Question

1. Assume the following: sales price is $9, output is 5,000 units, average total cost is $15, marginal cost is $9, and average variable cost is $7.50. What should the firm do and why?

A. Shut down, because average total cost is greater than price

B. Shut down, because of a loss of $5,000

D. Continue to produce, because price is greater than average total cost

C. Continue to produce, because price is greater than average variable cost

2. The price charged by a firm in the perfectly competitive market is set by the __________.

D. firm itself

A. market

B. government

C. consumers acting in unison

3. Any firm that cannot cover its variable costs should __________ in the short run and __________in the long run.

D. shut down; leave the industry

C. shut down; decrease output

B. decrease output; leave the industry

A. decrease output; decrease output

4. Which of the following markets is closest to perfect competition?

A. The market for rough diamonds, where DeBeers controls the bulk of production.

C. The potato market, where many producers grow similar produce, frequently in Idaho.

D. The local water provider, where there are many similar providers throughout the country

B. The craft beer market, where there are thousands of small local producers each selling their own specialized brand.

Answer 1

1. sales price is $9, output is 5,000 units, average total cost is $15, marginal cost is $9, and average variable cost is $7.50.

The firm should produce in the short run as it is able to recover its variable costs

C. Continue to produce, because price is greater than average variable cost

2. The price charged by a firm in the perfectly competitive market is set by the

A. market

3. Any firm that cannot cover its variable costs should __________ in the short run and __________in the long run.

D. shut down; leave the industry

4. Which of the following markets is closest to perfect competition?

C. The potato market, where many producers grow similar produce, frequently in Idaho.