Question

9. If a fishing boat owner brings 10,000 fish to market and the market price is $7 per fish, she will have $70,000 in total revenue. If the average variable cost of 10,000 fish is $4 and the fixed cost of the boat is $20,000, what is her profit?

a. $1.
b. $3.
c. $1,000.

d. $3,000.

e. $10,000.

10. A firm is currently operating where the MC of the last unit produced = $64, and the MR of this unit = $70. What would you advise this firm to do?

a. Shut down.
b. Increase output.
c. Stay at current output.

d. Decrease output.
e. Decrease price.

11. When choosing the production level for tomorrow you find that at an output of 100 units, the total variable costs are $20,000 and the average fixed cost is only $50. If the market price is $200, you should:

a. b or e.
b. shut down.
c. produce more than 100 units.

d. produce fewer than 100 units.

e. produce where MC = MR.

12. If ABC Printing is producing an output level of 100, where MR is $5 and MC is $3, then the firm is:

a. maximizing total profit.
b. making too much profit.
c. making $200 total profit.
d. making $200 total loss.
e. making an unknown amount of profit or loss.

Answer 1

9.Average fixed cost=FC/Q

AFC=20,000/10,000=2

AC=AFC+AVC

AC=2+4=6

TC=AC*Q

TC=6*10000=60000

TR=7,0000

Profit=TR-TC

Profit=70,000-60,000=$10,000

Answer-e

10.MR>MC.If the firm increases production then MC rises but rise in output but increase in MC would be less than reduction in MR.

Answer-B

11.AVC=TVC/Q

AVC=20,000/100

AVC=20

The firm will not shut down because P>AVC.

It should produce at the level where MC=MR

Answer-E

12.MR>MC so the firm can capture more profits by raising production,as increase in MC will be less than fall in MR.

TR=5Q

TR=500

TC=3Q

TC=300

Profit=500-300=200

Answer-C