Production, Cost & Perfect Competition unit test

A test on this unit alone, marked as a percentage and a letter grade — for the test your class is actually sitting, rather than for May. Answer everything, then submit once: seeing the answer to question 3 before attempting question 4 makes the final percentage meaningless.

Paper 1 Paper 2 Paper 3

Each paper is built from this unit’s 57 terms and is the same for everyone, so a teacher can assign “Unit 3, Paper 2” and every student sits the identical test. Multiple choice is marked objectively; the written sections you mark yourself against the model answer and rubric.

Suggested time 32 min 29 points0/17 attempted

Why not produce where MR > MC

The shut-down rule

Minimum efficient scale

The competitive firm supply curve

Marginal cost

Average variable cost

Sunk cost

Constant-cost industry

Price taker

Diminishing returns vs diseconomies of scale

Productive vs allocative efficiency in perfect competition

Why AFC falls forever

Short answer 1. Define or explain: Variable cost

3 pts

Short answer 2. Define or explain: Constant returns to scale

3 pts

Short answer 3. Define or explain: Economies of scale

3 pts

Short answer 4. Define or explain: Average fixed cost

3 pts

Free response

5 pts

SHORT QUESTION. The table shows Protecto's short-run cost schedule for producing helmets. Protecto can sell as many helmets as it wants at the market price of $60 each, and its fixed cost is $80. Quantity Total cost ($) Marginal cost ($) 4 200 30 5 235 35 6 275 40 7 320 45 8 375 55 9 440 65 10 520 80

A. Identify the market structure in which Protecto sells helmets.

B. Calculate Protecto’s average variable cost when it produces 4 helmets. Show your work.

C. Calculate Protecto’s economic profit when it sells 5 helmets. Show your work.

D. Identify Protecto’s profit-maximizing quantity of helmets. Explain your answer using marginal analysis and numbers.

E. Protecto is earning positive economic profit in the short run. As the market for helmets adjusts to long-run equilibrium, will the market price of helmets increase, decrease, or remain the same? Explain.