Question

In: Economics

For each of the following, evaluate whether the statement is true or false, and provide an...

For each of the following, evaluate whether the statement is true or false, and provide an explanation for your answer.

  1. A firm will shut down in the short run if revenue is not sufficient to cover all of its fixed costs of production. (2 points)
  2. If the marginal cost of producing the tenth unit of output is $3, and if the average total cost of producing the tenth unit of output is $2, then at ten units of output, average total cost is rising. (2 points)
  3. At the profit-maximizing quantity of output for a monopolist, average revenue, marginal revenue, and price are all equal. (2 points)

Solutions

Expert Solution

The first statement is False. Shut down point of a firm will come if the price is less than the average variable cost or the revenue should cover the total variable cost.

The second statement is true. as if the marginal cost is above average cost, this means average cost is rising and if marginal cost is less than average cost, this means average cost is falling.

The given statement is False. This is because for a profit maximizing monopolist, price or average revenue is more than that of marginal revenue.


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