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MicroEconomics - Multiple Choice Questions- Part 3

Customer Question

If the loss-minimizing output for a perfectly competitive firm is zero, then, at all other output levels,
a) price must be greater than average variable cost
b) the marginal cost curve must slope downward
c) marginal cost is less than marginal revenue
d) total revenue is less than variable cost
e) total revenue is less than average variable cost

A perfectly competitive firm that should not shut down in the short run will maximize profit where
a) VC = 0
b) FC = 0
c) AFC = MC
d) P = MC
e) ATC = 0

Claude's Copper Clappers sells clappers for 40 each in a perfectly competitive market. At its present rate of output, Claude's marginal cost is 39 dollars, average variable cost is 45, and average total cost is 60. To improve his profit/loss situation, Claude should
a) increase output
b) reduce output but not to zero
c) maintain the present rate of output
d) shut down
e) raise the price

Claude's Copper Clappers sells clappers for 60 each in a perfectly competitive market. At its present rate of output, Claude's marginal cost is 65, average variable cost is 25, and average total cost is 62. To improve his profit/loss situation, Claude should
a) increase output
b) reduce output but not to zero
c) maintain the present rate of output
d) shut down
e) raise the price

Suppose a price-taking firm produces 400 units at its optimal output level. At that output rate marginal cost is 200, average total cost is 240, and average variable cost is 170. What can you determine about the market price that would force the firm to shut down in the short run?
a) it equals 200
b) it is between 170 and 240
c) it is less than 170
d) it is between 170 and 200
e) it equals 240

The significance of the minimum point on the average variable cost curve is that
a) it is the profit-maximizing level
b) it is the selling price
c) it is the point of indifference between producing at a loss or shutting down
d) if the firm produces one more unit, its AVC will be less than MC
e) it shows the amount of total cost

The perfectly competitive firm's short-run supply curve is the same as the
a) supply curve of all other firms in the industry
b) upward-sloping portion of its marginal cost curve
c) upward-sloping portion of its marginal cost curve at or above minimum average variable cost
d) upward-sloping portion of its average variable cost curve
e) market demand curve

Which of the following is not a condition of long-run equilibrium for perfectly competitive firms?
a) price is equal to marginal cost
b) price is equal to minimum short-run average total cost
c) price is equal to minimum long-run average cost
d) price is equal to marginal revenue
e) economic profit is positive

Economic profits in a competitive industry are signals that
a) attract new firms into the industry
b) prevent firms from adopting newer technologies
c) encourage existing firms to continue to operate inefficiently
d) indicate that business conditions are improving
e) cause the industry's resources to be used in lower valued uses

Patent laws
a) reduce incentive to innovate by restricting market entry
b) reduce incentive to innovate by making it difficult to use the patnented innovation
c) increase incentive to innovate by restricting entry into a market
d) increase incentive to innovate by giving a firm premanent and exclusive production rights
e) give a firm the right to provide a wide variety of goods or services

The demand curve a monopolist faces
a) is more elastic than a perfectly competitive firm's demand curve
b) is the market demand curve
c) is as eleastic as a perfectly competitive firm's demand curve
d) is not affected by the prices of complements
e) will not shift in response to a change in consumer tastes

Which of the following is true of marginal revenue for a monopolist that charges a single price?
a) P= MR because there are no close substitutes for the monopolist's product
b) P > MR because the monopolist must decrease price on all units sold in order to sell an additional unit
c) P

Submitted: 10 years ago.
Category: Homework
Expert:  skywalker replied 10 years ago.

If the loss-minimizing output for a perfectly competitive firm is zero, then, at all other output levels,
a) price must be greater than average variable cost
b) the marginal cost curve must slope downward
c) marginal cost is less than marginal revenue
d) total revenue is less than variable cost
e) total revenue is less than average variable cost
If loss minimizing level of output is zero the we can say that revenues are not even cover the variable costs t total revenue< total costs
The answer is D

A perfectly competitive firm that should not shut down in the short run will maximize profit where
a) VC = 0
b) FC = 0
c) AFC = MC
d) P = MC
e) ATC = 0
If a firm does not close in S.R will maximize its profit where price is equal to Marginal cost
The answer is D

