Question

1. What is a firm’s break-even price?

A) The minimum average total cost.

B)

The minimum average fixed cost.

C)

The minimum average variable cost.

D) Any market price.

2. In the short run, a firm will continue to sell its product as long as:

A) it is making a positive profit.

B) the price is greater than average total costs.

C) the price is greater than average variable costs.

D) its marginal cost is increasing.

3. In the short run, fixed costs:

A) are an important feature in a firm's decision to produce or not produce.

B) have no impact on a firm's profit level.

C) do not exist.

D) remain constant.

4. Ashley knits scarves to sell on Etsy. Her marginal cost of knitting one more scarf is $8. A consumer offers

her $6 for one more knitted scarf. Ashley will:

A) not sell the additional scarf, since she does not know what her total costs will be.

B)

sell the additional shawl, since the MR is greater than the MC for the unit.

C)

realize that her production is not profitable and shut down her business as soon as possible

Answer 1

1.

A) The minimum average total cost.

Explanation :

Break even is when price =ATC. So minimum ATC is breakeven. Minimum AVC is shutdown price.

2.

C) the price is greater than average variable costs.

Explanation :

In short run firm will shutdown when price is below average variable cost. Even if firm is making losses, but price is above average variable cost firm will produce to cover some portion of fixed cost.

3.

D) remain constant.

Explanation :

Fixed cost doesn't changes with output. Fixed cost remains same at every level of output.

4.

realize that her production is not profitable and shut down her business as soon as possible

Explanation :

Any firm maximises it's profit where MR equals MC. Here MR is less than MC. So firm production of extra unit is not profitable.