Question

11. Average fixed cost

a.	decreases as output increases unless there is zero fixed cost.
b.	may increase as output increases.
c.	is not related to output.
d.	None of the above.

12. Economies of scale occur when

a.	short-run average total costs rise as output increases.
b.	long-run average total costs fall as output increases.
c.	average fixed costs are increasing.
d.	All of the above.

13. Which of the following is a characteristic of a competitive market?

a.	Buyers and sellers are price makers.
b.	Each firm sells a differentiated product.
c.	Entry is unlimited.
d.	Each firm chooses a price level that maximizes profits.

14. Firms operating in competitive markets produce output levels where marginal revenue equals

a.	marginal cost.
b.	average revenue.
c.	total revenue divided by output.
d.	All of the above are correct.

15. If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

a.	a one-unit increase in output will increase the firm's profit.
b.	a one-unit decrease in output will increase the firm's profit.
c.	total revenue exceeds total cost.
d.	total revenue equals total cost.

Answer 1

11) option A is correct. Fixed cost is not related to output but average fixed cost is related. it should decrease as output increases because fixed cost is constant.

12) option B is correct. This is because when output is increased there is a continuous decline in the average cost of production in the long run due to better management and cooperation between inputs.

13) option C is correct. Buyers and sellers are price takers and entry is unlimited which means there is no restriction in exit and entry. Price level is determined by the market and no firm can choose it on its own.

14) option D is correct

15) option B is correct