Homework # 7, Economics, Fall 2008, School of Management, CGU

Homework # 7, Economics, Fall 2008, School of Management, CGU

(Mankiw, Ch 14 perfect competition)

一. 選擇題

1.When buyers in a competitive market take the selling price as given, they are said to be

A)market entrants. B)monopolists.

C)free riders. D)price takers.

ANS: D

2. In a competitive market,

A)no single buyer or seller can influence the price of the product.

B)there is a small number of sellers.

C)the goods offered by the different sellers are markedly different.

D)accounting profit is driven to zero as firms freely enter and exit the market.

ANS: A

3. The figure above portrays a total revenue curve for Dizzy Discs. The demand curve for CD’s sold by Dizzy Discs ______; and it’s marginal revenue from selling a unit of output ______.

A) has negative slope; equals $100/1395.

B) has positive slope; equals $1.00.

C) is horizontal; equals $13.95.

D) is vertical; cannot be determined.

Answer: C

4.If a competitive firm is (i) selling 1,000 units of its product at a price of $9 per unit and (ii) earning a positive profit, then

A)its total cost is less than $9,000.

B)its marginal revenue is less than $9.

C)its average revenue is greater than $9.

D)the firm cannot be a competitive firm since competitive firms can only earn zero profit.

ANS: A

5. In the above figure, by increasing its output from Q2 to Q3, the firm A)reduces its marginal revenue. B)increases its marginal revenue. C)decreases its profit. D)increases its profit.

Answer: C

Use the information for a competitive firm in the table below to answer the following questions.

6. Refer to the above table. At a production level of 4 units which of the following is true?

A)Marginal cost is $6.

B)Total revenue is greater than total variable cost.

C)Marginal revenue is less than marginal cost.

D)The firm is maximizing profit.

ANS: B

7.Refer to the above table. If the firm finds that its marginal cost is $5, it will make an economic ____ and it should ____.

A)loss of $1; reduce fixed costs by lowering production in the short run.

B)loss of $1; increase production to maximize profit.

C)loss of $1; decrease production to maximize profit.

D)profit of $1; maintain its current level of production to maximize profit.

ANS: B

8. Refer to the above table. The maximum profit available to this firm is

A)$2 B)$3 C)$4 D)$5

ANS: D

The graph below depicts the cost structure for a firm in a competitive market.

9. Refer to the above figure. When price rises from P2 to P3, the firm finds that

A)marginal cost exceeds marginal revenue at a production level of Q2.

B)if it produces at output level Q3 it will earn a positive profit.

C)expanding output to Q4 would leave the firm with losses.

D)it could increase profits by lowering output from Q3 to Q2.

ANS: C

10. Refer to the above figure. When price falls from P3 to P1, the firm finds that

A)fixed cost is higher at a production level of Q1 than it is at Q3.

B)it should produce Q1 units of output.

C)it should produce Q3 units of output.

D)it should shut down immediately.

ANS: D

11. Refer to the above figure. When price rises from P3 to P4, the firm finds that

A)fixed costs are lower at a production level of Q4.

B)it can earn a positive profit by increasing production to Q4.

C)profit is still maximized at a production level of Q3.

D)average revenue exceeds marginal revenue at a production level of Q4.

ANS: B

The figure below depicts the cost structure of a firm in a competitive market.

12. Refer to the above figure. When market price is P1, a profit-maximizing firm's total revenue, total cost, and total profit or loss can be represented separately by the areas

A)P1× Q2; P3× Q2; (P3 – P1) × Q2= loss

B)P2× Q2; P1× Q2; P1× Q3= profit

C)P3× Q2; P1× Q2; (P2 – P1) × Q1= loss

D)P1× Q2; P3× Q2; we can't tell the total profit or loss because we don't know fixed costs.

ANS: A

13. Joe’s Shiny Shoes is a firm that operates in a perfectly competitive market. The figure above shows Joe’s cost and revenue curves. If the number of firms in the shoe market decreases, Joe will A)decrease his production. B)increase his production. C)have an MR curve with positive slope. D)have an MR curve with negative slope.

