determined from the information given

Difficulty: 02 Medium

Topic: Profit Maximization in the Long Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-04

11-92 Good W is produced in a competitive industry with increasing costs of production. The figure below shows how a typical firm’s long-run average cost curve shifts upward as industry output of good W expands. With 50 firms in the industry, each firm faces an identical long-run average cost curve given by LAC. With 80 firms in the industry, each firm faces an identical long-run average cost curve given by LAC’. And with 120 firms in the industry, each firm faces an identical long-run average cost curve given by LAC’’.

When there are 50 firms in the industry in long-run competitive equilibrium, the economic profit earned by each firm is $_________.

a. $0

b. $5,000

c. $50,000

d. $500,000

e. none of the above

Difficulty: 02 Medium

Topic: Profit Maximization in the Long Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-04

11-93 Good W is produced in a competitive industry with increasing costs of production. The figure below shows how a typical firm’s long-run average cost curve shifts upward as industry output of good W expands. With 50 firms in the industry, each firm faces an identical long-run average cost curve given by LAC. With 80 firms in the industry, each firm faces an identical long-run average cost curve given by LAC’. And with 120 firms in the industry, each firm faces an identical long-run average cost curve given by LAC’’.

When there are 80 firms in the industry in long-run competitive equilibrium, total industry output is ____________ units of good W and the long-run marginal cost (LMC) of producing the last unit of good W is $_________.

a. 600; $0

b. 600; $10

c. 48,000; $10

d. 96,000; $16

e. none of the above

Difficulty: 02 Medium

Topic: Profit Maximization in the Long Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-04

11-94 Good W is produced in a competitive industry with increasing costs of production. The figure below shows how a typical firm’s long-run average cost curve shifts upward as industry output of good W expands. With 50 firms in the industry, each firm faces an identical long-run average cost curve given by LAC. With 80 firms in the industry, each firm faces an identical long-run average cost curve given by LAC’. And with 120 firms in the industry, each firm faces an identical long-run average cost curve given by LAC’’.

When there are 80 firms in the industry in long-run competitive equilibrium, the long-run average cost (LAC) of producing good W is $_________, and each firm earns $__________ of economic profit.

a. $0; $0

b. $10; $0

c. $10; $10,000

d. 96,000; $16

e. none of the above

Difficulty: 02 Medium

Topic: Profit Maximization in the Long Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-04

11-95 Good W is produced in a competitive industry with increasing costs of production. The figure below shows how a typical firm’s long-run average cost curve shifts upward as industry output of good W expands. With 50 firms in the industry, each firm faces an identical long-run average cost curve given by LAC. With 80 firms in the industry, each firm faces an identical long-run average cost curve given by LAC’. And with 120 firms in the industry, each firm faces an identical long-run average cost curve given by LAC’’.

When industry output in long-run competitive equilibrium is 96,000, the long-run marginal cost (LMC) of producing the 96,000th unit of good W is $_________.

a. $6

b. $10

c. $16

d. cannot be determined from the information given

Difficulty: 02 Medium

Topic: Profit Maximization in the Long Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-04

11-96 Good W is produced in a competitive industry with increasing costs of production. The figure below shows how a typical firm’s long-run average cost curve shifts upward as industry output of good W expands. With 50 firms in the industry, each firm faces an identical long-run average cost curve given by LAC. With 80 firms in the industry, each firm faces an identical long-run average cost curve given by LAC’. And with 120 firms in the industry, each firm faces an identical long-run average cost curve given by LAC’’.

When industry output in long-run competitive equilibrium is 96,000, the long-run average cost (LAC) of producing 96,000 units of good W is $_________ and each firm in the industry earns $________ of economic profit.

a. $6; $14,000

b. $10; $14,000

c. $12; $14,000

d. none of the above

Difficulty: 02 Medium

Topic: Profit Maximization in the Long Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-04

11-97 Good Z is produced and sold in a competitive industry, and long-run industry supply is characterized by constant costs. The figure below shows a typical long-run average cost curve (LAC) for each of the firms producing good Z. LAC reaches its minimum unit cost of $12 and 1,000 units of output (point M).

The long-run industry supply curve for this constant cost industry will be a

a. vertical line at 1,000 units because supply is perfectly inelastic in this case.

b. vertical line at $12 because supply is perfectly inelastic in this case.

c. vertical line at 0 because supply is perfectly inelastic in this case.

d. horizontal line at $0 because supply is perfectly elastic in this case.

e. horizontal line at $12 because supply is perfectly elastic in this case.

Difficulty: 02 Medium

Topic: Profit Maximization in the Long Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-04

11-98 Good Z is produced and sold in a competitive industry, and long-run industry supply is characterized by constant costs. The figure below shows a typical long-run average cost curve (LAC) for each of the firms producing good Z. LAC reaches its minimum unit cost of $12 and 1,000 units of output (point M). Suppose the demand for good Z is Q_d = 52,000 – 1,000P.

In long-run competitive equilibrium, ______ firms will each produce _______ units of good Z.

a. 40; 1,000

b. 50; 1,000

c. 50; 1,500

d. 50; 2,000

e. none of the above

Difficulty: 03 Hard

Topic: Profit Maximization in the Long Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-04

11-99 Good Z is produced and sold in a competitive industry, and long-run industry supply is characterized by constant costs. The figure below shows a typical long-run average cost curve (LAC) for each of the firms producing good Z. LAC reaches its minimum unit cost of $12 and 1,000 units of output (point M). Suppose the demand for good Z is Q_d = 52,000 – 1,000P.

In long-run competitive equilibrium, each firm’s long-run marginal cost (LMC) is $_____ and each firm’s long-run average cost (LAC) is $_______.

a. 40; 12

b. 12; 40

c. 40; 40

d. 0; 12

e. none of the above

Difficulty: 02 Medium

Topic: Profit Maximization in the Long Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-04

11-100 Good Z is produced and sold in a competitive industry, and long-run industry supply is characterized by constant costs. The figure below shows a typical long-run average cost curve (LAC) for each of the firms producing good Z. LAC reaches its minimum unit cost of $12 and 1,000 units of output (point M). Suppose the demand for good Z is Q_d = 52,000 – 1,000P.

In long-run competitive equilibrium, if demand for good Z decreases, then LMC ___________ (falls, rises, stays the same), LAC ___________ (falls, rises, stays the same), and economic profit ___________ (falls, rises, stays the same).

a. falls; falls; falls

b. falls; falls; remains the same.

c. remains the same; falls; falls.

d. remains the same; falls; remains the same.

e. remains the same; remains the same; remains the same

Difficulty: 03 Hard

Topic: Profit Maximization in the Long Run

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 11-04