17. A firm will shut down in the short run if: (a) total revenue is greater than
ID: 1127824 • Letter: 1
Question
17. A firm will shut down in the short run if: (a) total revenue is greater than total costs (b) total costs are greater than total revenue (c) it incurs an economic loss (d) normal profit is greater than zero (e) total revenue is less than total variable costs 18. For a given business firm, if marginal revenue for the next unit is less than marginal cost, then: (a) the firm is earning an economic profit. (b) the firm is maximizing profits (c) more output will add more to cost than to revenue (d) each added unit of output will raise profit. (e) the firm is "breaking even." 19. The addition to a business firm's total receipts that comes from selling one more unit of output is: (a) total costs (b) normal profits (c) marginal costs (d) marginal revenue (e) total revenue 20. If a firm's total cost equals total revenue, then economic profit: (a) exceeds normal profit (b) is zero (c) equals fixed costs (d) equals variable costs (e) equals accounting costs 21· The increase in total cost resulting froman increase in output of one unit is: (a) total variable cost (b) marginal cost (c) average variable cost (d) average fixed cost (e) total fixed cost 22. Marginal cost: (a) equal total cost minus total variable cost (b) increases after the onset of diminishing returns (c) always decreases as the quantity of output of a firm increases (d) none of the aboveExplanation / Answer
Answer 17 - A firm will shutdown in the short run if price goes below AVC. The can operate in the short till P=AVC. The recovers its total variable cost in the short run, it may lose its fixed cost. The firm will not operate in the short run if it cannot recover its variable cost. In the short run total revenue will be less than total variable cost. P = AVC is called 'shutdown point.
Option E is the correct answer.
Answer 18 - If marginal revenue for next unit is less than marginal cost then the given firm is earning maximum profit. It means MR is equal to MC, the point where firm maximizes economic profit. Think about a perfect competitive firm which is in equilibrium. If it produces one additional unit then its MR will be less than MC.
Option B is the correct answer.
Answer 19 - The addition in total receipt of a business firm that comes from selling one more unit of output is known as marginal revenue. MR is the change in total revenue due by selling an additional unit of output.
Option D is the correct answer.
Answer 20 - If a firm's total cost equal to total revenue, then economic profit is zero. We know than profit is equal to TR minus TC. TC includes fixed cost and variable cost.
Option B is the correct answer.
Answer 21 - Increase in total cost resulting from an increase in output of one unit is, known as marginal cost.
Option B is the correct answer.
Answer 22 - The marginal cost increases after the onset of diminishing returns. Diminishing return stats when full capacity of fixed factor has been used, After that if we employed more units of variable factor then marginal product of variable factor start declining. Marginal cost starts rising when MP starts falling.
Option B is the correct answer.
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