Firm’s Output Decision with Marginal Revenue & Marginal Cost
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Questions and Answers

What is the condition of a firm when the price equals average total cost according to the text?

  • The firm makes economic profit.
  • The firm breaks even. (correct)
  • The firm incurs an economic loss.
  • The firm shuts down.

    • In the short run equilibrium, what can a firm do?

  • Guaranteed to make an economic profit.
  • Only break even.
  • Incur an economic loss.
  • Any of the above. (correct)

    • What happens to supply and prices when new firms enter an industry making an economic profit?

  • Supply increases and prices fall. (correct)
  • Supply decreases and prices rise.
  • Supply increases and prices rise.
  • Supply decreases and prices fall.

    • Which curve is compared to the market price to determine if a firm is making a profit or incurring a loss?

    <p>Average Variable Cost (AVC) curve.</p> Signup and view all the answers

    What does it mean for a firm to break even in economic terms?

    <p>The firm's total revenue equals its total cost.</p> Signup and view all the answers

    What does the firm's economic loss equal to?

    <p>Total Fixed Cost (TFC)</p> Signup and view all the answers

    Where is the firm's shutdown point located?

    <p>Where Marginal Cost (MC) curve crosses Average Variable Cost (AVC) curve</p> Signup and view all the answers

    What is the firm's loss at the shutdown point?

    <p>Total Fixed Cost (TFC)</p> Signup and view all the answers

    What does the firm use to determine the profit-maximizing output?

    <p>Marginal Revenue (MR)</p> Signup and view all the answers

    In the firm's output decision, when is profit maximized?

    <p>When Marginal Revenue (MR) equals Marginal Cost (MC)</p> Signup and view all the answers

    What happens if Marginal Revenue (MR) is greater than Marginal Cost (MC) in the firm's output decision?

    <p>Economic profit increases if output increases</p> Signup and view all the answers

    What should a firm do when facing an economic loss according to the text?

    <p>Produce something to minimize loss</p> Signup and view all the answers

    In the context of the text, what does the firm need to consider to minimize losses during a temporary shutdown?

    <p>Minimize Marginal Cost</p> Signup and view all the answers

    What is a perfectly competitive firm's goal?

    <p>To maximize economic profit</p> Signup and view all the answers

    In perfect competition, what does the firm need to decide?

    <p>What quantity to produce</p> Signup and view all the answers

    At what output levels does a firm incur an economic loss according to the text?

    <p>Low output levels only</p> Signup and view all the answers

    How does a firm maximize its economic profit in perfect competition?

    <p>By producing at the minimum average variable cost</p> Signup and view all the answers

    What is the shutdown point for a firm in perfect competition?

    <p>When price equals average variable cost</p> Signup and view all the answers

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