Microeconomics
Problem Set #7
Perfect Competition
1. Suppose that the price of Oranges is $4. In addition, suppose that the firm's total costs are
$32 and that the firm cu
ently sells 110 Oranges.
Given this information, what is this firm's total revenue?
Use the following information to answer questions 2 through 5:
The table below shows data for the production of avocados for an individual firm operating
in a perfectly competitive market.
Quantity of avocados Total Revenue Total Costs
0 0 10
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
2. Given this data, complete the table:
Quantity of avocados Marginal Revenue (MR) Marginal Costs (MC) Profit
0 - -
10
20
30
40
50
60
70
80
3. At what quantity does this firm maximize its profit?
NOTE: If there are two quantities with the same level of profits, pick the larger of the two
quantities!
4. What is marginal revenue at the profit maximizing quantity?
NOTE: If there are two quantities with the same level of profits, pick the larger of the two
quantities!
5. What is marginal cost at the profit maximizing quantity?
NOTE: If there are two quantities with the same level of profits, pick the larger of the two
quantities!
6. The graph below shows cost curves for a firm operating in a perfectly competitive market.
Suppose that the equili
ium price is $21. This firm is earning
a. Profits
. Zero Economic Profits (Break-even point)
c. Losses
7. The graph below shows cost curves for a typical firm operating in a perfectly competitive
market.
Suppose that the equili
ium price is $12. What will happen in this market in the long run?
a. New firms will enter.
. No new entry/no exit.
c. Existing firms will exit.
8. The graph below shows cost curves for a typical firm operating in a perfectly competitive
market.
Suppose that the equili
ium price is $12. What will this firm do in the short run?
a. Produce.
. Exit.
c. Shut down.
9. The graph below shows cost curves for a firm operating in a perfectly competitive market.
Suppose that the equili
ium price is $16.56. This firm is earning
a. Profits
. Zero Economic Profits (Break-even point)
c. Losses
10. The graph below shows cost curves for a firm operating in a perfectly competitive market.
Suppose that the equili
ium price is $6.56. This firm is earning
a. Profits
. Zero Economic Profits (Break-even point)
c. Losses
11. The graph below shows cost curves for a typical firm operating in a perfectly competitive
market.
Suppose that the equili
ium price is $2. What will this firm do in the short run?
a. Produce.
. Exit.
c. Shut down.