Price MC ATC AVC $40.50 36.00 30.00 22.00 MA 20.00 130 180 240 Refer to the figu

Question

Price MC ATC AVC $40.50 36.00 30.00 22.00 MA 20.00 130 180 240 Refer to the figure above. If the market price is S30, should the firm represented in the diagram continue to stay in business? A) No, it should shut down because it is making a loss. B) No, it should shut down because it cannot cover its variable cost C) Yes, because it is covering part of its fixed cost. D) Yes, because it is making a profit. 9. When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell A) the output where marginal revenue equals marginal cost. B) any positive output the entrepreneur decides upon because all of it can be sold. C) nothing at all; the firm shuts down. D) the output where average total cost equals price 10. A perfectly competitive firm's short-run supply curve is A) upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve. B) upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve C) perfectly elastic at the market price. D) horizontal at the minimum average total cost.

Explanation / Answer

Ans)
8.
C) Yes, because it is covering part of its fixed cost.
The diagram is that of a perfectly competitive firm.The firm would produce where P=MC.The current price is less than the average total cost which means there would be a loss but it is above the shutdown point.
9.
C) nothing at all; the firm shuts down
The minimum of the AVC is the shutdown point if the firm is producing below that point the firm should shut down.
10.
B) upward sloping and is the portion of the marginal cost curve that lies above the average variable cost.
The short-run supply curve is the rising portion of the MC above the minimum of the AVC.

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