16. Total profit for a firm is calculated as a. (price minus average cost) times quantity...

16. Total profit for a firm is calculated as

a.	(price minus average cost) times quantity of output.
b.	total revenue minus total cost.
c.	Both a and b.
d.	None of the above.

17. In the short run, if the price is less than average variable cost, a firm operating in a competitive market will

a.	shutdown.
b.	exit.
c.	increase the price.
d.	increase the quantity.

18. When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch, which of the following principles is (are) best demonstrated?

(i)			Fixed costs are sunk in the short run.
(ii)			In the short run, only variable costs are important to the decision to stay open for lunch.
(iii)			If revenue exceeds variable cost, the restaurant owner is making a smart decision to remain open for lunch.
	a.	(i) and (ii) only
	b.	(ii) and (iii) only
	c.	(i) and (iii) only
	d.	(i), (ii), and (iii)

19. In the long run, a firm will enter a competitive industry if

a.	total revenue exceeds total cost.
b.	the price exceeds average variable cost.
c.	the firm can earn accounting profits.
d.	All of the above are correct.

20. Which of the following statements is not correct?

a.	Both a competitive firm and a monopolist maximize profits at an output where marginal cost equals marginal revenue.
b.	Both a competitive firm and a monopolist use discriminatory pricing.
c.	A competitive firm is a price taker.
d.	A monopolist is a price maker.

Expert Solution

16. Option b
Profit is the measurement of difference between total revenue and total cost

17. Option a
If the price is less than average variable cost, it would not be able to cover the variable expenses

18. Option d
As fixed costs are not recoverable in short run and if variable costs are recovered in short run, it would be better to operate the business

19. Option d
Because of positive profit, many new firms would enter the market

20. Option b
Monopolist would involve in discriminatory pricing

Rahul Sunny answered 2 years ago

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