The shut down point is when: A) A firm can no longer pay its debts. B) A firm ca
ID: 1104035 • Letter: T
Question
The shut down point is when: A) A firm can no longer pay its debts. B) A firm can only earn normal profits. C) Price is below minimum average variable costs. D) Price is equal to minimum average variable costs. E) Output falls below minimum marginal costs.If price is equal to minimum average total costs, then: A) Firms will begin to shut down immediately B) Firms will earn excess profits in the short run and in the long run there will be entry into the industry C) Economic profits will be less than zero but firms will not exit because they earn normal profits. D) Economic profits will be zero but firms will remain in the industry because they earn normal profits. E) Economic profits are less than zero but firms are paying some their fixed costs so they will continue to produce in the short term and exit in the long term when their fixed obligations have expired.
If price is above minimum average total costs, then: A) Firms will begin to shut down immediately. B) Firms will earn excess profits in the short run and in the long run there will be entry into the industry. C) Economic profits will be less than zero but firms will not exit because they are still earning their normal profits. D) Economic profits will be zero but firms will remain in the industry because they earn normal profits. E) Economic profits are less than zero but firms are paying some of their fixed costs so they will continue to produce in the short term and exit in the long term when their fixed obligations have expired.
If there is constant returns to scale in a competitive industry, then: A) The long-run supply curve will be horizontal. B) Then an increase in demand will lower the price in the short run but raise it in the long run. C) An increase in demand will raise the average total cost of producing the good. D) Then an increase in demand will raise the price in the the short run as well as raise the price in the long run. E) The long-run supply curve will be downward sloping.
If price is below minimum average total costs but is above minimum average variable costs, then: A) Firms will begin to shut down immediately. B) Firms will earn excess profits in the short run and in the long run there will be entry into the industry. C) Economic profits will be less than zero but firms will not exist because they are still earning their normal profits. D) Economic profits will be zero but firms will remain in the industry because they earn normal profits. E) Economic profits are less than zero but firms are paying some of their fixed costs so they will continue to produce in the short term and exit in the long term when their fixed obligations have expired.
Which of the following is NOT an assumption of a perfectly competitive market? A) Each seller produces an identical product. B) There is easy entry into and exit from the industry. C) Firms set their prices equal to their marginal cost. D) There is perfect information. E) There are many buyers and sellers.
If price is equal to minimum average variable costs, then: A) Firms will begin to shut down immediately. B) Firms will earn excess profits in the short run and in the long run there will be entry into the industry. C) Economic profits will be less than zero but firms will not exit because they earn normal profits. D) Economic profits will be zero but firms will remain in the industry because they earn normal profits. E) Economic profits are less than zero but firms are paying some of their fixed costs so they will continue to produce in the short term and exit in the long term when their fixed obligations have expired. (43) id=-163641 Question 2 of 10 10 points MC $12 $10 $8 $6 $4 ATC Typical Wheat Farmer Bushels of Wheat Which of the following statements regarding the above diagram is TRUE O If the price is $8 per bushel of wheat, then the typical wheat farmer will earn zero economic profits O If the price is $10 per bushel of wheat, then firms will exit the wheat industry causing the price of wheat to fall in the long run. If the price is $12 per bushel of wheat, then the typical wheat farmer will produce 100,000 bushels of wheatof wheat to increase if the price of wheat falls from $8 to S6 per bushel of wheat, then the profit maximizing output for the typical wheat farmer will fall from 110,000 bushels to 100,000 bushels of wheat If the price is $6 per bushel of wheat, then the typical wheat farmer will exit the industry causing the supply. 927 PM 1V5/2017 do: E
Explanation / Answer
1. D) Price is equal to minimum average variable costs.
Shut down point occurs when a firm is just covering all its variable costs only.
2. A) if the price is $ 8 per bushel of wheat, then the typical wheat farmer will earn zero economic profit.
At price of $ 8, firms TC is equal to its TR so profit is zero.
3. D) Economic profits will be zero but firms will remain in the industry because they earn normal profits.
When price is equal to minimum ATC it means that firm is operating at break-even point where Firm's TR = TC and firm earns normal profit.
4. E) Economic profits are less than zero but firms are paying some of their fixed costs so they will continue to produce in the short term and exit in the long term when their fixed obligations have expired.
When price is below minimum of ATC and above minimum AVC then firm is covering all its variable cost and some of its fixed cost. So, firm will operate as if firm shut downs then loss will be greater.
5. C) Firms set their prices equal to their marginal cost.
Perfect Competition is a form of market structure in which there is free entry and exit of firms and firms are selling homogeneous and identical products in the market. Firms under this form of market are price takers rather than price makers. Industry determines the equilibrium price from the demand and supply curve intersection. Sellers can sell any unit of commodity at that price and firms does not have any price control over the commodity. If one seller try to charge higher price then it will lose all his customers because all firms are selling similar products in every respect like color, shape, brand, etc.
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