7: (PA @ 1 Multiple Choice 4 Firms earninga profitwillwantto____their profits inthe short run while firms suffering losses will want to their losses. AA) maximize; maximize maximize; minimize ©) mini ) minimize; minimize Refer to the information provided in Figure 1 below to answer the questions that follow. O36 926s Bushels of wheat 2. Refer to Figure 1. For ths farmer to maximize profits he should produce bushels of wheat. aye 8)9 Gx 0)36 2. Refer to Figure . If this farmer is maximizing profits, his total costs will be a) $1. 8) $66. €) $90. Qu 3. Refer to Figure 1. If this farmer is maximizing his profits, his TVC is a)s2a. 8) $42. j$108. dy $255. 4. Refer to Figure 1. This farmer's fixed costs are Also. Gisea, ) 4s. 'D) indeterminate unless we know the level of output the firm is producing. 5. Refer to Figure 1. If this farmer is maximizing profits, his total revenue will be A) $90. 8) $135, Qsieo. ‘D) $240. 6.Refer to Figure 1. If this farmer is maximizing profits, his profit will be Ays24 3) $45. Ge. 0) $72. ‘7 Refer to Figure 1. If this farmer is maximizing profit, his operating profit (or loss) is A)-$28. =TR-Tvc 2) sa. Os. 1D) $156. 8.Refer to Figure 1. This farmer would earn a zero ‘operating profit if price was ys. 3S. sto. p)si1. 9.Refer to Figure 1. This farmer would earn a zero economic profitf price was alg. D) Su. level of outpul: 310, Refer to Figure 1. This farmer's shutdown point is at a price of A) $0. 8) $4. Qs. ) $10. 11. A profitemaximizing strategy becomes a loss minimization strategy when a firm in a perfectly competitive industry is producing where 4 D)MR=MC TC, a firm would in the short run and in the long un. G) operate; expand 8) operate; contract C shut down; expand D) shut down; contract 26.IF TR > TVC but TR TC. B)TR>TVC and TR< TC. qyrretv, D)TRTC. TR>TVCand TRTC. B) TR>TVC and TR Q a 47 Refer to Figure 4. As long as existing firms in this industry make positive economic profits, A) new firms will not enter it and existing firms will leave it, B) new firms will not enter it and existing firms will not leave it either. @new firms will enter the industry and existing firms vill not leave it D) the industry supply curve will shift to the left. 43. firm is incurring an operating los, in the short run the firm should andin the long run the firm * should Al produce where MC= MR; exit the industry ohe down; exit the industry C) produce where MC = MR; expand ) shut down; expand 49, Billy Bob's Fertilizer Engineers, a perfectly competitive firm, is incurring a loss but still earning an operating profit. Then in the short run this firm should and in the long run, if there is no change in economic conditions, this firm should A) shut down; exit the industry B) shut down; expand duce where MR = D) produce where Mi IC; exit the industry IC; expand 50.4 firm is earning an economic profit. In the short run the firm should In the long run the firm should probably A) shut down; expand B) produce where MC = MR; leave the industry Cproduce where MC = MR; expand D) shut down; exit the industrySiThe owner of Tie-Dyed T-shirts, a perfectly competitive firm, has hired you to give him some economic advice, He has told you that the market price for his shirts is $20 and that he is currently producing 200 shirts at an AVC of $15 and an ATC of $25. What. jould you recommend to him? To continue producing in the short run, as his loss from production is less than his fixed costs, but to exit the industry in the long run if there are no changes in economic conditions. _8) To shut down in the short run, as he is incurring a loss, and to leave the industry in the long run, if there are no changes in economic conditions. C) To continue to produce in the short run, even though he is earning a loss, and to expand in the future with the hope of increasing market share and total revenue, ) You tell him you cannot make any recommendations Until you know what his fixed costs are, 52.In the short run average costs eventually increase because of ‘and in the long run average costs eventually increase because of diminishing returns; diseconomies of scale 8) diseconomies of scale; diminishing returns C) constant returns to scale; decreasing returns to scale ) increasing returns to scale; diseconomies of scale 53.Engineers for the Off Road Skateboard Company have determined that a 10% increase in all inputs will cause output to increase by 5%. Assuming that input prices remain constant, you correctly deduce that such a change will cause, as output increases, A) total cost to decrease 8) average costs to increase C) average costs to decrease average