Hi guys, help me only if you are sure about the answers. question I. Examine whe

Question

Hi guys, help me only if you are sure about the answers. question I. Examine whether each of the following statements is true or false. Explain. a If MC is lew than ATC then AVC falls as output rises.b If MC exceeds AVC then ATC rises as output rises. [Notation/. Abbreviations: MC marginal cost; ATC = average total cost.] Question 2. Suppose you are a consultant for a firm that is perfectly competitive The firm is worried only about its policies in the short run. what would you recommend in terms of quantity changes (raise, cut. shut down or stay put) and price changes(raise, cut. stay put) in each of the following situations: a. P-S27 MC=S12 AVC = $33. b. P =S99 MC =$54 AVC = $63.

Explanation / Answer

Question 1

A) False. Note that the minimum of AVC is achieved before the minimum of ATC which implies, by the time the rising MC cuts the AVC, ATC is still falling so, it can be possible that ATC is falling while AVC has started rising.

B) False. Same logic applies here. The minimum of AVC is achieved before the minimum of ATC which implies, by the time the rising MC cuts the AVC and gets slightly beyond it, the minimum of ATC is not yet achieved and so it can be possible that ATC is falling while AVC has started rising.

Question 2

A) Shut down since P<AVC

B) Continue production since P>MC as well as AVC.

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