Question

In: Economics

1. Assume the following: sales price is $9, output is 5,000 units, average total cost is...

1. Assume the following: sales price is $9, output is 5,000 units, average total cost is $12, marginal cost is $9, and average variable cost is $9.50. What should the firm do and why?

D. Continue to produce because price can be increased

A. Continue to operate and reduce costs to earn a profit

C. Shut down because the price is less than the average variable cost

B. Shut down because the firm’s earning a loss of $15.00

2. For a firm in a perfectly competitive market, which of the following is true?

C. Its short-run supply curve is the marginal cost curve above the average variable cost curve.

A. Its short-run supply curve is vertical

D. Its short-run supply curve is negatively sloped.

B. Its short-run supply curve is the average variable cost curve.

3. If a profit-maximizing, perfectly competitive firm is producing at a point on the marginal cost curve between average variable cost and average total cost, it should do which of the following?

C. Continue producing in the short run

A. Shut down in the short run

D. Increase the fixed costs

B. Leave the market in the short run

4. For the perfectly competitive, profit-maximizing firm, ____________.

C. P > MR > MC

A. P = MR > MC

B. P > MR = MC

D. P = MR = MC

Solutions

Expert Solution

1. sales price is $9, output is 5,000 units, average total cost is $12, marginal cost is $9, and average variable cost is $9.50.

The firm should shut down because the price is less than AVC so it is not able to recover its variable costs

C. Shut down because the price is less than the average variable cost

2. For a firm in a perfectly competitive market, which of the following is true?

the supply curve is the MC curve above the minimum AVC

C. Its short-run supply curve is the marginal cost curve above the average variable cost curve.

3. If a profit-maximizing, perfectly competitive firm is producing at a point on the marginal cost curve between average variable cost and average total cost, it should do which of the following?

continue to produce as it is able to recover its variable cost in the short run

C. Continue producing in the short run

4. For the perfectly competitive, profit-maximizing firm,

D. P = MR = MC

Rahul Sunny answered 2 years ago
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