20.Profit maximizing firms should increase output to the point where: a.Total re
ID: 1202767 • Letter: 2
Question
20.Profit maximizing firms should increase output to the point where: a.Total revenue is largest b.Total revenue just exceeds total costs c.An increase in revenue is just offset by an increase in cost. d.Fixed costs are covered e.Total cost is minimized 21.The Golden Rule of Output Determination for a perfectly competitive firm is to: a.Choose the output rate at which price is greatest. b.Choose the output rate at which marginal revenue equals marginal cost. c.Produce to the point of diminishing marginal returns d.Produce until total revenue exceeds total cost. e.Choose the output rate at which total cost is the lowest. 22.Which of the following conditions would indicate that a perfectly competitive firm should expand output to increase its profit? a.Marginal cost equals average cost b.Total cost exceeds marginal cost c.Price exceeds marginal cost d.Total revenue exceeds total costs e.Total revenue equal price 23. It would not pay a firm to produce anything in the short run if the price were: a.Above average total costs b.Equal to marginal cost and above the average variable cost. c.Equal to total revenue divided by output d.Below average variable cost e.Below marginal average cost
Explanation / Answer
20. Option C is correct.
The firm has a twin goal, one is maximising profit and the other is to minimise the cost, so the point where an increase in TR is offset by the increased cost, that is the optimum level of output.
21. Option B is correct.
Profit maximising level of output is attained where the marginal revenue equals the marginal cost. Marginal revenue is the increased revenue by selling another unit of output and the marginal cost is the cost incurred to produce another level of output.
22. Option C is correct.
When the price is above the marginal cost, the firm earns a positive profit, it would then be profitable for the firm to expand its production.
23. Option D is correct.
This is so because in the short run, the firm alteast needs to cover its variable cost to remain in the business. If it is unable to recover its variable cost also, it would shut down.
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