Chapter 1. eFigure 8.10
eFigure
Question 1.1
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Correct! To maximize its profit, the firm will set its price where marginal cost is equal to marginal revenue. Since the firm we are considering here operates in a perfectly competitive market structure, P = d = MR, so equating marginal revenue to marginal cost occurs at the same quantity where price is equal to marginal cost. Graphically, this is at Q*, where P = MR = MC.
Incorrect. To maximize its profit, the firm will set its price where marginal cost is equal to marginal revenue. Since the firm we are considering here operates in a perfectly competitive market structure, P = d = MR, so equating marginal revenue to marginal cost occurs at the same quantity where price is equal to marginal cost. Graphically, this is at Q*, where P = MR = MC.
Question 1.2
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100
Correct! Producer surplus is equal to the mark up the firm receives, in essence the difference between the market price and the marginal cost of the unit produced. However, for the first unit produced, the marginal cost of the unit is equal to the variable cost of that unit. Recall that marginal cost involves only variable cost and not fixed cost. Variable cost is the sum of all marginal costs. Given that, for the first unit, the difference between the market price and the marginal cost of the unit produced is equivalent to the difference between the market price and the variable cost of that unit.
Incorrect. Producer surplus is equal to the mark up the firm receives, in essence the difference between the market price and the marginal cost of the unit produced. However, for the first unit produced, the marginal cost of the unit is equal to the variable cost of that unit. Recall that marginal cost involves only variable cost and not fixed cost. Variable cost is the sum of all marginal costs. Given that, for the first unit, the difference between the market price and the marginal cost of the unit produced is equivalent to the difference between the market price and the variable cost of that unit.
Question 1.3
PyS81CJfoxkHN0wqaNj3y6tF3Z3WQHRwI/w5cydEXjOfIAj8zaHP+d2TQeaAH2MyOVmQ9H8cOsMvnLzE56PmVZixHH42XBHgtJnniWyl9sFRSmq9BSSm6zUTwMtJa1pSXMLAjxG0e4fAeOx3NsHPaTV7YEb4pv0sZrOiP7Jsr3awuJ004V/413ajKku8Peskktgb2Lvq81KayHIz2FpI8FvLKAqUlookatigoEHvISdoA71LxvFaO8Fzc0yup7T44mRGnSvFw3r4vZ2IzVIA6ev2vYdYroCX8S61LqKt2d17genJial5nKI9poouPgST100
Correct! Producer surplus is the difference between total revenue and variable cost. Accordingly, for producer surplus to be positive it must be the case that total revenue exceeds variable cost. Since total revenue is equal to (P* x Q*) and variable cost is equal to (AVC* x Q*), total revenue exceeds variable cost (and producer surplus is positive) as long as price exceeds average variable cost.
Incorrect. Producer surplus is the difference between total revenue and variable cost. Accordingly, for producer surplus to be positive it must be the case that total revenue exceeds variable cost. Since total revenue is equal to (P* x Q*) and variable cost is equal to (AVC* x Q*), total revenue exceeds variable cost (and producer surplus is positive) as long as price exceeds average variable cost.
Question 1.4
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Correct! Producer surplus is equal to the difference between total revenue and variable cost. That is, PS = TR - VC.
Incorrect. Producer surplus is equal to the difference between total revenue and variable cost. That is, PS = TR - VC.