Claude's Copper Clappers sells clappers for 40 each in a perfectly competitive market. At its present rate of output, Claude's marginal cost is 39 dollars, average variable cost is 45, and average total cost is 60. To improve his profit/loss situation, Claude should
a) increase output
b) reduce output but not to zero
c) maintain the present rate of output
d) shut down
e) raise the price
When price is bigger then minimum level of Average cost then it is logical to produce
If price is less then ATC but greater than AVC then in short run firm cover its variable costs so that it can continue to produce
If price is less than AVC then it should close immediately
P< AVC
40 So that it is not logical for firm to continue to produce
Firm can not rise price unless he is out of competitive market
The answer is d

Claude's Copper Clappers sells clappers for 60 each in a perfectly competitive market. At its present rate of output, Claude's marginal cost is 65, average variable cost is 25, and average total cost is 62. To improve his profit/loss situation, Claude should
a) increase output
b) reduce output but not to zero
c) maintain the present rate of output
d) shut down
e) raise the price
As we know from the previous question if P25 then firm can cover its variable costs easily so that firm does not shut down.
But if increase the output then more output will cause more cost so that it is not logical to have higher output (MR

So that the answer is C

Suppose a price-taking firm produces 400 units at its optimal output level. At that output rate marginal cost is 200, average total cost is 240, and average variable cost is 170. What can you determine about the market price that would force the firm to shut down in the short run?
a) it equals 200
b) it is between 170 and 240
c) it is less than 170
d) it is between 170 and 200
e) it equals 240
We know that if price is more than Averge Ttoal cost then it produce
if it is less than ATC but greater then AVC then it produces in the short run
But if it is less then AVC then it should shut doen
Then
If price level is less than 170
Then it is logical to shut down
So that answer is C

The significance of the minimum point on the average variable cost curve is that
a) it is the profit-maximizing level
b) it is the selling price
c) it is the point of indifference between producing at a loss or shutting down
d) if the firm produces one more unit, its AVC will be less than MC
e) it shows the amount of total cost
the point where Price is equal to minimum point of average variable cost is the point where firm producing with a loss in short run but he /sh is indifferent between closing or going on
The answer is C

The perfectly competitive firm's short-run supply curve is the same as the
a) supply curve of all other firms in the industry
b) upward-sloping portion of its marginal cost curve
c) upward-sloping portion of its marginal cost curve at or above minimum average variable cost
d) upward-sloping portion of its average variable cost curve
e) market demand curve
The supply curve of industry is the Marginal cost curve but it should be higher than minimum level of average variable cost
So that answer is C

Which of the following is not a condition of long-run equilibrium for perfectly competitive firms?
a) price is equal to marginal cost
b) price is equal to minimum short-run average total cost
c) price is equal to minimum long-run average cost
d) price is equal to marginal revenue
e) economic profit is positive
In the long run the ouput level equal to where Long run average cost curve is tangent to price line and Marginal cost curve pass through it
Then
Price=Marginal cost
Price= long run minimum average cost
P= MR=D
Then also economic profit should be positive
Then
It is not necessary price=minimum short run average cost
The answer is B

Economic profits in a competitive industry are signals that
a) attract new firms into the industry
b) prevent firms from adopting newer technologies
c) encourage existing firms to continue to operate inefficiently
d) indicate that business conditions are improving
e) cause the industry's resources to be used in lower valued uses
If the economic profits are greater than zero then new firms will be courage and they will enter the market
So that answer is A

Patent laws
a) reduce incentive to innovate by restricting market entry
b) reduce incentive to innovate by making it difficult to use the patented innovation
c) increase incentive to innovate by restricting entry into a market
d) increase incentive to innovate by giving a firm permanent and exclusive production rights
e) give a firm the right to provide a wide variety of goods or services
Patent laws firstly restrict entry to market so that innovations will be encouraged as well as research and developments
So that Answer is C

The demand curve a monopolist faces
a) is more elastic than a perfectly competitive firm's demand curve
b) is the market demand curve
c) is as elastic as a perfectly competitive firm's demand curve
d) is not affected by the prices of complements
e) will not shift in response to a change in consumer tastes

Which of the following is true of marginal revenue for a monopolist that charges a single price?
a) P= MR because there are no close substitutes for the monopolist's product
b) P > MR because the monopolist must decrease price on all units sold in order to sell an additional unit
c) P
For a monopolist
It always sells above marginal revenue curve in other words P>MR
Actually there are not enough choices so that I can answer correctly but from A and B
It is obvious the answer is B
But the remaining choices are missing.

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