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 38 terms and is the same for everyone, so a teacher can assign “Unit 3, Paper 3” 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

Profit-maximizing rule

Why the cost curves are U-shaped

Why a firm produces at a loss in the short run

Market vs firm graph in perfect competition

Marginal cost

Total product

Marginal revenue

Variable cost

Short run vs long run in production

Long-run adjustment with economic profit

Where MC crosses ATC and AVC

Sunk cost

Short answer 1. Define or explain: Economies of scale

3 pts

Short answer 2. Define or explain: Productive vs allocative efficiency in perfect competition

3 pts

Short answer 3. Define or explain: Price taker

3 pts

Short answer 4. Define or explain: Constant returns to scale

3 pts

Free response

5 pts

SHORT FREE-RESPONSE. Ridgeline Dairy is one of many identical firms in a perfectly competitive market. The market price of milk is $6 per gallon. At Ridgeline’s profit-maximizing output of 100 gallons per day, average total cost is $8 and average variable cost is $5.

Explain the rule Ridgeline uses to choose its profit-maximizing output, and identify its marginal revenue.

Calculate Ridgeline’s daily economic profit or loss, showing your work.

Should Ridgeline continue operating in the short run? Justify your answer with a calculation.

Explain what happens in this market in the long run and what the price will be when adjustment is complete.