Question

In: Economics

1. The firm's short-run supply curve runs up the marginal cost curve a to the shutdown...

1.

The firm's short-run supply curve runs up the marginal cost curve

a

to the shutdown point.

b

from the shutdown point all the way up the curve.

c

to the break-even point.

d

from the break-even point all the way up the curve.

2.

When marginal cost is greater than marginal revenue, the monopolist can increase its profit or minimize its loss by

a

expanding output.

b

reducing output.

c

lowering price.

d

producing where price = ATC.

3.

Which statement is true?

a

A firm will always produce at an output corresponding to the minimum point of its ATC curve.

b

Efficiency and profit maximization always occur at the same output.

c

A firm will operate in the short run if total revenue is greater than variable costs.

d

The rule for maximizing profits is different than the rule for minimizing losses.

Solutions

Expert Solution

Question 1

The upward sloping part of the marginal cost curve from the point where the MC curve intersects the AVC curve ad the all the way up is considered as the supply curve of the firm in the short-run.

The point where MC curve intersects the AVC curve is the minimum point of the AVC curve. The minimum point of the AVC curve is referred to as the shutdown point.

Thus,

It can be stated that the firm's short-run supply curve runs up the marginal cost curve from the shutdown point all the way up the curve.

Hence, the correct answer is the option (b).

Question 2

A monopolist maximizes profit when it produce that level of output corresponding to which marginal cost equals marginal revenue.

If MR>MC, the firm can increase profit by increasing production.

If MR<MC, the firm can increase profit by decreasing production.

Thus,

When marginal cost is greater than marginal revenue, the monopolist can increase its profit or minimize its loss by reducing output.

Hence, the correct answer is the option (b).

Question 3

A firm tends to shut down in the short-run if it is unable to recover its variable cost.

This will enable the firm to minimize its loss.

Thus,

It can be stated that a firm will operate in the short-run if total revenue is greater than variable costs.

Hence, the correct answer is the option (c).


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