fixed costs to increase 54.Engineers for The All-Terrain Bike Company have determined that a 15% increase in all inputs will cause a 15% increase in output. Assuming that input prices remain constant, you correctly deduce that such @ change will cause as output increases. A) average costs to increase average costs to decrease Bvreaecotorenon contr ) marginal costs to increase 55.Engineers for The Giffen Record Company have determined that a 35% increase in all compact disc inputs will cause 2 45% increase in output. Assuming that input prices remain constant, you correctly deduce that such a change will cause as output increases, A) average costs to increase Javerage costs to decrease average costs to remain constant. 1D) marginal costs to increase 55.Every point on @ U-shaped long-run average cost curve represents A) the minimum cost at which the associated output level can be produced when the scale of plant can be changed. 8) the minimum point of the associated short-run average cost curve. €) the minimum cost at which the associated output level can be produced when the scale of plant cannot be changed. (9) both Aandi 56.Suppose Heidi's Ice Cream experiences economies of scale up to a certain point and diseconomies of scale beyond that point. its long-run average cost curve is most likely to be A) upward sloping to the right. 8) downward sloping to the right. ) horizontal. @ Usshaped. STAIf @ firm's long-run average cost curve declines as ‘output increases, then ‘A) small firms and large firms will have identical average costs. 8) there should be a large number of firms in the industry. C) small firms would have lower average costs of production than large firms. (O) there should be only one firm in the industry. 58.Which of the following is the set of conditions necessary for long-run equilibrium for @ perfectly ‘competitive firm? A) P= SRMC < SRAC = LRAC 8) P > SRMC= SRAC = LRAC P = SRMC = SRAC > LRACRefer to the information provided in Figure 5 below to answer the questions that follow. A Industry g4 Representative firm s LRA E oF 5, “ i He S Z i PA A >, Units of output "Q Units of output '59.Refer to Figure 5, Industry demand is initially D1. and industry supply is initially S1 in this increasing cost industry, demand increases to D2, then in the long run the industry will |A) stay at Point B. 8) move to Point C. G move to Point E, )) move to Point F. 58.Refer to Figure 5. Thi cost industry's long- run supply curve would be found by drawing a line from A)Points Ato E. 8) Points B to F. C) Points B to C. Points B to E. 59,Refer to Figure 5. The type of industry depicted in this situation is ‘an increasing-cost industry. 8) a decreasing-cost industry. C)aconstant-cost industry. D) impossible to determine from this information. 60.An industry is in. if firms have an incentive. to-enteror exit in the run. A) disequilibrium; short G aiseauitiorium; long C) equilibrium; short D) equilibrium; long 61.In the long run firms will expand as long as there are more and new firms wil enter the industry as long as they earn 1) economies of scale; zero profits Gl economies of scale; positive economic profits C) diseconomies of scale; zero profits D} diseconomies of scale; positive economic profits 62.In long run equilibrium for a perfectly competitive industry, firms earn economic profits and roduce zero; efficiently 8) zero; inefficiently C) positive; efficiently D) positive; inefficiently 63.Assume the market for beef is perfectly competitive, Beef producers are currently earning a zero economic profit. If consumers switch from beef to chicken, which ‘of the following is most likely to occur? AA) Beef producers will now incur economic losses in both the short run and the long run. }) Beef producers will incur economic losses in the short Tun. Some producers will exit the industry until those ‘remaining are earning a zero economic profit. ) Beef producers will incur economic losses in the short ‘un, Some producers will exit the industry until those ‘remaining are earning an economic profit. D) Beef producers will now earn economic profits in the short run and there will be no additional adjustments in the long run. 64.As long as economic profits are being earned in an industry, firms will the industry and the supply curve will shift to the enter; right B) enter; left exit left D) exit; right 65.As new firms enter a decreasing-cost industry, AA) the LRAC curve shifts down, the LRAC curve shifts up. CC the position of the LRAC curve doesn't change, but firms move down their LRAC curve. D) the position of the LRAC curve doesn't change, but firms move up their LRAC curve. 