Microeconomics: Production and Costs Quiz
48 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

For a firm to continue production in the short run, what relationship must hold between price (p) and average variable cost (AVC)?

  • p > AVC (correct)
  • p = AVC
  • p < AVC
  • p <= AVC

    • In the long run, what condition must exist between price (p) and average cost (AC) for a firm to continue production?

  • p < AC
  • p = AC
  • p > AC (correct)
  • p != AC

    • If marginal revenue (MR) is greater than marginal cost (MC), what is happening to profits?

  • Profits are constant
  • Profits are decreasing
  • Profits are increasing (correct)
  • Insufficient info to determine

    • What happens to profits when marginal revenue (MR) is less than marginal cost (MC)?

    <p>Profits are decreasing</p> Signup and view all the answers

    At the profit maximizing output level, what relationship must exist between marginal revenue (MR) and marginal cost (MC)?

    <p>MR = MC</p> Signup and view all the answers

    For a perfectly competitive firm, marginal revenue (MR) is equal to what?

    <p>Price (P)</p> Signup and view all the answers

    Why can't a profit-maximizing output level occur where the marginal cost curve is downward sloping?

    <p>Because profits can be increased by increasing output at this point since the marginal revenue is greater than marginal cost.</p> Signup and view all the answers

    At an output level where the market price equals the marginal cost but the marginal cost curve is downward sloping, what does this suggest?

    <p>This cannot be a profit-maximizing output level</p> Signup and view all the answers

    According to the content, what area represents the firm's profit at output level q0?

    <p>The area equal to EpAB</p> Signup and view all the answers

    What does a firm's supply curve depict?

    <p>The quantity a firm chooses to sell at various prices, given technology and factor prices.</p> Signup and view all the answers

    When deriving a firm's short-run supply curve, what is a primary factor that determines the profit-maximizing output level?

    <p>The point where the price equals or exceeds the minimum average variable cost (AVC).</p> Signup and view all the answers

    In the context of a firm's supply curve, what is kept unchanged?

    <p>Both technology and prices of factors of production.</p> Signup and view all the answers

    Based on Figure 4.7, with a market price of p1, what is the firm's output level in the short run?

    <p>q1</p> Signup and view all the answers

    If the firms supply schedule is presented as a graph, what is it called?

    <p>Supply curve</p> Signup and view all the answers

    What condition is necessary for q1 to be the firms short-run output level when market price is p1?

    <p>The average variable cost (AVC) at q1 does not exceed the market price, p1.</p> Signup and view all the answers

    How does the firm determine its profit-maximizing output level when the market price is greater than or equal to the minimum Average Variable Cost (AVC)?

    <p>By equating price with marginal cost on the rising part of the marginal cost curve.</p> Signup and view all the answers

    What is the relationship between market price and average variable cost (AVC) for a firm producing positive output in the short run?

    <p>Market price must be greater than or equal to AVC.</p> Signup and view all the answers

    If a firm's market price is below its minimum AVC, what output level will the firm choose in the short run?

    <p>Zero output.</p> Signup and view all the answers

    What defines the short-run supply curve of a firm?

    <p>The increasing portion of the SMC curve above minimum AVC, combined with zero output at lower prices.</p> Signup and view all the answers

    Suppose a firm is operating on the upward-sloping part of its SMC curve, what could cause a firm to decide to cease production in the short run?

    <p>A decrease in the market price below the minimum AVC.</p> Signup and view all the answers

    Based on the provided text, which of the following statements is true for a profit-maximizing firm in the short run?

    <p>The firm produces zero output if the market price is less than the minimum of the AVC curve.</p> Signup and view all the answers

    If the market price is such that at all positive output levels, the AVC curve is strictly above the current price, what output will the firm choose?

    <p>Zero output.</p> Signup and view all the answers

    Which of the following best describes the short-run profit-maximizing decision of a firm?

    <p>Produce where marginal cost equals marginal revenue if the market price is greater than or equal to the minimum AVC, and produce zero output otherwise.</p> Signup and view all the answers

    In the short-run, a firm's supply curve can be conceptualized as the upward-sloping portion of its marginal cost curve, but also what?

    <p>The upward-sloping portion of the marginal cost curve, <em>but also</em> zero output when price is below minimum AVC.</p> Signup and view all the answers

    What does the long run supply curve of a firm represent?

    <p>The rising part of the LRMC curve from and above the minimum LRAC</p> Signup and view all the answers

    At what market price will a firm produce zero output in the long run?

    <p>When the price is less than the minimum LRAC</p> Signup and view all the answers

    What defines the short run shut down point for a firm?

    <p>The minimum point of the AVC curve</p> Signup and view all the answers

    What is the market supply when the price is Rs 6?

    <p>2.5 kg</p> Signup and view all the answers

    What is normal profit defined as?

    <p>The minimum profit needed for a firm to stay in business</p> Signup and view all the answers

    How much supply will firm 1 provide at a price of Rs 3?