Answer: B

14. When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch, which of the following principles is (are) best demonstrated?

(i)Fixed costs are sunk in the short run.

(ii)In the short run, only fixed costs are important to the decision to stay open for lunch.

(iii)If total revenue exceeds total variable cost, the restaurant owner is making a profitable strategic decision to remain open for lunch.

A)(i) and (ii) only B)(ii) and (iii) only

C)(i) and (iii) only D)All are demonstrated.

ANS: C

15.A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has average revenue of $9 and average total cost of $7. It follows that the firm's

A)average total cost curve intersects the marginal cost curve at an output level of less than 200 units.

B)average variable cost curve intersects the marginal cost curve at an output level of less than 200 units.

C)profit is $400.

D)All of the above are correct.

ANS: D

16. For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $10 and a marginal cost of $7. It follows that

A)the production of the 100th unit of output increases the firm's profit by $3.

B)the production of the 100th unit of output increases the firm's average total cost by $7.

C)the firm's profit-maximizing level of output is less than 100 units.

D)the production of the 100th unit of output must increase the firm’s total revenue by less than $20.

ANS: A

17. Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.Accordingly, at Q = 1,000, the firm's profit amounts to ____; and at Q = 999, the firm's profit amounts to ___.

A)$-200; $993. B)$1,000; $1,003.

C)$3,000; $997. D)$4,000; $1,007.

ANS: B

18.A competitive firm's marginal cost curve is regarded as its supply curve because

A)the position of the marginal cost curve determines the price for which the firm should sell its product.

B)among the various cost curves, the marginal cost curve is the only one that slopes upward.

C)the marginal cost curve determines the quantity of output the firm is willing to supply at any price.

D)the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized.

ANS: C

19.A competitive firm has been selling its output for $10 per unit and has been maximizing its profit. Then, the price rises to $14 and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, which of the following statements is correct?

A)The firm's marginal revenue is lower than it was previously.

B)The firm's marginal cost is lower than it was previously.

C)The firm's quantity of output is higher than it was previously.

D)All of the above are correct.

ANS: C

20.Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has taken in $3,500 in monthly revenue.

A)In the short run, Susan should shut down her business and in the long run she should exit the industry.

B)In the short run, Susan should continue to operate her business, but in the long run she should exit the industry.

C)In the short run, Susan should continue to operate her business, but in the long run she will probably face competition from newly entering firms.

D)In the short run, Susan should continue to operate her business, and she is also in long-run equilibrium.

ANS: B

The following table presents cost and revenue information for John’s Vineyard.

21.Refer to the above table. At what quantity does John’s Vineyard maximize profits?Moreover, what is the economic profit at this output level?

A)3, $25 B)6, $115 C)7,$75 D)8, $225

ANS: B

22. Cold Duck Airlines flies between Tacoma and Portland. The company leases planes on a year-long contract at a cost that averages $600 per flight. Other costs (fuel, flight attendants, etc.) amount to $550 per flight. Currently, Cold Duck's revenues are $1,000 per flight. All prices and costs are expected to continue at their present levels. If it wants to maximize profit, Cold Duck Airlines should

A)drop the flight immediately.

B)continue the flight.

C)continue flying until the lease expires and then drop the run.

D)drop the flight now but renew the lease if conditions improve.

ANS: C

23.Carla's Candy Store is maximizing profits by producing 1,000 pounds of candy per day. If Carla's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output

A)is less than 1,000 pounds.

B)is still 1,000 pounds.

C)is more than 1,000 pounds.

D)becomes zero.

ANS: B

24.In the short run, a market consists of 100 identical firms. The market price is $8, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market?

A)200 units B)300 units C)400 units D)500 units

ANS: B

25.When all firms and potential firms in a market have the same cost curves, the long-run equilibrium of a competitive market with free entry and exit will be characterized by firms

A)earning small levels of economic profit.

