Question

22. Refer to Figure K. For this farmer to maximize profits he should produce _______ bushels of wheat. 

A) 6 B) 9 C) 12 D) 16 

23. Refer to Figure K. If this farmer is maximizing profits, his profit will be 

A) $45 B) $48. C) $72. D)-$24. 

24. Refer to Figure K. This farmer would earn a zero economic profit if price was 

A) $7 B) $9 C) $10. D) $13. 

25. Refer to Figure K. This farmer's shutdown point is at a price of _______ ;this farmer will continue to produce at any price above _______ ,but will not produce below that price 

A)$4 B) $7 C) $10 D) $0 

26. The rising part of a perfectly competitive firm's _______ cost curve is the firm's shortrun _______ curve.

 A) average total; supply B) average variable; demand C) average fixed; demand D) marginal; supply

Answer 1

The diagram refers to perfect competition. Since, The demand curve is parallel to the horizontal axis. In case of perfect competition the firm maximizes profit at P = MC.

The price curve is also equal to the MR and demand curve of the firm.

22. The farmer should produce 12 bushels to maximize profit.

Option C.

23. When Q = 12 bushels, Price = $ 18

At this quantity the ATC = $ 14

Profit = TR - TC = $ 18*12 - $ 14*12 = 12(18-14) = $ 48

Option B.

24. The firm will earn zero economic profit when MC = ATC.

From the diagram we can see the MC curve intersects the ATC at P = $ 13

Option D.

25. The shutdown price in the short run is the Minimum Average Variable Cost. Here the MC intersects the AVC curve at P = $ 10. Therefore, the farmer would shutdown at a price of $ 10; this farmer will continue to produce at every price above $ 10, but will not produce below that price.

Option C.

26. The marginal cost curve starting from the point where intersects the AVC is the perfectly competitive firms supply curve.

The rising part of a perfectly competitive firms marginal cost curve is the firms short run supply curve.

Option D.

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