Question

In: Economics

If price exceeds the minimum of average variable cost, then comparing marginal revenue to marginal cost...

If price exceeds the minimum of average variable cost, then comparing marginal revenue to marginal cost indicates how much additional profit is generated by the last unit of production and tells a firm whether it should increase output, decrease output or remain at the present level of output.

True

False

If the firm’s marginal cost is equal to its marginal revenue at the firm’s existing level of production, then the firm should maintain its current level of production to maximize profit.

True

False

Question text

A profit maximizing firm in a competitive market faces a price of $20 for its product. Its average variable cost is $15 and its average fixed cost is $8 at the quantity where marginal cost equals marginal revenue. In the short run, the firm will shut down and incur the total loss of its fixed costs.

True

False

A market is competitive if firms are price takers and goods offered for sale are essentially identical or largely the same for the firms.  

true

False

Solutions

Expert Solution

If price exceeds the minimum of average variable cost, then comparing marginal revenue to marginal cost indicates how much additional profit is generated by the last unit of production and tells a firm whether it should increase output, decrease output or remain at the present level of output. The statement is True, as if price exceeds average variable cost the firm will continue to operate despite suffering losses. Also the firm will produce at a point where marginal revenue equals the marginal cost of production.

If the firm’s marginal cost is equal to its marginal revenue at the firm’s existing level of production, then the firm should maintain its current level of production to maximize profit. The statement is True, as at this level the firm earns maximum revenue and keep the output level constant.

A profit maximizing firm in a competitive market faces a price of $20 for its product. Its average variable cost is $15 and its average fixed cost is $8 at the quantity where marginal cost equals marginal revenue. In the short run, the firm will shut down and incur the total loss of its fixed costs. The statement is False, The firm will continue to operate as the price is more than average variable cost of production.

P AVC AFC ATC MC
20 15 8 23 20

A market is competitive if firms are price takers and goods offered for sale are essentially identical or largely the same for the firms. The statement is True. In a perfectly competitive market the product is homogeneous and firms has no control over the price and takes the price as is decided by the industry.


Related Solutions

If price exceeds the minimum of average total cost, then comparing marginal revenue to marginal cost...
If price exceeds the minimum of average total cost, then comparing marginal revenue to marginal cost (x) tells a firm the total amount of profit that it will generate. (y) indicates how much additional profit is generated by the last unit of production. (z) tells a firm whether it should increase output, decrease output or remain at the present level of output. A. (x), (y) and (z) B. (x) and (y) only C. (x) and (z) only D. (y) and...
When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve...
When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because   a. the position of the marginal cost curve determines the price for which the firm should sell its product.   b. among the various cost curves, the marginal cost curve is the only one that slopes upward.   c. the marginal cost curve determines the quantity of output the firm is willing to supply at any...
If marginal cost exceeds marginal revenue, the firm A)should reduce its average fixed cost in order...
If marginal cost exceeds marginal revenue, the firm A)should reduce its average fixed cost in order to lower its marginal cost. B)may still be earning a positive accounting profit C)should increase the level of production to maximize its profit. D)is most likely to be at a profit-maximizing level of output. Who is a price taker in a competitive market? A)both buyers and sellers B)buyers only C)sellers only D)neither buyers nor sellers For a competitive firm, A)total cost equals marginal revenue....
When the Price (marginal revenue) is less that Average Total Cost, but more than Average Variable Cost
When the Price (marginal revenue) is less that Average Total Cost, but more than Average Variable Cost, the firm is making ___________ (positive profit/negative profit) and should    __________ (shut down/stay in business).
Display and explain the average variable cost curve. Display and explain marginal revenue, marginal cost and...
Display and explain the average variable cost curve. Display and explain marginal revenue, marginal cost and profit maximization.
1.If the firm is producing at a quantity of output where marginal cost exceeds marginal revenue,...
1.If the firm is producing at a quantity of output where marginal cost exceeds marginal revenue, then ________. (there can be multiple answers.) A)the firm should reduce production B)each marginal unit adds profit by bringing in more revenue than its cost C)the firm's perceived demand will shift to the left D)the excess profit would attract additional competition 2.In what way(s) is a monopolistically competitive firm inefficient?(there can be multiple answers.) A) It does not produce at the minimum of its...
QUESTION 8 For a monopolist: price equals average total cost. price is above marginal revenue. marginal...
QUESTION 8 For a monopolist: price equals average total cost. price is above marginal revenue. marginal revenue equals zero. marginal cost equals zero. QUESTION 9 An example of price discrimination is the price charged for: an economics textbook sold at a campus bookstore. gasoline. theater tickets that offer lower prices for seniors. a postage stamp. QUESTION 10 There is only one gas station within hundreds of miles. The owner finds that if she charges $3 a gallon, she sells 199...
Question 1 Output total cost marginal cost fixed cost average cost Total revenue average revenue Marginal...
Question 1 Output total cost marginal cost fixed cost average cost Total revenue average revenue Marginal revenue 0 10 0 1 16 20 2 26 40 3 40 60 4 60 80 5 88 100 6 120 120 A) Complete the missing data on the table B) What is the selling price of a laptop case explain your answer c) What is the profit maximizing level of output for this firm explain your answer d) create a graph using three...
If a profit-maximizing firm is producing an output level in which marginal revenue exceeds marginal cost,...
If a profit-maximizing firm is producing an output level in which marginal revenue exceeds marginal cost, should it produce more, less or the same? Why? What is the profit-maximizing quantity for any firm to produce?
Define the following: fixed cost, variable cost, marginal cost and marginal revenue
Define the following: fixed cost, variable cost, marginal cost and marginal revenue
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT