Assume a firm\'s average total cost equals $75 and average variable cost equals

Question

Assume a firm's average total cost equals $75 and average variable cost equals $65 at the current level of production. If the marginal cost of producing the next unit equals $60, then:

average total cost will fall and average variable cost will rise.

average total cost will fall and average variable cost will fall.

average total cost will rise and average variable cost will fall.

average total cost will rise and average variable cost will rise.

2. Use the following diagram representing a perfectly competitive firm to answer the following question.

Refer to the diagram above. The firm will be running a loss if price of the product falls below _______ and the firm will shut down in the short run if price of the product falls below ________.

$10 and $6.

$7 and $2.

$6 and $2.

$2 and $2.

3. The demand curve faced by an individual firm is ____________.

perfectly elastic in all markets.

perfectly inelastic in all markets.

perfectly elastic in perfectly competitive markets.

perfectly inelastic in perfectly competitive markets.

4.

When the firm increases labor input, which of the following is correct about the relationship between marginal product of labor and marginal cost?

If marginal product is increasing, marginal cost will also be increasing.

If marginal product is increasing, marginal cost will be decreasing.

Marginal cost is equal to the increase in variable cost divided by marginal product.

Both B and C

average total cost will fall and average variable cost will rise.

average total cost will fall and average variable cost will fall.

average total cost will rise and average variable cost will fall.

average total cost will rise and average variable cost will rise.

Explanation / Answer

1. B

2. A

3. C

4. D

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