Suppose that price in a perfectly competitive industry decreases and it is now below minimum average total cost but remains above minimum average variable cost. Which of the following will occur in the short run?
(A) New firms will enter the industry.
(B) Firms will increase output so that marginal revenue equals the new price.
(C) Firms will produce the output at which average total cost is at a minimum.
(D) Firms will produce the output at which marginal cost equals the new price.
(E) Firms will not produce at all, since they will be unable to cover all their costs.
In the short run, if a firm produces the level of output at which marginal revenue is equal to marginal cost but price is less than average total cost, the firm will
(A) always shut down production
(B) expand output to lower its average fixed cost
(C) continue to operate if price is greater than its average variable cost
(D) decrease output until price equals its average total cost
(E) increase output to increase revenue
This graph represents a perfectly competitive firm in a constant-cost industry. In the short run, the firm will realize an economic loss but will continue to produce if the price is
(A)below P1
(B)between P1 and P2
(C)below P2
(D)between P2 and P3
(E)between P3 and P4
This graph represents the cost structure for a perfectly competitive firm. What portion of the marginal cost curve lies completely on the firm's short-run supply curve?
(A)BCD
(B)CDE
(C)ABCD
(D)ABCDE
(E)AB
A perfectly competitive firm is experiencing the following conditions: MC = AVC at $20, MC = ATC at $30, and MR = MC at $25. Based on this information, what should the firm do?
(A)Shut-down.
(B)Stay open in the short-run, but produce less.
(C)Stay open in the short-run, because it will experience a per-unit economic profit of $5.
(D)Stay open in the long-run, because it will experience a per-unit economic profit of $5.
(E)Stay open in the short-run, despite experiencing an economic loss.
If a firm trying to maximize profit wants to minimize their short-run losses, when would they shut down?
(A)If total revenue < total cost.
(B)If marginal cost > average total cost.
(C)If marginal cost < marginal revenue.
(D)If average revenue < average total cost.
(E)If average revenue < average variable cost.
When should a profit-maximizing firm shut down in the short run?
(A)If price is less than average variable cost.
(B)If it’s not earning a normal profit.
(C)If total revenue is less than total cost.
(D)If it’s not earning an economic profit.
(E)If price is greater than average variable cost but less than average total cost.
Taco Horn has one year remaining on its lease for a building. It’s rent on that building is $40,000 a year. If Taco Horn operates over the next year, it believes that its revenues will be $400,000 and that its variable expenses will be $380,000. Which of the following statements is true?
(A)Taco Horn should shut down, because it will lose $20,000.
(B)Taco Horn should shut down in order to break even.
(C)Taco Horn should stay open, because it will earn a profit.
(D)Taco Horn should stay open, because it will not lose as much as its fixed cost.
(E)Taco Horn will break even either way.
Assume we are dealing with a perfectly competitive firm. What is its short-run supply curve?
(A)The full marginal cost curve
(B)The portion of the average variable cost curve that is above marginal cost
(C)The portion of the average total cost curve that is above marginal cost
(D)The portion of the marginal cost curve that is above the minimum of average variable cost
(E)The portion of the marginal cost curve that is above the minimum of average total cost
In the short run, when should a perfectly competitive firm shut down?
(A)When price is less than average total cost
(B)When price is less than average variable cost
(C)When marginal revenue is greater than marginal cost
(D)When marginal cost is greater than marginal revenue
(E)When it is not making money
A profit maximizing firm is operating in the short-run with price greater than average variable cost. Which of the following must be true at this firm's level of output?
(A)Marginal revenue = average total cost.
(B)Marginal revenue = marginal cost.
(C)Marginal revenue = price, which is greater than average total cost.
(D)Marginal revenue > total variable cost.
(E)Price = average total cost.
In a perfectly competitive market, the price of a product is $24. In addition, a firm’s average total cost is $32, its marginal cost is $32, and its average variable cost is $16. What should this firm do to maximize profit?
(A)decrease production but stay open
(B)raise selling price
(C)lower selling price
(D)shutdown
(E)don’t change price or output
If a profit maximizing firm in a perfectly competitive industry is producing where price is greater than both marginal cost and average variable cost, then the firm
(A)is not earning positive economic profit
(B)is producing where marginal revenue < marginal cost
(C)is over-dependent on variable input
(D)is charging a price that is too high
(E)is not producing enough