Marginal cost

  • The farmer sells apples in a perfectly competitive market at a price of $1/pound. The farmer’s marginal cost, average total cost, and average variable cost curve can be represented by the following:


Should the farmer continue to operate in the short run?


  1. No
  2. Can’t be determined using the information provided
  3. Yes


  • Suppose the firms in a monopolistically competitive market are earning positive economic profits. What will happen to move the market to its long-run equilibrium?


  1. The firms’ demand curves will become less elastic.
  2. The demand curves faced by firms in the market will shift to the right.
  3. More close substitutes will appear in the market.
  4. Some firms will exit the market if they can’t cover all of their fixed and variable costs.


3) Refer to the Table 1.


Table 1


What is the equilibrium of the above game illustrated in Table 1?


  1. A) A,X
  2. B) B,X
  3. C) A,Y
  4. D) V,Y


4) The table below shows the demand curve and cost information for a firm that is a monopoly. If they maximize their profits, what price will they charge?


PriceQuantityTotal Cost
$1,000 $500


  1. $200
  2. $600
  3. $800
  4. $400


5) A firm is likely to be a price taker when

  1. a) it sells a differentiated product.
  2. barriers to entry are substantial.
  3. it has market power.
  4. it represents a small fraction of the total market.
  5. firms in the industry collude.


6) Profit for a perfectly competitive firm can be expressed as

  1. a) Profit = P – MC, where P is price and MC is marginal cost.
  2. Profit = P – ATC, where P is price and ATC is average total cost.
  3. Profit = (P-ATC) x Q, where P is price, Q is output, and ATC is average total cost.
  4. Profit = P x Q, where P is price and Q is output.
  5. Profit = (P x Q) – (TC x Q), where P is price, Q is output, and TC is total cost.




Camila grows Christmas trees. Her cost of production is shown in the table below.


Suppose the market for Christmas trees is perfectly competitive and that the market price for Christmas trees is $51 per tree.


  • How many Christmas trees should Camila grow?

Camila should grow ______ trees.


  • What is Camila’s profit? Camila’s profit is $_____.




Imagine that the curves shown in the accompanying figure represent two demand curves for traditional wings (basket of six) at Buffalo Wild Wings.



  • The movement from point A to B on D1 is caused by
  1. a) a decrease in the price of baskets of traditional wings.
  2. b) an increase in the price of baskets of traditional wings.
  3. c) an increase in the number of buyers.


10) Indicate which of the following could cause a movement from point A to C.

  1. The expectation of a lower future price for traditional wings.
  2. A decline in vegetarianism.
  3. A rise in the price of hot sauce.
  4. A decline in buyer incomes.


Last Updated on November 17, 2019

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