A firm will shut down in the short run when a. price is below average variable c
ID: 1254931 • Letter: A
Question
A firm will shut down in the short run whena. price is below average variable costs at all possible rates of output.
b. price is below marginal cost at all possible rates of output.
c. it is making a loss.
d. price is below average total costs at all possible rates of output.
The difference between price and average total cost is
a. an irrelevant quantity.
b. total costs.
c. marginal costs.
d. average profit.
Which of the following would tell us that resources are not flowing to their highest valued uses?
a. Short-run profits.
b. Short-run losses.
c. Long-run profits.
d. Some firms are just breaking even.
A perfectly competitive firm faces a market clearing price of $150 per unit. Average variable costs are at the minimum value of $200 per unit at an output rate of 100 units. Marginal cost equals $150 per unit at an output rate of 75 units. It can be concluded that the short-run profit-maximizing output rate is
a. 100 units, because marginal cost equals average variable costs.
b. 75 units, at which the firm earns zero economic profits per unit sold.
c. 75 units, at which the firm earns $50 in economic profits per unit sold.
d. 0 units, because price is less than average variable costs.
Explanation / Answer
A firm will shut down in the short run when
a. price is below average variable costs at all possible rates of output.
When the price is below the avg variable cost, the firm has to shut down as it is unable to cover the variable costs.
b. price is below marginal cost at all possible rates of output.
c. it is making a loss.
d. price is below average total costs at all possible rates of output.
The difference between price and average total cost is
a. an irrelevant quantity.
b. total costs.
c. marginal costs.
d. average profit.
Average profit = Price - Average total cost
Which of the following would tell us that resources are not flowing to their highest valued uses?
a. Short-run profits.
b. Short-run losses.
When there is a government intervention or mis allocation of resources than a firm will incur losses.
c. Long-run profits.
d. Some firms are just breaking even.
A perfectly competitive firm faces a market clearing price of $150 per unit. Average variable costs are at the minimum value of $200 per unit at an output rate of 100 units. Marginal cost equals $150 per unit at an output rate of 75 units. It can be concluded that the short-run profit-maximizing output rate is
a. 100 units, because marginal cost equals average variable costs.
b. 75 units, at which the firm earns zero economic profits per unit sold.
c. 75 units, at which the firm earns $50 in economic profits per unit sold.
d. 0 units, because price is less than average variable costs.
Profit maximization occurs when MR= MC, so at 75 units, but here we have to note a point that the minium AVC is $200 which is well above the market clearing price, so the firm cannot produce any output.
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