QUESTION 11 In the short-run, if a perfectly competitive firm is producing at a price below...

QUESTION 11

In the short-run, if a perfectly competitive firm is producing at a price below average total cost, its economic profit is

		positive.
		zero.
		negative.
		positive, zero, or negative.

QUESTION 12

Assume that a firm's marginal revenue barely exceeds marginal cost. To maximize profit, teh firm should:

		expand output.
		contract output.
		maintain output.
		there is insufficient information to answer the question.

QUESTION 13

In the short run, a perfectly competitive firm will stay in business as long as:

		Price equals average revenue.
		marginal revenue is greater than marginal cost.
		price exceeds average variable cost.
		price is less than average variable cost.

QUESTION 14

Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC), and the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would:

		immediately shut down and get out of the industry.
		continue to produce a quantity such that marginal revenue equals marginal cost.
		shut down temporarily, in hopes of restarting in the near future.
		cut price and expand output in hopes of achieving economies of scale

QUESTION 15

Where is the "short-run shut down point" for a perfectly competitive firm?

		The lowest point of AVC curve.
		The lowest point of ATC curve.
		The lowest point of MC curve.
		It depends. Could be the lowest point of AVC, ATC, or MC curve.

Solutions

Expert Solution

1. Negative as if a perfectly competitive firm is producing at a price below average total cost it means the firm is not able to cover its total cost and it lead the firm towards negative profits. Option C is correct.

2. Expand output as it means the firm has not been utilizing to its fullest level. Therefore, by increasing the output the marginal revnue will increase and it will exceeds marginal coast and maximize profit. Option A is correct.

3. A perfectly competitive firm will stay in business as long as price exceeds average variable cost. It means the firm can operate till this level with a loss but below this point the firm gets shutdown. Option C is correct.

4. The firm will continue to produce a quantity such that marginal revenue equals marginal cost. Option B is correct.

5. The lowest point of AVC curve as from this point a firm cannot continue their business. Option A is correct.

Rahul Sunny answered 1 year ago

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