B)facing the prospect of future losses.

C)operating at efficient scale.

D)that band together to raise market prices.

ANS: C

Scenario 14-1:In March of 2000 a study sponsored by the Food Consumer Safety Board found that consumption of irradiated grapefruit increased the health of laboratory rats. As a result of national press coverage of the report, the demand for irradiated grapefruit increased dramatically. Organic farmers were able to switch from organic production of grapefruit to irradiated production with no additional cost. Assume that the grapefruit market satisfies all of the attributes of perfect competition.

26.Refer to Scenario 14-1. As a result of the increase in the demand for grapefruit, we would predict that in the short run that the

A)production of grapefruit would be at efficient scale.

B)price of grapefruit would rise.

C)total cost for existing irradiated grapefruit producers must rise.

D)number of firms in the market would fall as prices fall and firms exit the market.

ANS: B

27.Refer to Scenario 14-1. If the increased production of irradiated grapefruit caused a rise in the marginal transportation costs of moving irradiated grapefruit to market, the

A)short-run market supply curve for irradiated grapefruit would be affected, but not the long-run market supply.

B)long-run market supply curve for irradiated grapefruit would be perfectly elastic.

C)long-run market supply of irradiated grapefruit would be downward sloping.

D)long-run market supply of irradiated grapefruit would be upward sloping.

ANS: D

28.Refer to the above figure. When the market is in long-run equilibrium at point A in panel (b), the firm represented in panel (a) will

A)have a zero economic profit.

B)have a negative accounting profit.

C)exit the market.

D)choose to increase production to increase profit.

ANS: A

29.Refer to the above figure. If the market starts in equilibrium at point C in panel (b), a decrease in demand will ultimately lead to

A)more firms in the industry, but lower levels of production for each firm.

B)fewer firms in the market.

C)a new long-run equilibrium at point D in panel (b).

D)lower prices once the new long-run equilibrium is reached.

ANS: B

30.Tommy's Tires operates in a perfectly competitive market. If tires sell for $50 each and average total cost per tire is $40 at the profit-maximizing output level, then in the long run

A)more firms will enter the market.

B)some firms will exit from the market.

C)the equilibrium price per tire will rise.

D)average total costs will fall.

ANS: A

31. A perfectly competitive firm is definitely earning an economic profit when A)MR < MC B)PATC C)PATC D)PAVC. Answer: b

32. In the above figure, the firm’s initial average total cost curve is SRAC with an initial marginal cost curve of SRMC. The price of the product is P1. In the short run the firm will produce output equal to the amount ___; in the long run the firm will A)Q1; reduce its plant size. B)Q2; expand its plant size. C)Q3; retain the same plant size. D) Q4; exit the industry.

Answer: B

33.In the above figure when the firm has reached its long-run equilibrium position, it will produce output equal to the amount A) Q1. B) Q2. C) Q3. D) Q4. Answer: C

34.假設淡水有許多賣鐵蛋的店家，構成完全競爭市場。在淡水老街上有一家「婆婆鐵蛋店」，面對完全競爭市場，則 A) 如果別家鐵蛋店每顆鐵蛋賣15元，「婆婆鐵蛋店」可叫價16元以增加利潤 B) 「婆婆鐵蛋店」可能勾結「阿妹鐵蛋店」，對付「大哥大鐵蛋店」 C) 如果別家鐵蛋店每顆鐵蛋賣15元，「婆婆鐵蛋店」也只能跟著叫價15元 D) 如果別家鐵蛋店每顆鐵蛋賣15元，「婆婆鐵蛋店」可叫價14元以吸引顧客、增加利潤 Answer: C

