1. Economic profit equals
minus
.
2. Economic cost equals
cost plus
cost.
3. For a perfectly competitive firm, marginal revenue equals
, and to maximize profit, the firm produces the quantity at which
equals .
4. Farmer Brown sells her wheat in a perfectly competitive market. Suppose the current market price of wheat is $2.50 per bushel. Farmer Brown can sell as much wheat as she likes at $
per bushel.
5. At the current output level, a farmer’s marginal cost of producing sugar is $0.30. If the price of sugar is $0.22 per pound, the farmer should
(increase/ decrease) production. If the price of sugar is $0.32 per pound, the farmer should
(increase/ decrease) production.
6. A firm produces 20 units of output at a market price of $5, a marginal cost of $5, and an average cost of $3. The firm’s economic profit is $
, and the firm
(is/is not) maximizing its economic profit.
7. If the market price equals a firm’s break-even price, the firm earns
economic profit because
Equals
.
8. A decrease in price
(increases/decreases) a firm’s marginal revenue, so it
(increases/ decreases) the quantity supplied. This is the law of
in action.
9. The break-even price for switchgrass varies with
,
and on average is
per ton. (Related to Application 2 on page 545.)