1) TRUE or FALSE ( Explain the answer succinctly but completely). Please use gra
ID: 2495802 • Letter: 1
Question
1) TRUE or FALSE ( Explain the answer succinctly but completely). Please use graph to aid your explanation and ensure your text describes what your graph shows and how the different components of the graph are derived.
a) True or False: As long as MR=MC, a firm should produce and sell its product.
b) True or False: A firm can always increase profit by increasing the price they charge
c) True or False: If the production function exhibits diminishing marginal productivity as the level of input use increases, the marginal cost curve will be upward sloping.
d) True or False: When demand is inelastic, a decrease in price increases total revenue for the firm.
Explanation / Answer
a) True; A rational firm will choose to produce the quantity where marginal cost is equal to marginal revenue. Before MR= MC, marginal revenue is always greater than marginal cost ( exceptions are also there). If a firm is producing at a level where marginal revenue is greater than marginal cost, then by producing one more unit the firm can gain more revenue than it loses in cost and thereby makes a marginal profit. This will be true up to the point that MR = MC. If a firm produces past that point, then marginal revenue is less than marginal cost. This means that the firm is losing profit with each additional unit of output and it should produce less.
b) False; in case of perfect competition, increase in price by one firm may deviate consumers as they have options for cheap prices for the homogenous product they want to have.
c) true; If the production function exhibits diminishing marginal productivity as the level of input use increases, the marginal cost curve will be definitely upward sloping as with each additional input, cost increases in comparison to productivity gained.
d) true; when demand is inelastic, i.e, no substitutes can satiate the wants, then definitely a decrease in price would provoke more consumers to get that good from the firm, thus, increasing total revenue for the firm.
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