1. Claude's Copper Clappers sells clappers for $65 each in a perfectly competitive market. At its present rate of output, Claude's marginal cost is $65, average variable cost is $45, and average total cost is $67. To maximize his profit or minimize his loss in the short run, Claude should a. increase output b. reduce output but not to zero c. maintain the present rate of output d. shut down e. raise price 2. Choose two (2) of the incorrect answers to the above multiple choice question and explain why they are incorrect.

1. The manufacturers of printers are operating in a perfectly competitive market. Each printer sold for $150. Suppose that the cost to produce each of printers initially shows a short span of decreasing marginal costs, followed by an increase in the marginal costs.  a.   Draw a possible total cost curve for producing printers. For a given quantity (Q) (placed at any location you choose on the horizontal axis), show the corresponding profit. b.   Draw the possible marginal cost curve for printer production. Indicate the maximum output level of profit.

In a perfectly competitive market there is a donut shop that sells 1,200 donuts daily. Each donut sells for the market price of $0.75 and they sell out every day. Assume that this company has labor costs of $275 and materials costs of $400.   a. At what price would this donut shop shutdown in the short run?   b. Using only variable costs, what is the donut shop’s daily profit?   - Now assume that the owner is thinking of adding a second location downtown. The capital investment required is $4,000. The normal rate of return is 5%.   c. If the new shop could operate under the same conditions as the original location is it a good business decision to expand?

18 Market Representative Firm MC i of A a $7 MR = P ATC b $5 AVC $2 D1 18,000 70 100 115 Quantity (Q) Output (Q) The diagram above shows a Perfectly Competitive market on the left, and a representative firm supplying in that market on the right. In the long run we would expect the market and the Price to Select one: a. existing firms to exit; increase b. new firms to enter; increase С. new firms to enter; decrease d. existing firms to exit; decrease Price $$$