Fill in the blanks to make the following statements correct. Please note that you can simply...

Fill in the blanks to make the following statements correct. Please note that you can simply write the words in your assignment response.

The shut-down price is the price at which the firm can just cover its .

If the average variable cost of producing any given level of output exceeds the price at which it can be sold, then the firm should .

If a firm is producing a level of output such that MC > MR, that firm should output.

The profit-maximizing level of output for a price-taking firm is the output at which MR and MC are and the gap between TR and TC is .

If a perfectly competitive firm is producing its profit-maximizing level of output and the price of its output rises, then MR will be MC and the firm should output.

Solutions

Expert Solution

a.The shut-down price is the price at which the firm can just cover its variable costs.

Explanation: At shut down price revenue generated is equal to its variable cost. If price falls below this price, firm minimizes its loss by closing its operations in short run. .

b. If the average variable cost of producing any given level of output exceeds the price at which it can be sold, then the firm should shut down. .

Explanation: If AVC>Price, total variable cost will be higher than the revenue generated. Loss will be higher than fixed cost. So, firm can reduce the loss to the extent of fixed cost by shut down in short run.

c. If a firm is producing a level of output such that MC > MR, that firm should decrease output.

Explanation: If MC>MR, there is a negative addition to profit i.e. profit is decreasing. Firm should decrease its output in such a way that MC=MR to maximize profit.

d. The profit-maximizing level of output for a price-taking firm is the output at which MR and MC are equal to price and the gap between TR and TC is equal to maximum Profit.

Explanation : In case of price taking firm, profit is maximized when P=MC=MR. Difference between TR and TC is equal to maximum profit at this output level. .

e. If a perfectly competitive firm is producing its profit-maximizing level of output and the price of its output rises, then MR will be higher than MC and the firm should increase output.

Explanation : In case of price taking firm, profit is maximized when P=MC=MR. If price is increased, MR is increased. Firm should maximize profit by increasing its output as long as MC<P or MC=P

Rahul Sunny answered 1 year ago

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