Question

1.

We know that average _______ cost is ______ when marginal cost is less than average total cost.

		variable; rising
		fixed; rising
		total; falling
		total; rising

2.

In the short run, if a company shuts down, which of the following will happen?

		Total revenue will be zero, but total fixed costs will still have to be paid.
		Total revenue will be zero, and total costs will be zero.
		Total economic profit will be zero, and total costs will be positive.
		Total revenue will be zero, but total variable costs will still have to be paid.

3.

Output levels will maximize total economic profits in the short run in which of the following situations?

		When total costs are minimized
		When total revenues are maximized
		When variable costs are minimized
		When marginal costs and marginal revenues are equalized

4.

Which of the following is true of the industry short-run supply curve?

		It is always equal to marginal physical product.
		It is downward sloping.
		It is the summation of the individual firm's supply curves.
		It is impossible to compute without knowing about the position of the marginal revenue curve.

Answer 1

Q1) The answer is (c) total, falling as MC cuts the ATC at its minimum and thus when MC < ATC, ATC is falling

Q2) The answer is (a) as if the firm shuts down, no output is sold and total revenue is 0, but the fixed cost is independent of output produced and thus will still have to be paid in the short run.

Q3) The answer is (d) When marginal costs and marginal revenues are equalized as this is the profit maximizing condition for any firm in any type of industry.

Q4) The answer is (c) It is the summation of the individual firm's supply curves as the industry supply curve is the horizontal summation of the individual firms supply curves in the industry.