Question 1

The competitive firm's short-run supply curve is that portion of the

Accepted Answer

In the short run, a competitive firm will produce at the point where marginal cost equals marginal revenue. Thus, the portion of the marginal cost curve that lies above the average variable cost curve represents the competitive firm's short-run supply curve. This is because in the short run, the firm will continue to produce as long as the price of the good is above its variable cost of production, but will shut down if the price falls below this level.

Question 2

Which of these curves is the competitive firm's short-run supply curve?

Accepted Answer

In the short run, the competitive firm's supply curve is determined by its marginal cost curve above the average variable cost curve. This is because in the short run, the firm can only vary its variable inputs, so it will only produce as long as the price it receives for its output covers at least its variable costs. Therefore, the correct answer is C, the marginal cost curve above average variable cost.

Question 3

A firm will shut down in the short run if,for all positive levels of output,

Accepted Answer

A firm will shut down in the short run if its total revenue is less than its variable costs, or if the price of its product is less than its average variable cost.

Question 4

A competitive firm's short-run supply curve is part of which of the following curves?

Accepted Answer

The short-run supply curve of a competitive firm is determined by its marginal cost curve. In the short run, a firm will produce the quantity of output where marginal cost equals marginal revenue, and this quantity will then determine the firm's supply curve at the given market price. Therefore, the short-run supply curve is part of the firm's marginal cost curve.

Question 5

In a competitive market the current price is $7,and the typical firm in the market has ATC = $7.50 and AVC = $7.15.

Accepted Answer

The answer of In a competitive market the current price...

Question 6

A firm's marginal cost has a minimum value of $50,its average variable cost has a minimum value of $80,and its average total cost has a minimum value of $90.Then the firm will shut down if the price of its product falls below

Accepted Answer

The firm will choose to shut down if the price of its product falls below its minimum AVC, which is $80. This is because if the price falls below $80, the firm's revenue will not be enough to cover its variable costs and it will incur losses. However, if the price is above $80 but below its minimum ATC, which is $90, the firm will operate in the short run but will not make any economic profit. Hence, the answer is B.

Question 7

A firm's marginal cost has a minimum value of $2,its average variable cost has a minimum value of $4,and its average total cost has a minimum value of $5.Then the firm will shut down if the price of its product falls below

Accepted Answer

A firm will shut down in the short run if the price falls below the minimum average variable cost, which is $4 in this case.

Question 8

The short-run supply curve for a firm in a perfectly competitive market is

Accepted Answer

In the short run, a firm's supply curve is determined by its marginal cost curve above its average variable cost. This is because the firm will continue to produce as long as price exceeds its variable costs, which are covered by revenue. Therefore, the portion of the marginal cost curve above the average variable cost represents the extra production that the firm is willing to supply at higher prices.

Question 9

When price exceeds average variable cost in the short run,a competitive firm's marginal cost curve is regarded as its supply curve because

Accepted Answer

When a firm's price exceeds its average variable cost, it will produce at a quantity where its marginal cost equals its price. Therefore, the competitive firm's marginal cost curve will determine the quantity of output the firm is willing to supply at any price. In other words, the competitive firm will only supply quantities of output where the price is equal to or greater than the marginal cost of that output. Thus, the marginal cost curve becomes the firm's supply curve in the short run.

Question 10

A firm that shuts down temporarily has to pay

Accepted Answer

When a firm shuts down temporarily, it does not produce anything, and therefore it does not incur any variable costs. However, it still has to pay for its fixed costs, such as rent, insurance, and salaries for administrative staff. Therefore, the firm has to pay its fixed costs but not its variable costs.

Question 11

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive market when price falls below the minimum of average variable cost?

Accepted Answer

When the price falls below the minimum of the average variable cost, the firm is not able to cover its variable costs of production. In such a scenario, the firm will not be able to generate any profit, and continuing production will lead to additional losses. Therefore, the best option for the firm is to stop production immediately to minimize its losses.

Question 12

Which of the following statements is correct regarding a firm's decision-making?

Accepted Answer

The decision to shut down is typically a short-run decision, as it involves ceasing production in the short-term due to factors such as low demand or high costs. The decision to exit, on the other hand, is typically a long-run decision, as it involves permanently leaving a particular market or industry.

Question 13

A profit-maximizing firm will shut down in the short run when

Accepted Answer

A profit-maximizing firm will shut down in the short run when price is less than average variable cost because it would not be covering its variable costs and would only be incurring losses. In this case, the firm would prefer to shut down and avoid incurring any further losses. If the price is less than average total cost, the firm would incur losses but would still continue to operate as long as the price is able to cover its variable costs.

Question 14

When determining whether to shut down in the short run,a competitive firm should

Accepted Answer

In the short run, a competitive firm should ignore fixed costs and sunk costs when deciding to shut down, as these costs do not affect the decision to continue or cease production.

Question 15

In the long run,all of a firm's costs are variable.In this case the exit criterion for a profit-maximizing firm is to shut down if

Accepted Answer

If all of a firm's costs are variable in the long-run, then there are no fixed costs that the firm must pay even if it shuts down. Therefore, the firm should only continue to operate if the price it receives for its product is greater than the average variable cost of producing that product. If the price is less than the average variable cost, then the firm would be losing money on every unit it produces and sells, and should therefore shut down in order to minimize its losses. Therefore, the exit criterion for a profit-maximizing firm is to shut down if price is less than average total cost.

Question 16

In the short run,a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the

Accepted Answer

In the short run, a firm in a competitive market will continue to produce as long as the price is greater than average variable cost, even if it is less than average total cost, to cover variable costs and minimize losses.

Question 17

Joe's Garage operates in a perfectly competitive market.At the point where marginal cost equals marginal revenue,ATC = $20,AVC = $15,and the price per unit is $10.In this situation,

Accepted Answer

In a competitive market, the firm should produce as long as the price covers at least the variable cost (AVC). In this case, the price is only $10, which is less than the AVC of $15. Hence, Joe's Garage is not covering its variable cost, and the firm should shut down immediately to minimize its losses.

Question 18

In the short run,a firm operating in a competitive industry will shut down if price is

Accepted Answer

In the short run, a firm will shut down if the price is less than the average variable cost. This is because the firm is unable to cover its variable costs and it would suffer a loss by continuing to operate. If the price is greater than the average variable cost but less than the average total cost, the firm may still operate in the short run, but it would be running at a loss. If the price is less than the marginal cost, the firm would be losing money on each additional unit produced and would be better off shutting down.

Question 19

A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its

Accepted Answer

The answer of A firm will shut down in the...

Question 20

Which of the following represents the firm's short-run condition for shutting down?

Accepted Answer

The answer of Which of the following represents the firm's...

Quiz 14: Firms in Competitive Markets