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41) Refer to Figure 12-8.  Suppose the market price is $120. Which of the following is true?

A) The firm earns a profit equal to the area A.

B) The firm earns a profit equal to the area A + B.

C) The firm suffers a loss equal to the area A.

D) The firm will break even.

42) Refer to Figure 12-8.  Suppose the firm produces 4,000 units. What does the shaded area labeled B represent?

A) the firm's economic loss

B) total variable cost

C) average variable cost

D) total fixed cost

Table 12-4

 

Quantity

Average Fixed Cost

Average Variable Cost

Marginal Cost

  20

$40

$18

$18

  40

20

  14

  10

  60

   13.1

  16

  20

  80

10

  22

  40

100

  8

  30

  62

120

     6.61

  40

  90

Table 12-4 shows the short-run cost data of a perfectly competitive firm. Assume that output can only be increased in batches of 20 units.

43) Refer to Table 12-4.  If the market price is $45, the firm will produce

A) 60 units.

B) 80 units.

C) 100 units

D) 120 units

44) Refer to Table 12-4.  If the market price is $45, the firm

A) will earn a profit of $3,600.

B) will suffer a loss of $200.

C) will break even.

D) will earn profit of $1,040.

45) A perfectly competitive firm breaks even at a price equal to its minimum average total cost.

46) Maximizing average profit is equivalent to maximizing total profit.

47) In the short run, if price falls below a firm's minimum average total cost, the firm should shut down.

48) If price is equal to average variable cost, a perfectly competitive firm breaks even.

49) For a given quantity, the total profit of a perfectly competitive firm is equal to the vertical distance between the firm's total revenue curve and its total cost curve.

50) If firms do not earn economic profits in a competitive equilibrium, why would the firms choose to stay in business?

51) To maximize profit, a firm will produce the level of output where MR = MC. If a firm actually makes a profit depends on the relationship of price to average total cost. What are the three possible relationships between price and average total cost that determine if a firm will make a profit, experience a loss, or break even?

52) Suppose Veronica sells teapots in the perfectly competitive teapot market. Her output per day and her costs are as follows:

Output per Day

Total Cost

0

$20

1

32

2

37

3

48

4

61

5

75

6

92

7

113

8

136

Suppose the current equilibrium price in the teapot market is $10. To maximize profit, how many teapots will Veronica produce, what price will she charge, and how much profit (or loss) will she make? Draw a graph to illustrate your answer. Your graph should include Veronica's demand, ATC, AVC, MC, and MR curves, the price she is charging, the quantity she is producing, and the area representing her profit (or loss).

53) Suppose Veronica sells teapots in the perfectly competitive teapot market. Her output per day and her costs are as follows:

Output per Day

Total Cost

0

$20

1

32

2

37

3

48

4

61

5

75

6

92

7

113

8

136

Suppose the current equilibrium price in the teapot market is $20. To maximize profit, how many teapots will Veronica produce, what price will she charge, and how much profit (or loss) will she make? Draw a graph to illustrate your answer. Your graph should include Veronica's demand, ATC, AVC, MC, and MR curves, the price she is charging, the quantity she is producing, and the area representing her profit (or loss).

54) Suppose Veronica sells teapots in the perfectly competitive teapot market. Her output per day and her costs are as follows:

Output per Day

Total Cost

0

$20

1

32

2

37

3

48

4

61

5

75

6

92

7

113

8

136

Suppose the current equilibrium price in the teapot market is $15. To maximize profit, how many teapots will Veronica produce, what price will she charge, and how much profit (or loss) will she make? Draw a graph to illustrate your answer. Your graph should include Veronica's demand, ATC, AVC, MC, and MR curves, the price she is charging, the quantity she is producing, and the area representing her profit (or loss).

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