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.
The long-run equilibrium condition
Why perfect competition is doubly efficient
The cost identities
Average product
Constant-cost industry
Shutdown rule
Calculating profit on a graph
Profit-maximizing rule
Marginal product
The shut-down rule
The competitive firm supply curve
Fixed cost
Short answer 1. Define or explain: Why minimum AVC is the boundary
3 ptsShort answer 2. Define or explain: Variable cost
3 ptsShort answer 3. Define or explain: Long-run adjustment with economic profit
3 ptsShort answer 4. Define or explain: Total cost
3 ptsFree response
7 ptsA profit-maximizing firm operates in a perfectly competitive market for wheat. The market is currently in long-run equilibrium.
Draw a correctly labeled side-by-side graph for the wheat market and the individual firm, showing price, output, and average total cost (ATC).
A new medical study is published revealing immense health benefits of consuming wheat. On your graphs, show the short-run effect of this study on market price, market quantity, firm price, and firm quantity. Shade the area of the firm's short-run economic profit.
Explain what will happen to the number of firms in this market in the long run, and how that will affect the market price and the individual firm's economic profit.