Page 631 - Krugmans Economics for AP Text Book_Neat

Tackle the Test: Multiple-Choice Questions
1. A perfectly competitive firm will maximize profit at the 3. A firm is profitable if
quantity at which the firm’s marginal revenue equals a. TR < TC.
a. price. b. AR < ATC.
b. average revenue. c. MC < ATC.
c. total cost. d. ATC < P.
d. marginal cost. e. ATC > MC.
e. demand.
4. If a firm has a total cost of $200, its profit-maximizing level
2. Which of the following is correct for a perfectly competitive of output is 10 units, and it is breaking even (that is, earning
firm? a normal profit), what is the market price?
I. The marginal revenue curve is the demand curve. a. $200 Section 11 Market Structures: Perfect Competition and Monopoly
II. The firm maximizes profit when price equals marginal b. $100
cost. c. $20
III. The market demand curve is horizontal. d. $10
a. I only e. $2
b. II only
5. What is the firm’s profit if the price of its product is $5 and
c. III only
it produces 500 units of output at a total cost of $1,000?
d. I and II only
a. $5,000
e. I, II, and III
b. $2,500
c. $1,500
d. −$1,500
e. −$2,500

Tackle the Test: Free-Response Questions

1. Draw a correctly labeled graph showing a profit-maximizing
1 point: Average total cost is U-shaped and correctly labeled.
perfectly competitive firm producing at its minimum average
total cost. 1 point: Quantity is found where MC = MR.
1 point: Average total cost reaches its minimum point at the
Answer (6 points) profit-maximizing level of output.
Price, cost 2. Refer to the table provided. Price is equal to $14.
of unit a. Calculate the firm’s marginal cost at each quantity.
MC
b. Determine the firm’s profit-maximizing level of output.
c. Calculate the firm’s profit at the profit-maximizing level of
output.
ATC
Short -Run Costs for Jennifer and Jason’s Farm
MR = P = D
Quantity of tomatoes Variable cost Total cost
Q (bushels) VC TC
0 $0 $14
1 16 30
2 22 36
Q* Quantity
3 30 44
1 point: Vertical axis and horizontal axis labels are correct (“Price, cost of 4 42 56
unit” on vertical axis; “Quantity” on horizontal axis). 5 58 72
1 point: The line representing demand, marginal revenue, and price is 6 78 92
horizontal and correctly labeled. 7 102 116
1 point: Marginal cost is “swoosh” shaped or upward sloping and correctly
labeled.

module 58 Introduction to Perfect Competition 589