QUESTION 12 Assume that a firm's marginal revenue barely exceeds marginal cost. To maximize profit, teh...

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

12) if a firm's marginal revenue barely exceeds marginal cost then to maximize profit the firm should expand output such that the marginal revenue again becomes equal to marginal cost.

Hence, first option is correct

13) perfectly competitive form will stay in business in the short run as long as price exceeds average variable cost.

Third option is correct.

14) if the price is below the minimum average total cost but above the minimum average variable cost and the market price is expected to rise at least to ATC in the near future then in the short run if firm that is a price taker would continue to to produce a quantity such that marginal revenue ( which is equal to price) Equals Marginal cost.

Second option is correct

15) the short run shutdown point for a perfectly competitive firm is the lowest point of AVC curve.

First option is correct

Rahul Sunny answered 1 year ago

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