Use the following information to answer the next 4 questions: The graph below shows cost curves for a perfectly competitive firm. Suppose that the market price is $2.60. Price and cost (dollars) 2.60 1.60 1.50 0.80 0.70 0.60 500 800 1100 Output SMC ATC AVC Question 5 A firm producing 800 units of output a) is earning the maximum amount of profit, $880. b) is earning the maximum amount of profit, $2,080. c) should instead produce 500 units of output in order to earn profits of $500. d) should instead produce 1100 units of output in order to earn profits of $1,100. e) should shut down. Question 6 A profit-maximizing firm will break even when the market price is a) $0.60 b) $0.80 c) $1.50 d) $1.60 e) None of the above. Question 7 If the market price declines to $0.70, a profit-maximizing firm will produce units of output and earn profits of_ a) 500,-$450 b) 500,-$50 c) zero, -$450 d) zero, -$400 e) None of the above. Question 8 At the market price of $2.60, what can be expected to occur in this competitive industry over the long-run? a) Industry supply will increase and the market price will decrease. b) Industry supply will decrease, and the market price will decrease. c) Industry demand for the product will increase, and the market price will increase. d) Industry demand for the product will decrease, and the market price will decrease. e) None of the above.

Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter13: Firms In Competitive Markets
Section: Chapter Questions
Problem 4PA
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Use the following information to answer the next 4 questions:
The graph below shows cost curves for a perfectly competitive
firm. Suppose that the market price is $2.60.
Price and cost (dollars)
2.60
1.60
1.50
0.80
0.70
0.60
500
800
1100
Output
SMC
ATC
AVC
Question 5
A firm producing 800 units of output
a) is earning the maximum amount of profit, $880.
b) is earning the maximum amount of profit, $2,080.
c) should instead produce 500 units of output in order to earn profits of $500.
d) should instead produce 1100 units of output in order to earn profits of $1,100.
e) should shut down.
Question 6
A profit-maximizing firm will break even when the market price is
a) $0.60
b) $0.80
c) $1.50
d) $1.60
e) None of the above.
Question 7
If the market price declines to $0.70, a profit-maximizing firm will
produce units of output and earn profits of_
a) 500,-$450
b) 500,-$50
c) zero, -$450
d) zero, -$400
e) None of the above.
Question 8
At the market price of $2.60, what can be expected to occur in this
competitive industry over the long-run?
a) Industry supply will increase and the market price will decrease.
b) Industry supply will decrease, and the market price will decrease.
c) Industry demand for the product will increase, and the market price will increase.
d) Industry demand for the product will decrease, and the market price will decrease.
e) None of the above.
Transcribed Image Text:Use the following information to answer the next 4 questions: The graph below shows cost curves for a perfectly competitive firm. Suppose that the market price is $2.60. Price and cost (dollars) 2.60 1.60 1.50 0.80 0.70 0.60 500 800 1100 Output SMC ATC AVC Question 5 A firm producing 800 units of output a) is earning the maximum amount of profit, $880. b) is earning the maximum amount of profit, $2,080. c) should instead produce 500 units of output in order to earn profits of $500. d) should instead produce 1100 units of output in order to earn profits of $1,100. e) should shut down. Question 6 A profit-maximizing firm will break even when the market price is a) $0.60 b) $0.80 c) $1.50 d) $1.60 e) None of the above. Question 7 If the market price declines to $0.70, a profit-maximizing firm will produce units of output and earn profits of_ a) 500,-$450 b) 500,-$50 c) zero, -$450 d) zero, -$400 e) None of the above. Question 8 At the market price of $2.60, what can be expected to occur in this competitive industry over the long-run? a) Industry supply will increase and the market price will decrease. b) Industry supply will decrease, and the market price will decrease. c) Industry demand for the product will increase, and the market price will increase. d) Industry demand for the product will decrease, and the market price will decrease. e) None of the above.
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