Question

which of the following is true

a) if the market price >ATC , The firm incurs loss

b) if the market price >ATC , The firm makes profit

c) if the market price >ATC , The firm ihas zero ecomonic profit

d) if the market price >ATC , The firm must shut down

2) refer to the bellow what is the average cost of the 3 hours of labors

hours of labor	total product	marginal product
0
1	220	220
2	370
3	540	170
4	650	100
5		50

1)60

2)80

3)180

4)540

Answer 1

If the market price >ATC, The firm makes a profit.

ATC is average total cost also known as per-unit cost. So if per unit cost is less than the market hence the firm is making a profit.

Profit (per unit) = Price - ATC

Option B is correct

A) If the market price >ATC, The firm incurs a loss

This statement is incorrect because the firm incurs loss if the market price is less than ATC.

C) If the market price >ATC, The firm has zero economic profit.

This statement is incorrect because if the market price >ATC then the firm is making a positive economic profit, the firm makes zero economic profit when market price = ATC

D) If the market price >ATC, The firm must shut down

This statement is incorrect. The firm shut's down when it is not able to cover its variable cost. So a firm shuts down when market price < AVC.

2) Average product of the 3 hours of labors

Average product = Total Product / Hours of labor

Average product = 540 / 3

Average product = 180