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When competitive firm makes a decision to shut down
Course:- Business Economics
Reference No.:- EM131193677




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1. A monopoly’s marginal cost will a. be less than the price per unit of its product. b. be less than its average fixed cost. c. exceed its marginal revenue. d. equal its average total cost.

2. A firm is deciding whether to produce or shut down in the short run. Its total costs are $15,000 of which $5,000 are the total fixed costs of production. The firm should produce in the short run as long as its total revenues are at least a. $0 b. $15,000. c. $10,000. d. $5,000.

3. A firm's average total costs are $60, its total fixed costs are $2000, and its output is 200 units. Its average variable costs are a. $50 b. $60 c. $70 d. $100

4. As firms exit a competitive industry that is not profitable in the short-run (i.e. profits < 0), during the transition from the short run to the long run, the economic loss of each firm remaining in the industry: a. decreases and the price falls. b. decreases and the price rises. c. increases and the price falls. d. increases and the price rises.

5. A firm is producing where its marginal costs are at the lowest level. What can one most likely infer from this? a. there is either lost opportunity for further profits by producing more, or the firm should shut-down if it is competitive and price is at that low level. b. It is a price-taker who is producing too much. c. It is a monopolist who is producing the socially optimal quantity. d. The firm is producing rationally.

6. A single-price monopolist sets price a. where MR=demand. b. where supply=demand c. from the demand curve at the quantity for which MC=MR. d. where MR=MC.

7. Assume that the Law of Diminishing Marginal Product applies at the current output level of a competitive firm. The price is $20 and, at the current output level, marginal cost is $16 and average total cost is $20. To maximize profits the firm should: a. produce the current output level, since average revenue (price) = average cost. b. produce more since marginal revenue exceeds marginal cost at current output. c. produce less since marginal revenue is always below average revenue. d. any of the above is possible, without further information.

8. Which of the following statements is true? (i) When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price. (ii) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price. (iii) Average revenue is the same as price for both competitive and monopoly firms. a. (i) only b. (iii) only c. (i) and (ii) d. (ii) and (iii)

9. If a firm in a competitive market triples the number of units of output sold, then total revenue will a. more than triple. b. less than triple. c. exactly triple. d. All of the above are potentially true.

10. When a competitive firm makes a decision to shut down, it is most likely that a. marginal cost is above average variable cost. b. marginal cost is above average total cost. c. price is below the minimum of average variable cost. d. fixed costs exceed variable costs.




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