Question

1. True or false?(1 point each)
   1. When marginal product is less than average product, average product is decreasing.
   2. In the long run, fixed costs are small.
   3. Marginal cost is the increase in total cost that results from a one-unit increase in a variable input.
   4. The vertical distance between the average variable cost curve and the average total cost curve equals average fixed cost.
   5. Average fixed costs are constant.
   6. Perfectly competitive firms are price takers.
   7. In the long run, perfectly competitive firms make zero economic profit, that is, their owners make a normal profit.
   8. In the short-run, a firm shuts down when the price is less than the average total cost.
   1. If a firm is maximizing profits, the extra revenue it receives from selling its last unit of output exceeds the extra cost of producing that unit.

Answer 1

A.) True. Average product keeps on decreasing as long as marginal product is less than the average product. The average product will be at its minimum when the marginal cost is equal to the average cost. From there on, average product will be less than the marginal product

B.) True. As time passes by the number of units priduced keeps on increasing which decreases the average fixed costs

C.) True. Basic definition of marginal cost

D.) True

E.) False. Fixed costs are constant. Average fixed costs are not. As the number if units produced keeps on increasing, the average fixed costs will decrease

F.) True. Perfectly competitive firms have no control over the market and cannot influence the price. Hence they are price takers

G.) True. Since price equals marginal cost therefore they make zero economic profit

H.) False. Firms will shut down if price is less than the average variable cost

I.) False. A profit maximising firm will sell to the point where marginal revenue equals marginal cost