66.Assume the tennis ball industry, a perfectly competitive, decreasing-cost industry, is in long-run ‘equilibrium with a market price of $5. I'the demand for tennis balls DECREASES, long-run equilibrium will be teestablished at a price greater than $5. ess than $5,) equel to $5 D) either greater than or less than $5, depending on the number of firms that enter the industry. 67.Firms are making profits in an increasing-cost industry. Which of the following statements describes ‘what will happen in the long run? A) More firms will enter this industry, causing the industry supply schedule to shift to the right and the LRAC curve facing firms to shift down. (8) More firms will enter this industry, causing the Tndustry supply schedule to shift to the right and the LRAC curve facing firms to shift up. CC) Firms will exit this industry, causing the industry supply schedule to shift to the right and the LRAC curve to shift down D) Firms will exit this industry, causing the industry supply schedule to shift to the left and the LRAC curve to shift down,U_SHORT-ANSWER, ESSAYS, AND PROBLEMS 1. a, The following table contains information about the revenues and costs for Barry's Golf Ball Manufacturing. All data are per hour. Complete the first group of columns which correspond to Barry's production if P= €3. (TR = total revenue, ‘TC total cost, MR = marginal revenue, MC = marginal cost) Woe TFC 4o ~ ei © 7 (33 83 TC Profit MR MC_TR,P Profit MR Avo VC 4 oO € | 2 2 " lol e|G@lQ | e9]oo bo > la a Ari 0 NP ho|v— 23 Is \Als Ga vlo 16 ol Mant Mas nents a tepeene pratt on ed] OAASALE® swt bne tons dm te optimal level of production? MR - Mc - P _ % ¢. 15 €3 per golf bal @ long-run equilibrium price in the market for golf balls? Explain. What Sdjustment will ake place in the market for golf balls and what will happen to the price in the long run? CPA fv ung Wi l LOM ne arforoutel Suppose the Brice of basbballs falls to €2. Fill ut the remaining three columns of the table above. What isthe proft- ‘maximizing level of output when the price is €2 per lyseball? How snuch profit does Barry's Baseball Manufacturing samywhenthe preeofbssebls 6S3n1 V+ hy os) Aizt e. Is €2 per golf ball a long-run edit ecin price in the market for golf ball oy produce at this level of profit? ls? Explain. Why would Barry continue to \ norma eo loc Te9 Cei4 +, Describe the slope of the short-run supply curve for the market for golf ballS. Describe the slope of the lorig-run supply curve in the market for golf balls. 2.2. In Exhibit 1, show the cost curves of a representative firm in long-run equilibrium along side the corresponding ‘market equilibrium. Exhibit 1 i E 0 Quantity Qo Quantity (firm) (market)b. Suppose there is a decrease in the demand for this product. In Exhibit 2, show the shift in demand in the market for this product and the corresponding profit or loss on the cost curves of the representative firm. Exhibit 2 ri Price oO Quantity 0 Quantity (firm) (market) In Exhibit 3, show the adjustment that takes place in order to return the market and firm to long-run equilibrium. Exhibit 3 @ 2 g g a a 0 Quantity 0 Quantity (firm) (market) d. After the market has returned to long-run equilibrium, isthe price higher, lower, or the same as the initial price? Are ‘there more, fewer, or the same number of firms producing in the market? 3, Below is a demand schedule facing an individual firm. Complete the table by computing average revenue, total revenue, and marginal revenue, Then answer the following two questions: (a) How can you tell whether a firm is operating in 2 market that is purely competitive? (b) What relationship exists between average revenue and marginal revenue? Marginal revenue 3300 a 301 30 2 303 304 3 6 30 30 104, Fill n the following table for a product in a purely competitive market. The market price for the good is $32. Use the total revenue-total cost approach to evaluate at what quantity the firm can maximize its profits, Total Total ‘Total product fixed variable Total Total output cost cost cost __ revenue Profi/Loss 0 ss 8 0 5 1 os 2 3 Ee 4 Ee 2s re 6 oS 7 so uo 8 50185 5. Good Grapes is selling grapes in a purely competitive market. its output is 5000 pounds, which it sells for $5 a pound. ‘At the 5000-pound level of output, the average variable cost is $4.00, the marginal cost is $4.25, and the average total cost is $4.50 a pound. Should the firm increase output, decrease output, or not produce? Why? How should the firm determine the optimal level of output? 