Question

A monopolist will shut down in the short run if:

	a.	​total revenue is less than total variable cost.
	b.	​price is less than marginal revenue.
	c.	​marginal revenue is less than price.
	d.	​total revenue is less than total fixed cost.
	e.	​marginal revenue is less than marginal cost.

A movement from an abnormally high rate of unemployment toward a more typical level of unemployment would:

	a.	​move an economy from a point on the production possibilities curve to a point beyond the production possibilities curve.
	b.	​decrease the productivity of the economy.
	c.	​shift the production possibilities curve outward.
	d.	​move an economy from a point inside the production possibilities curve toward the curve.
	e.	​shift the production possibilities curve inward.

A perfectly competitive firm cannot make economic profits in the long run because:

	a.	​consumers will eliminate its profits.
	b.	​it is a price taker.
	c.	​there are no barriers to entry or exit in the industry.
	d.	​its advertising costs will rise to eliminate any economic profits.
	e.	​it faces a perfectly elastic demand curve.

Answer 1

Ans.1- (A)

A firm shuts down in the short run if P<AVC .

Multiply both sides by Q : P*Q<AVC*Q

so, a firm shuts down if total revenue< total variable cost.

Ans.2- (D)

When unemployment rate was very high society was not using its available resources efficiently and therefore it will operate inside the PPF. When unemployment falls ,it starts using its resources more efficiently and therefore it starts moving towards the PPF.

Ans.3- (C)

Positive economic profits are not possible due to free entry and exit of firms in a perfectly competitive industry.