PRINT LAST NAME, FIRST NAME NAME SECTION# PERFECT COMPETITION A firm earns zero economic profit when: price is equal to average variable cost. price is equal to average total cost. price exceeds average total cost by the greatest amount. marginal revenue is equal to marginal cost. 1. ns. a. b. al C. d. A perfectly competitive firm producing where P = MR = MC > ATC in the short run is: incurring a short-run loss, and would minimize its loss by shutting down. making an economic profit greater than zero. making an economic profit equal to zero. incurring a short-run loss, but minimizes its loss by producing at MR = MC. a. b. C. d. The profit-maximizing rule is for firms to produce the amount of output at which: 3. ATC = AVC. a. ъ. MR = MC. %3D P = ATC. MSAC→ AM %3D d. MR = P. 4. The shutdown price corresponds to the minimum point of the: AVC curve because Losses > TFC when P< AVC. AVC curve because Profit > 0 when P> ATC. ATC curve because Losses > TFC when P< AVC. ATC curve because Profit <0 when P< ATC. a. b. C. d. 5. Suppose at the profit-maximizing/loss-minimizing level of output P = $6, ATC = $7, and AVC = $5. A firm in this situation will: %3D minimize its losses by continuing to produce where MR =MC in the short run. minimize its losses by shutting down immediately. earn a short-run economic profit producing where MR = MC. produce more than the output where MR = MC. a. %3D b. C. d. The short-run supply curve for the perfectly competitive firm is the portion of the marginal cost curve that lies above the average variable cost curve because: the firm will maximize profits and minimize losses by producing the quantity where marginal revenue equals marginal cost iI price is greater than average 6. a. variable cost. b. the firm is a price-taker and is required to produce and sell output even if it incurs a short-run loss when price falls below minimum average variable cost. the market supply curve is upward-sloping. profit is maximized at the level of output where average total cost exceeds C. d. average variable cost by the greatest amount. 2. SECTION# NAME NAME PRINT LAST NAME, FIRST NAME Bob's Billboard Painting is considering increasing the number of billboards Bob's firm paints per week by one billboard, and the firm is paid $500 for painting a billboard. Bob's total cost will increase as a result from $1,200 to $1,750 per week. In this case: 7. Use the MR > MC, so the firm's profits will increase as a result of painting billboard a. week. MR < MC, so the firm's profits will decrease as a result of painting one more billboard per week. MR > MC, but painting one more billboard per week will not affect the firm's per b. C. profits. MR < MC, but painting one more billboard per week will not affect the E profits. d. Use the graph below to answer questions 8 through 10. ATC MC %24 AVC MR $12 $10 $9.75 If p tota and 0. 500 600 Quantity This profit-maximizing firm will charge a price of $ 8. and produce units of If output. 12; 500 a. b. 12; 600 10; 500 d. 10; 600 C. tot 9. At the profit-maximizing level of output, total revenue is equal to equal to and total cost is ar $6,000; $4,875 $6,000; $5,000 a. $7,200; $5,000 $7,200; $6,000 b. c. d. 10. This firm is earning economic profit equal to: $1,200. a. b. $1,125. $1,000. c. d. $800. Chapter 11 Assignments 216 LEGO