Week 10 Quiz

In the course's illustrative chair workshop, a price taker, the market price is 40 dollars a chair, and its total revenue is 0, 40, 80, 120, 160, 200, and 240 dollars for 0 to 6 chairs. How much does selling the 3rd chair add to its revenue?

Select one.

• 120 dollars, the total revenue from 3 chairs
• 16 dollars, the 3rd chair's marginal cost
• An amount equal to the market price
• 80 dollars, the total revenue from 2 chairs

In the course's illustrative chair workshop, a price taker, fixed cost is 60 dollars a day and total cost is 60, 90, 110, 126, 148, 180, and 228 dollars for 0 to 6 chairs, so marginal cost is 30, 20, 16, 22, 32, and 48 dollars for the 1st to 6th chair. At a market price of 40 dollars, how many chairs a day does the workshop make?

Select one.

• 4 chairs
• 5 chairs
• 6 chairs
• 3 chairs

In the course's illustrative chair workshop, a price taker, fixed cost is 60 dollars a day and total cost is 60, 90, 110, 126, 148, 180, and 228 dollars for 0 to 6 chairs, so marginal cost is 30, 20, 16, 22, 32, and 48 dollars for the 1st to 6th chair. The market price is 50 dollars a chair, and the workshop makes 6 chairs, where average total cost is 38 dollars. What is its daily profit?

Select one.

• 300 dollars
• 12 dollars
• 70 dollars
• 72 dollars

In the course's illustrative chair workshop, a price taker, fixed cost is 60 dollars a day and total cost is 60, 90, 110, 126, 148, 180, and 228 dollars for 0 to 6 chairs, so marginal cost is 30, 20, 16, 22, 32, and 48 dollars for the 1st to 6th chair. Its variable cost at 4 chairs is 88 dollars. The market price falls to 30 dollars, and the workshop's best output is 4 chairs. What should it do today?

Select one.

• Operate, because it loses 28 dollars by operating and 60 dollars by closing
• Shut down, because any loss means it should close
• Shut down, because 30 dollars is below its lowest average total cost of 36
• Operate, because 30 dollars is above its lowest average total cost

In the course's illustrative chair workshop, a price taker, average variable cost is 30, 25, 22, 22, 24, and 28 dollars and average total cost is 90, 55, 42, 37, 36, and 38 dollars for 1 to 6 chairs. Below what price should the workshop shut down in the short run?

Select one.

• 36 dollars, the lowest average total cost
• 16 dollars, the lowest marginal cost
• 60 dollars, the fixed cost
• 22 dollars, the lowest average variable cost

In a perfectly competitive market, firms like the illustrative chair workshop are earning economic profit at a price of 40 dollars, and the workshop's lowest average total cost is 36 dollars. Which statements describe what happens in the long run? Select all that apply.

Select every option that applies.

• New firms enter, shifting the market supply curve to the right
• The market price falls toward 36 dollars
• Entry shifts the market demand curve to the right
• The market price rises as more firms sell chairs
• Each firm keeps earning the same economic profit forever

True or false: a firm in a perfectly competitive market can set its price a little above the market price and still keep some of its buyers.

True or false.

• True
• False

In the long run, the illustrative chair workshop sells 5 chairs at 36 dollars, and its revenue of 180 dollars equals its total cost of 180 dollars, which counts the owner's own time as a cost. What does this zero economic profit mean?

Select one.

• The owner earns nothing for running the workshop
• The owner's time and money earn what they could earn in their next-best use, and accounting profit is positive
• Accounting profit is zero as well, because accounting profit and economic profit always subtract exactly the same costs
• The workshop should shut down, because it earns no profit

A classmate says the illustrative chair workshop should keep making chairs until the price equals average total cost. To decide how many chairs to make, which cost should the workshop compare with the price, one chair at a time?

Select one.

• The change in total cost from one more chair
• Average total cost, the whole bill shared over the chairs
• Average fixed cost, the rent shared over the chairs
• Fixed cost, the rent and tools paid each day

Which rule for choosing output holds for every profit-maximizing firm, whatever the structure of the market it sells in?

Select one.

• Produce where price equals average total cost
• Produce where price equals average variable cost
• Produce where marginal revenue equals marginal cost
• Produce where total revenue is as large as possible