    <p>2 units</p> Signup and view all the answers

    What happens when the market price is at the level that equals the minimum of the AVC curve?

    <p>The firm is at its short run shut down point</p> Signup and view all the answers

    Which of the following statements about the price elasticity of supply can be derived from the given revenue changes?

    <p>Price elasticity is greater than 1</p> Signup and view all the answers

    Which statement correctly describes super-normal profit?

    <p>It is profit earned over and above normal profit</p> Signup and view all the answers

    What must be true for a firm to continue producing in the short run?

    <p>Price must be greater than the minimum AVC</p> Signup and view all the answers

    What is the total market supply when the price is Rs 4?

    <p>6 kg</p> Signup and view all the answers

    If the price is Rs 2, how much will firm 2 supply?

    <p>0 kg</p> Signup and view all the answers

    What is the implication if the supply curve is represented by zero output for all prices less than minimum LRAC?

    <p>Firms will reduce production to zero output</p> Signup and view all the answers

    What happens to total market supply as price increases from Rs 5 to Rs 20?

    <p>It increases</p> Signup and view all the answers

    At what price does firm 1 begin to supply some quantity?

    <p>Rs 2</p> Signup and view all the answers

    What is the total supply from three identical firms when the price is Rs 5?

    <p>12 units</p> Signup and view all the answers

    Will a profit-maximising firm in a competitive market produce a positive level of output in the short run if the market price is less than the minimum of AVC?

    <p>No, firms will incur losses greater than fixed costs</p> Signup and view all the answers

    Will a profit-maximising firm produce a positive level of output in the long run if the market price is less than the minimum of AC?

    <p>No, it will exit the market</p> Signup and view all the answers

    What does the supply curve of a firm in the short run represent?

    <p>The quantity of output a firm is willing to supply at various prices</p> Signup and view all the answers

    How does technological progress typically affect the supply curve of a firm?

    <p>It causes a decrease in production costs</p> Signup and view all the answers

    What is the effect of imposing a unit tax on the supply curve of a firm?

    <p>It shifts the supply curve leftward, indicating decreased supply</p> Signup and view all the answers

    How does an increase in the price of an input affect the supply curve of a firm?

    <p>It shifts the supply curve to the left, indicating less supply at every price</p> Signup and view all the answers

    What impact does an increase in the number of firms in a market have on the market supply curve?

    <p>It causes the supply curve to shift to the right</p> Signup and view all the answers

    What does the price elasticity of supply measure?

    <p>The responsiveness of quantity supplied to a change in price</p> Signup and view all the answers

    Study Notes

    Perfect Competition

    • A market structure with many buyers and sellers
    • Firms produce a homogenous product
    • Free entry and exit for firms
    • Perfect information

    Defining Features

    • Large number of buyers and sellers: No individual buyer or seller can influence the market price.
    • Homogenous product: Products are identical; one firm's product is indistinguishable from another's.
    • Free entry and exit: Firms can easily enter or leave the market without any barriers.
    • Perfect information: All buyers and sellers have complete information about the market price and other relevant details.

    Revenue

    • Total Revenue (TR): Market price (p) multiplied by quantity (q), TR = p x q
    • Average Revenue (AR): Total revenue divided by quantity, AR = TR/q = p
    • Marginal Revenue (MR): Change in total revenue resulting from a one-unit increase in output. For a perfectly competitive firm, MR = p.

    Profit Maximization

    • Profit (π): Total revenue (TR) minus total cost (TC), π = TR - TC
    • Profit Maximization Condition: Output level (q) where marginal revenue (MR) equals marginal cost (MC), MR = MC
    • Short-run Condition: Price (p) must be greater than or equal to average variable cost (AVC), p ≥ AVC
    • Long-run Condition: Price (p) must be greater than or equal to average cost (AC), p ≥ AC

    Supply Curve of a firm

    • Short-run supply curve: The portion of the firm's marginal cost curve above the average variable cost curve.
    • Long-run supply curve: The portion of the firm's long-run marginal cost curve above the long-run average cost curve.

    Market Supply Curve

    • The summation of all individual firm supply curves in the market.
    • The market supply curve will shift if the number of firms changes or if there are changes in input prices or technology.

    Price Elasticity of Supply

    • Measures the responsiveness of quantity supplied to changes in price.
    • Calculated as the percentage change in quantity supplied divided by the percentage change in price.
    • Positive value: Supply is responsive to price changes.
    • Zero value: Supply is completely unresponsive to price changes (e.g., perfectly inelastic).

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Related Documents

    NCERT Class 12 Microeconomics Chapter 4 PDF

    Description

    This quiz covers essential concepts in microeconomics, specifically focusing on production, average costs, and the relationships between price, marginal revenue, and marginal costs. It examines conditions for production in both the short run and long run, and explores profit maximization strategies for firms in a perfectly competitive market.

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser