Let's work through the questions one by one.

12. Refer to Figure 7-7: When the price is P2, producer surplus is...

Producer surplus is the area above the supply curve and below the price level (P2). Looking at the figure:

• The surplus is the sum of areas A + B + C (the area above the supply curve from Q1 to Q2 and below P2).

Answer: B. A + B + C.

13. Refer to Figure 7-7: Suppose producer surplus is larger than C but smaller than A + B + C. The price of the good must be...

If producer surplus is larger than C, the price must rise above P1. However, if it is smaller than A + B + C, the price cannot reach P2. This means the price must be between P1 and P2.

Answer: A. Between P1 and P2.

14. Which of the following statements is INCORRECT?

• A. The marginal-cost curve crosses the average-total-cost curve at its minimum: Correct. This is a fundamental principle of cost curves.
• B. The marginal-cost curve crosses the average-total-cost curve at its maximum: Incorrect. This is a false statement, as it should cross at the minimum of the ATC curve, not its maximum.
• C. When MC < ATC, average total cost is falling: Correct.
• D. When MC > ATC, average total cost is rising: Correct.

Answer: B. The marginal-cost curve crosses the average-total-cost curve at its maximum.

15. Why do competitive firms continue operating with zero economic profit?

Zero economic profit means the firm's revenue covers both explicit costs and implicit costs (opportunity costs). Accounting profit can still be positive because it excludes opportunity costs.

Answer: B. Economic profit is zero, but accounting profit is positive.

Let me know if you'd like detailed explanations or have questions!

Follow-up Questions:

1. What is the formula for calculating producer surplus in general?
2. How does a rise in price affect consumer and producer surplus?
3. Can you explain the relationship between marginal cost (MC) and average total cost (ATC)?
4. Why does zero economic profit not imply a loss for firms?
5. How would the graph change if the supply curve shifted outward?

Tip: Always visualize the supply and demand graphs to better understand surplus and cost-related questions!