Question

In: Economics

1. As the quantity produced goes to infinity, the average variable cost curve will


1. As the quantity produced goes to infinity, the average variable cost curve will

(a) go to zero. (b) stay constant. (c) approach the average total cost curve. (d) None of the above answers are correct.

2. In our model of a competitive firm’s problem, the firm wants to

(a) maximize revenue by choosing quantity. (b) maximize profit by choosing quantity. (c) minimize cost by choosing quantity. (d) maximize profit by choosing market price.

3. Suppose you must pay a $40 fee for a license to sell stuffed animals. This fee is a

(a) variable cost. (b) fixed cost. (c) strategy. (d) supply function.

4. Which of the following are assumptions about a perfectly competitive market? Select all that apply.

(a) firms have no price-setting power (b) firms can’t vary the amount of capital they use (c) firms sell identical products (d) firms have constant economies of scale

5. Suppose a firm doubles its output and its costs more than double. We would say that this firm displays

(a) economies of scale (b) diseconomies of scale (c) constant economies of scale (d) increasing returns to scale

Solutions

Expert Solution

1. As the quantity produced goes to infinity , the average variable cost will approach the average total cost . Hence, option(C) is correct.

2. In the model of competitive firm's , the firm wants to maximize profit by choosing quantity. Hence, option(B) is correct.

3. The $40 fee for a license to sell stuffed animals. This fee is a fixed cost. Hence, option(B) is correct.

4. Firms have no price setting power , firms sell identical products and firms have constant economies of scale are the assumptions about perfectly competitive market.

5. Suppose a firm doubles its output and its costs more than double. We would say that this firm displays diseconomies of scale. Hence, option(B) is correct.


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