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. (D)</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. (B)</p> Signup and view all the answers

What does the firm's economic loss equal to?

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

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

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

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

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

What is a perfectly competitive firm's goal?

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

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

<p>What quantity to produce (D)</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 (B)</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 (D)</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 (C)</p> Signup and view all the answers

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