Question

Part 1.

Perfect Competition Figure A Price (dollars per unit) Figure B Price (dollars per unit) Figure Price (dollars per unit) 15 NOON 90 90 100 110 Quantity (units) 90 100 110 Quantity (units) 100 110 Quantity (units)

1. Use the figure above to answer this question. Consider a perfectly competitive market experiencing good times. Figure ________ shows a firm maximizing profit in the LONG RUN because it produces ________ units and makes an economic profit of ________.
A) A; 100; $2 per unit

B) A; 90; $3 per unit
C) B; 100; $0 per unit

D) C; 100; $3 per unit

Part 2.

2. The figure above shows a firm's demand and marginal revenue curves and its cost curves. As long as the firm illustrated above remains open, it will set a price of ________ per month and it will ________.
A) $50; make an economic profit

B) $50; incur an economic loss

C) $40; make an economic profit

D) $40; incur an economic loss

3. The darkened area in the figure above is the....
A) deadweight loss.

B) firm's economic loss.
C) consumer surplus.

D) firm's total cost.

4. If all firms in the industry have similar demand, marginal revenue, and cost curves as the firm in the figure above, in the long run
A) nothing changes.
B) some firms exit the industry, and the economic losses of the remaining firms decrease.

C) some firms exit the industry, and the economic profits of the remaining firms increase. D) new firms enter the industry, and the economic losses of the original firms decrease.

Part 3.

5. The above figure definitely shows
A) a long-run equilibrium for a monopolistically competitive firm. B) an industry with few firms.
C) a long-run equilibrium for a perfectly competitive firm.
D) a long-run equilibrium for a perfectly competitive market.

6. The firm in the above figure has a markup of ________ per meal.

A) $0

B) $4
C) $8

D) $10

Answer 1

1.

Since perfectly competitive firm long-run profit-maximising condition is

P=ATC=MC

So it means that Figure B shows a firm maximizing profit in the LONG RUN because it produces 100 units and makes an economic profit of 0 per units.

Hence option C is the correct answer.

2.

Since a monopoly firm long-run profit-maximising condition is

MR=MC

SO corresponding to this condition price and quantity are $40 and 40 units respectively.

Since at this quantity price is less than the ATC, so there will be economic loss.

Hence it can be said that As long as the firm illustrated above remains open, it will set a price of $40 per month and it will incur an economic loss.

Hence option D is the correct answer.

3.

The darkened area shows economic loss of the firm in the figure.

Hence option B is the correct answer.

4.

If all firms in the industry have similar demand, marginal revenue, and cost curves as the firm in the figure above, in the long run some firms exit the industry, and the economic losses of the remaining firms decrease.

Hence option B is the correct answer.