6, Use the graph to answer these questions: (a) What isthe profit-maxim ite level of output? (b) Whatis the economic profit? (c) What is the per-unit amount of profit at the profit-maximizing level of output? (d) At whet price would the firm decide to shut down? = wy Nero =hbovo ) Tuo oD) Pepye. IS 5 8 10 hy ouput 7. Assume a single firm in a purely competitive industry has variable costs as indicated in the following table in column 2. Complete the table and answer the questions. ao @ @ o Total Total ‘Total Product_var.cost cost AFC AVC ATC MC. 0 so s4s 8 1 so __ 2 3 __ 3 0 _ 4 no _ 5 Bs _ 6 mM __ 1 20 __ 8 290 ‘2, Ata product price of $52, will this firm produce in the short run? Explain. What wil b. Ata product price of $28, will this firm produce in the short run? Explain. What wil c. Ata product price of $22, will this firm produce in the short run? Explain. What wil d. Complete the following short-run supply schedule for this firm. Product Quantity. Profit (+) $7 2 45 28 5200 2 $900 15 _ 6700 its profit or loss be? its profit or loss be? its profit or loss be? ‘Assume there are 500 identical firms in this industry, that they have identical cost data as the firm above, and that the industry demand schedule is as follows: e f & h ‘What will the equilibrium price be? ‘What will the equilibrium output for each firm be? What will profit or loss be per unit? ‘What will profit or loss be per firm? 28, Assume that purely competitive firm has the schedule of costs given in the table below. it TEC Tc 0 $500 -§ 0 $500 1 500150650 2 500-200 700 3 500 260760 450040840 5 500450950 6 5005991090 7 3007701270 Ss 500 10001500 9 5001290 105001650 ‘a. Complete the table below to show the total revenue and total profit of the firm at each level of output the firm might produce. Assume market prices of $50, $150, and $250. ‘Market price = S50 Market price = S150 Market price = $250 Total Profit (+) Total Profit (+) Total Profit (+) Output revenue or loss (-) revenue _ or loss(-) _reventte _ or loss oss ss SS 1 $e So 6 Too 8 9 10 b, Indicate what output the firm would produce and its profits in the following table. Quantity Profit (5) Price supplied or loss) $50 8 150 250 B9, Assume that @ purely competitive firm has the schedule of average and marginal costs given in the table below. Output AFC AVC ATC MC 0 1 $600 $200 $800 $200 2 300180480100 3 200 «14040120 4 180 4S 298160 5 120 160-280 220 6 100 180280280 7 $6 205-201-360 8 7% 2323400 9 66 278 2580 1060320380720 a. Inthe table below, complete the supply schedule for the competitive firm and state what the economic profit will be at each price. bb. Ifthere are 100 firms in the industry and all have the same cost schedule, complete the market supply schedule in the table below. ‘Quantity rmanded Price supplied ss90 GG OD 40 G09 30 WOO 20 GOO 20 $00 160 4HO 10D Answer the following questions: (1) What will the equilibrium price and quantity of the product be? (2) What will the profits of each firm be? (3) Will firms tend to enter or leave the industry in the long run? Explain. 10, How will the marginal and average cost curves of the typical pure competitor shift or change as a result of the following events: (a) an increase in wages of all labor; (b) an increase in the rental payments on office machinery; (c) @ ‘technological advance; (d) an increase in sales taxes; e) an increase in property taxes; and (f) @ decline in the price of a basic raw material? 1411, Suppose that Helen's Hotdog Hut operates in a purely competitive market, Helen produces 1,000 hotdogs a week and has an average variable cost of $1.25, average fixed costs of $1.00, and a marginal cost of $2.00. a. Whatis the prie of a hot dog? ‘J. b. What would you expect Helen to do in the short run? Why.CO¥ ra 404 ia Uk What would you expect Helen to doin the long run? Why. x 12. Consider the wd Feet bed Bate A ’ typical firm in a purely competitive industry. Graph 8 represents the supply and demand conditions in that industry. The dashed horizontal line represents the current market price for firms and for the industry. In the long run, what will happen to price, profit, the supply curve, and the ‘number of firms in the industry? 8) uc, s aye > ° @ o @ Firm Industry 13. Consider the two graphs below. Graph A represents a typical firm in a purely competitive industry. Graph 8 represents the supply and demand conditions in that industry. Describe the price, output, and profit situation for the individual firm in the short run. b. Describe what will happen to the individual firm and the industry in the long run. Show the changes on graphs ‘Aand 8. “f S78 5 a 7 Bs 2 2 1 : 2, pti 4g 16 2 806 700200 000 #8605095 ‘any ® 45