332sample packet exam III

332sample packet exam III - CHAPTER 10COMPETITIVE MARKETS...

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CHAPTER 10—COMPETITIVE MARKETS MULTIPLE CHOICE 1. If P = $8 and MC = $5 + 0. 2Q, the competitive firm's profit-maximizing level of output is: a. 5 b. 0.2 c. 8 d. 15 ANS: D 2. For a firm in perfectly competitive market equilibrium: a. MR < AR b. P > AC c. P > MR d. P = MC ANS: D 3. The firm demand curve in a competitive market is: a. upward sloping. b. downward sloping. c. horizontal. d. vertical. ANS: C 4. In the short run, a perfectly competitive firm will shut down and produce nothing if: a. excess profits equal zero. b. total cost exceeds total revenue. c. total variable cost exceeds total revenue or average variable cost exceeds price. d. the market price falls below the minimum average total cost. ANS: C 5. In the long run, firms will exit a perfectly competitive industry if: a. excess profits exceed zero. b. excess profits are less than zero. c. total profit equals zero. d. excess profits equal zero. ANS: B 6. So long as P > AVC, the competitive firm's short-run supply curve is equal to: a. AVC b. P c. MC d. none of these. ANS: C
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7. Short-run Firm Supply . Nature's Best, Inc., supplies asparagus to canners located throughout the Mississippi River valley. Like several grain and commodity markets, the market for asparagus is perfectly competitive. Marginal cost per ton of asparagus is: MC = $1.50 + $0.0005Q A. Calculate the industry price necessary for the firm to supply 500, 1,000, and 2,000 pounds. B. Calculate the quantity supplied by Nature's Best at industry prices of $1.50, $2.25, and $2.75 per pound. ANS: A. The marginal cost curve constitutes the supply curve for firms in perfectly competitive industries. Because P = MR, the price necessary to induce supply of a given amount is found by setting P = MC. Therefore, at: Q = 500: P = MC = $1.50 + $0.0005(500) = $1.75 Q = 1,000: P = MC = $1.50 + $0.0005(1,000) = $2.00 Q = 2,000: P = MC = $1.50 + $0.0005(2,000) = $2.50 B. When quantity is expressed as a function of price, the firm's supply curve can be written: P = MC = $1.50 + $0.0005Q 0.0005Q = P - 1.50 Q = 2,000P - 3,000 Therefore, at: P = $1.50: Q = 2,000(1.50) - 3,000 = 0 P = $2.25: Q = 2,000(2.25) - 3,000 = 1,500 P = $2.75: Q = 2,000(2.75) - 3,000 = 2,500 8. Short-run Market Supply . The Fertilizer Supply Co. is a typical distributor in the perfectly competitive fertilizer supply industry. Its marginal cost of output is: MC = $250 + $0.05Q where Q is tons of fertilizer produced per year. A. Derive the firm's supply curve, expressing quantity as a function of price. B. Derive the industry supply curve if the firm is one of 400 competitors. C. Calculate industry supply per year at a market price of $300 per ton. ANS: A. The perfectly competitive firm will supply output so long as it is profitable to do so. Because P = MR in perfectly competitive markets, the firm supply curve is given by the relation: P = MC = $250 + $0.05Q
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when quantity is expressed as a function of price, the firm supply curve is: P = $250 + $0.05Q 0.05Q = P - 250
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This note was uploaded on 09/25/2011 for the course BSAD 314 taught by Professor Staff during the Spring '10 term at SUNY Canton.

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332sample packet exam III - CHAPTER 10COMPETITIVE MARKETS...

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