QUESTION 1 Assume a periectly competitive firm is maximizing profit at some outp

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QUESTION 1 Assume a periectly competitive firm is maximizing profit at some output at which long-run average total cost is at a minmum. Then: the firm is earning an economic profit there is no tendency for the firm's industry to expand or contract allocative but not productive efficiency is being achieved other firms will ontor this industry. QUESTION 2 $20 ATC 15 10 0 10 20 30 40060 70 80 Refer to the above diagram showing the average total cost curve for a perfectly competitive firm. Suppose that average variable cost is $8 at 40 units of output. At that level of output, total fixed cost is $2. is $40. is $80. cannot be determined from the information provided. QUESTION 3 Suppose that the MR MC condition cannot be completely met for a firm because there is no level of output at which MR and MC are equal. In that case the firm should produce up to and including the last unit for which MR exceeds MC. produce up to and including the last unit for which MC exceeds MR. shut down, continue to produce as long as MR is positive. QUESTION 4 Answor the next quostion(a) on the basis of the folowing cost data for a firm that is selling in a perfoctly compotitive market Average Average Average TotaFixed Variabl Tot Marginal Cost $17 15 13 12 13 14 26 30 Product Cost Cost $100.00 $17.00 $117.00 16.00 15.00 14.25 14.00 14.00 15.71 17.50 19.44 21.60 24.00 26.67 Cost 50.00 33.33 25.00 20.00 16.67 4.29 12.50 66.00 48.33 34.00 30.67 30.00 30.00 30.55 31.60 10 10.00 9.09 8.33 41 48 56 12 35.00 Refer to the above data. If the market price for the firm's product is $32, the competitive firm will produce: 8 units at an economic profit of $16. 5 units at a loss of $10. 098 units at a loss equal to the firm's total fixed cost. 7 units at an economic profit of $41.50 QUESTION 5 Which of the folowing will not hold true for a competitivo firm in long-run equlibrium? P equals AFC P equals minimum ATC MC oquals minimum ATC P oquals MC

Explanation / Answer

Ans1) the correct option is there is no tendency for the firm's industry to expand or contract.

Ans2) The correct option is $80

AFC = ATC - AVC = 10 - 8 = 2 so

FC = AFC * quantity = 2*40 = 80

Ans3) the correct option is produce up to and including the last unit for which MR exceeds MC.

Ans4) the correct option is 8 units at a loss equal to firm's total fixed cost

Loss = total cost - total revenue = 30*8 - 32*8 = 16

Ans5) the correct option is P equals minimum ATC

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