Practice FinalpdfPractice Final,AK.pdf Scenario 14-2 Assume a certain firm is pr

Question

Practice FinalpdfPractice Final,AK.pdf Scenario 14-2 Assume a certain firm is producing Q 1,000 units of output. At Q-1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. Refer to Scenario 14-2. To maximize its profit, the firm should a. continue to produce 1,000 units. b. shut down. c. increase its output. d. decrease its output but continue to produce. 33. A negative externality arises when a person engages in an activity that has a. an adverse effect on a bystanderwho is not compensated by the person who causes the effect. b. an adverse effect on a bystander who is compensated by the person who causes the effect. c. a beneficial effect on a bystander who pays the person who causes the effect. d. a beneficial effect on a bystander who does not pay the person who causes the effect 34. Which of the following will cause a decrease in producer surplus? a. income increases and buyers consider the good to be normal b. the imposition of a binding price ceiling in the market OVO

Explanation / Answer

32.

Since currently, firm is producing 1000 output and MC is $20 per unit while the ATC is $25.

The profit-maximising condition of the competitive firm are;

Price =MC

Since price is greater than the MC at an output level of 1000 unit. Therefore the firm should produce more for profit-maximising.

hence option c is the correct answer.

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