35.如果完全競爭廠商在價格等於邊際成本時生產，則其獲利情況如何: A)可賺取正利潤 B)蒙受損失 C)可賺取正常利潤 D)利潤可能正可能負Answer: D

36.假設「樂活魚乾公司」為完全競爭廠商，如下圖顯示其邊際成本和平均總成本曲線。若市場價格為$10，則由圖中可看出 A) 最適情況下廠商利潤為 $300 B) 邊際收益等於 $10，最適產出為200 C) 廠商每銷售1單位產量賺得約 $8利潤 D) 廠商每銷售1單位產量賺得約 $10利潤

Answer: B

37.假設「干乃迪養豬場」為一完全競爭廠商，其短期固定成本（FC）、總成本（TC）如下表所示，則下列有關其短期均衡的敘述何者正確？ A) 若市場價格為$30，「干乃迪養豬場」無利可圖，但會繼續經營養豬場 B) 若市場價格為$160，「干乃迪養豬場」有利可圖 C) 若市場價格為$200，「干乃迪養豬場」無利可圖，會退出市場 D) 若市場價格為$50，「干乃迪養豬場」有利可圖 Answer: B

38.如下圖顯示，「幼咪咪面紙公司」完全競爭廠商的邊際成本和短期平均成本曲線。從圖形中可看出廠商在極大化其利潤下會 A) 在長期有損失 B) 在短期有損失且會關閉 C) 賺得經濟利潤 D) 有經濟損失且在短期會繼續生產

Answer: D

39.假設礦泉水市場為完全競爭市場，而個別廠商的長期平均成本及長期邊際成本分別為LAC=q+100/q，LMC=2q，又礦泉水的市場總需求線為Q=8000-50P，則下列敘述何者為非？ A) 長期市場中總交易量為7000 B) 市場上共有600家廠商 C) 長期均衡時每家廠商的產量為10 D) 長期市場均衡價格為$20 Answer: B

40.假設台灣資訊產業為一完全競爭產業，若此產業增加產量時會導致原料成本下降或工資下降，則我們可知台灣資訊產業屬於 A) 成本不變之產業,市場長期供給為水平線 B) 成本遞增或遞減產業皆有可能 C) 成本遞減之產業,市場長期供給為負斜率 D) 成本遞增之產業,市場長期供給為正斜率

Answer: C

二. 簡答與計算

1. Mankiw, p.308 problems and applications no.3

Answer: Once you have ordered the dinner, its cost is sunk, so it does not represent an opportunity cost. As a result, the cost of the dinner should not influence your decision about whether to finish it or not.

2. Mankiw, p.308 problems and applications no.4

Answer: Because Frank’s average total cost is $290/50 = $5.80, which is greater than the price, he will exit the industry in the long run. Because fixed cost is $30, average variable cost is ($290 − $30)/50 = $5.20, which is greater than price, so Frank will shut down in the short run.

3.a.為什麼廠商願意在利潤為零時生產?

b.短期利潤小於零而仍然生產的廠商，是理智的選擇嗎? (請利用經濟利潤、價格與相關成本間的關係解釋本題)

Answer:

a. economic profit =0 means earning normal profit.

b. As long as P>AVC, it covers part of fixed costs if the firm produces at the quantity in which MR=MC; however, if the firm shuts down, it needs to pay all the fixed costs.

4.你認為『在完全競爭市場中, 一個追求利潤最大的廠商跟一個追求收益最大的廠商, 前者的最適產量比後者小。』這句話對嗎？(1分) Why? (5分)

Answer: 對. 追求利潤最大的廠商,最適產量是當MR=MC時; 追求收益最大的廠商,則是產量愈大收益愈大.

5.假設「俏美眉成衣廠」為一完全競爭廠商，其短期成本函數為TC=500+2q+0.001q^2，

a.廠商的短期AFC, AVC, ATC, MC各是多少？

b.廠商的短期供給曲線為何？

c.如果市場的均衡價格為6時, 廠商的均衡產量和生產者剩餘分別是多少?

Answer:

a. AFC=500/q; AVC=2+0.001q; ATC = 500/q +2+0.001q; MC=2+0.002q

b. P=2+0.002q , P2

c. q*=2,000; c.s.=4,000

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