Tackle the Test: Free-Response Questions

1. Question

   Draw a correctly labeled graph showing a profit-maximizing perfectly competitive firm producing at its minimum average total cost.

   Rubric for FRQ 1 (6 points)

   

   1 point: Vertical axis and horizontal axis labels are correct (“Price, cost of unit” on vertical axis; “Quantity” on horizontal axis).

   1 point: The line representing demand, marginal revenue, and price is horizontal and correctly labeled.

   1 point: Marginal cost is “swoosh” shaped or upward-sloping and correctly labeled.

   1 point: Average total cost is U-shaped and correctly labeled.

   1 point: Quantity is found where MC = MR.

   1 point: Average total cost reaches its minimum point at the profit-maximizing level of output.

   (3 points)

2. Question

   Refer to the table provided. Price is equal to $14.

   
   

   
   

   1. Calculate the firm’s marginal cost at each quantity.

      
      
   
   

   2. Determine the firm’s profit-maximizing level of output.

      
      
   
   

   3. Calculate the firm’s profit at the profit-maximizing level of output. (3 points)

      
      
   
   

   
   

   
   

   
   

   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   

   Short-Run Costs for Jennifer and Jason’s Farm
   Quantity of tomatoes (bushels)	Variable cost	Total cost
   0	$0	$14
   1	16	30
   2	22	36
   3	30	44
   4	42	56
   5	58	72
   6	78	92
   7	102	116

   
   

   Rubric for FRQ 2 (3 points)

   

   1 point: Correct marginal cost values as shown in the table above.

   1 point: The profit-maximizing quantity is 4.

   1 point: The firm’s maximum profit is

   TR − TC = (4 × $14) − $56 $56 − $56 = $0.