Question

True/false. In the long-run, if price is above average fixed cost but below average total cost a firm should stay in the market.

True/false. Total cost divided by output is marginal cost.

True/false. In the long-run, firms in a competitive market earn zero profit and the market price is set such that each individual firms' average total cost is minimized.

True/false. The average fixed cost curve never increases as quantity increases.

True/false. The marginal cost curve passes through the minimum point of the AVC and ATC curves.

True/false. The money spent on four acres of land is an example of a fixed cost, whereas money spent on renting a warehouse is a variable cost.

Answer 1

In the long-run, if price is above average fixed cost but below average total cost a firm should stay in the market.

FALSE. In the long run there will not be any fixed cost. All the factors are variable in the long run.

Also in the long run the price should be equal the ATC to stay a firm in the market.

Total cost divided by output is marginal cost.

FALSE. The marginal cost can be calculated by the formula

MC = Changes in the TC divided by Changes in the output.

It is the difference in the TC when the producer produces one more additional unit of output.

In the long-run, firms in a competitive market earn zero profit and the market price is set such that each individual firms' average total cost is minimized.

TRUE. In the long run all firms gets normal profit in a competitive market. The MR=MC condition should be hold good. Along with this the Minimum of ATC should be equal to the AR.

The average fixed cost curve never increases as quantity increases.

TRUE. AFC always decreases with the increase in the output as the TFC remains constant.

The marginal cost curve passes through the minimum point of the AVC and ATC curves.

TRUE. The MC always intersect the minimum points of AVC and ATC curves.

The money spent on four acres of land is an example of a fixed cost, whereas money spent on renting a warehouse is a variable cost.

FALSE. Both are fixed cost. Both are treated as fixed cost as they do not related with volume of output.