Examine whether the following statement is true or false. Explain. Marginal cost falls when average product rises.

Question 1. Examine whether the following statement is true or false. Explain. Marginal cost falls when average product rises.

Question 2. Examine whether the following statement is true or false. Explain. Marginal cost is at its maximum when marginal product is at its maximum.

Question 3. Suppose you are a consultant for a firm that is perfectly competitive. The firm is worried only about its policies in the short run. What would you recommend in terms of quantity changes (raise, cut, shut down or stay put) and price changes (raise, cut, stay put) in each of the following situations:

a. P = $19 MC = $14 AVC = $20

b. P = $111 MC = $106 AVC = $107 [Notations/Abbreviations: P = price; MC = marginal cost; AVC = average variable cost]

Solutions

Expert Solution

Question 1. This statement is False. Marginal product is greater than average product when average product rises. Now to the left of maximum AP, MP is falling implying that MC is rising. Hence MC may rise or fall when AP rises.

Question 2. False. Marginal cost is at its minimum when marginal product is at its maximum. This is because of diminishing returns and increasing costs that both achieve their extremes at the same time, but for one, there is a maxima and for the other there is a minima.

Question 3. a. [5 points] P = $19 MC = $14 AVC = $20. Here P < AVC. Thus firm should shut down business

b. [5 points] P = $111 MC = $106 AVC = $107. Since P > AVC and P > MC, firm should continue business. It should produce more since profit is maximized when P = MC.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

True or false?(1 point each) When marginal product is less than average product, average product is...

True or false?(1 point each) When marginal product is less than average product, average product is decreasing. In the long run, fixed costs are small. Marginal cost is the increase in total cost that results from a one-unit increase in a variable input. The vertical distance between the average variable cost curve and the average total cost curve equals average fixed cost. Average fixed costs are constant. Perfectly competitive firms are price takers. In the long run, perfectly competitive firms...

True or False. Indicate whether the statement is true or false. If false, explain in the...

True or False. Indicate whether the statement is true or false. If false, explain in the space provided the statement why it is false, or simply correct the statement. Smooth muscle contraction is regulated by the autonomic nervous system. During exercise, the sympathetic nerves that innervate the smooth muscles of bronchioles and arterioles regulate the contraction of these smooth muscles to increase ventilation and cardiac output. 2. Multiple choice: Choose one best statement. An infant born prematurely has neonatal respiratory...

1.Explain whether the following statement is true or false. There is no mark for stating true...

1.Explain whether the following statement is true or false. There is no mark for stating true or false; the mark is awarded for the explanation and the illustration only. Fiscal policy include building of new highways 2. If the government and the monetary authority think that the economy is growing too fast, what could they do to slow down the economy? 3. Discuss the effects of fiscal and monetary policy on inflation. Illustrate with good examples 4. If an economy...

True/False: Indicate whether the following statement is true or false. If it is false, indicate the...

True/False: Indicate whether the following statement is true or false. If it is false, indicate the reason. If it is true, indicate what makes it true. Just stating true or false will not earn any points. "It is not possible to have concave preferences."

3. Indicate whether each of the following statement is true or false and why: a. Product...

3. Indicate whether each of the following statement is true or false and why: a. Product standard cost data are often utilized by managers and analysts in departments other than the accounting department. b. Standard cost accounting systems are expensive to operate. c. Wage rate variance information is less useful to a production manager than labor efficiency variance information. d. When standards cost are set tight and inventories are growing, a standard cost accounting systems tends to report lower operating...

For each of the following statements, identify whether the statement is true or false, and explain...

For each of the following statements, identify whether the statement is true or false, and explain why. Please limit each response to no more than 2 sentences. a) The probability that a continuous random variable takes a specific value is 0. b) Statistical inference is the process of drawing conclusions about unknown statistics by using known parameters. c) The terms “histogram” and “bar graph” are synonyms. d) If two events A and B are independent, then there is no overlap...

For each of the following statements, identify whether the statement is true or false, and explain...

For each of the following statements, identify whether the statement is true or false, and explain why. Please limit each response to no more than 2 sentences. 1) The probability that a continuous random variable takes a specific value is 0. 2) Statistical inference is the process of drawing conclusions about unknown statistics by using known parameters. 3) The terms “histogram” and “bar graph” are synonyms. 4) If two events A and B are independent, then there is no overlap...

1. Explain whether the following statement is true or false. There is no mark for stating...

1. Explain whether the following statement is true or false. There is no mark for stating true or false; the mark is awarded for the explanation and the illustration only. Monetary policy consists of actions taken by the executive branch of government to control the nation's money supply 2. Explain whether the following statement is true or false. There is no mark for stating true or false; the mark is awarded for the explanation and the illustration only. Transfer payments...

State whether the following statement is true or false AND explain why: "An increase in the...

State whether the following statement is true or false AND explain why: "An increase in the interest rate paid on excess reserves will always cause an increase in the federal reserve funds rate."

Determine whether the statement is true or false. If it is false, explain why or give...

Determine whether the statement is true or false. If it is false, explain why or give an example that shows it is false. If f(c) = L,then lim x→c f(x) = L. False. Define f to be the piece-wise function where f(x) = x + 3 when x ≠ −1 and f(x) = 2 when x = −1. Then we have f(−1) = 2 while the limit of f as x approaches −1 is equal to −2. False. Define f...

Subjects