Question

In: Economics

Question 2 : A) The long-run average total cost curve shows: Select one: a. the plant...

Question 2 :

A)

The long-run average total cost curve shows:

Select one:

a. the plant size or scale that the firm should build.

b. the average total cost of producing where diminishing returns are not present.

c. the lowest average total cost of producing every level of output in the long run.

d. where the most profitable level of output occurs.

B)

The minimum efficient scale is the:

Select one:

a. smallest output level where fixed costs are minimised.

b. level of output where diminishing returns have not set in yet.

c. level of output where all possible economies of scale have been exhausted.

d. plant size that yields the most profit.

C)

If a perfectly competitive firm achieves productive efficiency then:

Select one:

a. the price of the good it sells is equal to the benefit consumers receive from consuming the last unit of the good sold.

b. it is producing at minimum efficient scale.

c. it will raise its price in order to earn an economic profit.

d. it is producing the good it sells at the lowest possible cost.

D)

Both buyers and sellers are price takers in a perfectly competitive market because:

Select one:

a. both buyers and sellers in a perfectly competitive market are concerned for the welfare of others.

b. each buyer and seller is too small relative to others to independently affect the market price.

c. each buyer and seller knows it is illegal to collude to affect price.

d. the price is determined by government intervention and dictated to buyers and sellers.

E)

If a perfectly competitive firm's price is less than average variable cost, the firm:

Select one:

a. should increase output.

b. should shut down.

c. is earning a profit.

d. should increase price.

F)

A perfectly competitive firm's supply curve is its:

Select one:

a. marginal cost curve above the minimum of average fixed cost.

b. marginal cost curve above minimum average variable cost.

c. marginal cost curve above minimum average total cost.

d. marginal cost curve.

G)

If a competitive industry has a perfectly price-elastic long-run supply curve, it is:

Select one:

a. a decreasing-cost industry.

b. an increasing-cost industry.

c. a fixed-cost industry.

d. a constant-cost industry.

Solutions

Expert Solution

2(A)

The long-run average total Cost curve shows that:

c. the lowest average total cost of producing every level of output in the long run.

The reason behind this is, as the long run average total cost curve is u-shaped, so it shows the minimum cost associated with every level of production in the long run.

B.

The minimum efficient scale is the:

C. level of output where all possible economies of scale have been exhausted.

To achieve the minimum efficient scale the firm needs to take the help of all type of economies of scale.

C.

If a perfectly competitive firm achieves productive efficiency then:

B. it is producing at minimum efficient scale.
Productive efficiency occurs when no one can better off without others loss.

In case of perfectly competitive firm, the firm can achieve productive efficiency if it produces at a point where price equals to minimum average total cost.

D.

Both buyers and sellers are price takers in a perfectly competitive market because:

b. Each buyer and seller is too small relative to others to independently affect the market price.

As in case of perfectly competitive market,there is large number of buyers and sellers in the market, no one has any market power due to this.


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