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

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

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

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

<p>Supply curve (D)</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. (C)</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. (A)</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. (D)</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. (B)</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. (D)</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. (D)</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. (C)</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. (D)</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. (B)</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. (B)</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 (B)</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 (C)</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 (D)</p> Signup and view all the answers

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

<p>2.5 kg (A)</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 (D)</p> Signup and view all the answers

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

<p>2 units (D)</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 (A)</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 (A)</p> Signup and view all the answers

Which statement correctly describes super-normal profit?

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

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

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

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

<p>0 kg (D)</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 (A)</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 (C)</p> Signup and view all the answers

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

<p>Rs 2 (A)</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 (C)</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 (D)</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 (B)</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 (B)</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 (B)</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 (D)</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 (B)</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 (D)</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 (B)</p> Signup and view all the answers

Flashcards

Short Run Production Condition

For a firm to continue operating in the short run, the price of its product (p) must be greater than its average variable cost (AVC).

Long Run Production Condition

For a firm to continue operating in the long run, the price of its product (p) must be greater than its average total cost (AC).

Profit

The difference between a company's total revenue and its total cost.

Marginal Revenue (MR)

The additional revenue generated by selling one more unit of a product.

Signup and view all the flashcards

Marginal Cost (MC)

The additional cost incurred by producing one more unit of a product.

Signup and view all the flashcards

Profit Maximizing Output

The level of output where a firm maximizes its profit. This occurs when marginal revenue equals marginal cost (MR = MC).

Signup and view all the flashcards

Profit Maximization in Perfect Competition

In perfect competition, the market price is equal to the marginal revenue of each firm. Therefore, a firm maximizes its profit by producing at the level of output where the price equals the marginal cost (P = MC).

Signup and view all the flashcards

Marginal Cost Curve at Profit Maximizing Output

The marginal cost (MC) curve cannot be downward sloping at the profit maximizing output level because if it were, the firm could increase its profit by producing more.

Signup and view all the flashcards

Average Total Cost (ATC)

The cost of producing all units of output divided by the total number of units produced.

Signup and view all the flashcards

Average Variable Cost (AVC)

The cost of producing all units of output divided by the total number of units produced, excluding fixed costs.

Signup and view all the flashcards

Short-Run Supply Curve

The portion of the firm's marginal cost curve above the minimum point of its average variable cost curve.

Signup and view all the flashcards

Minimum AVC

The level of output at which a firm minimizes its average variable cost.

Signup and view all the flashcards

Shutdown Point

The price at which a firm is indifferent between producing and shutting down in the short run.

Signup and view all the flashcards

Short-Run Supply Curve

A firm's short-run supply curve is the upward-sloping portion of its marginal cost curve above the minimum point of its average variable cost curve.

Signup and view all the flashcards

Zero Output

If the market price falls below the minimum AVC, the firm will choose to produce zero output in the short run.

Signup and view all the flashcards

Firm's Supply

The amount of a good or service a firm chooses to sell at a given price, taking into account technology and input costs.

Signup and view all the flashcards

Supply Schedule

A table showing the quantities a firm would sell at various prices, assuming constant technology and input costs.

Signup and view all the flashcards

Supply Curve

A graphical representation of a firm's supply schedule, showing the relationship between price and the quantity supplied.

Signup and view all the flashcards

Profit-Maximizing Output (Short Run)

The point at which the firm's marginal cost (SMC) curve intersects the market price, which represents the profit-maximizing output level for the firm in the short run.

Signup and view all the flashcards

Minimum AVC (Short Run)

The minimum average variable cost (AVC) represents the lowest price a firm can charge and still cover its variable costs in the short run.

Signup and view all the flashcards

Short Run Supply Curve Shape

The short-run supply curve is determined by the portions of the marginal cost curve that lie above the average variable cost curve (AVC).

Signup and view all the flashcards

Short Run Shutdown Condition

A firm will only operate in the short run if the price is greater than or equal to the minimum average variable cost (AVC), otherwise the firm will shut down.

Signup and view all the flashcards

Market Supply Schedule

The total quantity supplied by all firms in the market at a given price.

Signup and view all the flashcards

Computing Market Supply

Combined supply of multiple identical firms at different price points.

Signup and view all the flashcards

Price Elasticity of Supply

The change in quantity supplied divided by the change in price.

Signup and view all the flashcards

Normal Profit

The minimum level of profit that is needed to keep a firm operating in the market. It covers essential costs associated with the business, including opportunity costs of entrepreneurship.

Signup and view all the flashcards

Long Run Shut Down Point

The point on the long run average cost curve, where the firm's LRMC intersects with LRAC, representing the lowest cost of production in the long run. If price falls below this point, the firm won't produce in the long run.

Signup and view all the flashcards

Long Run Supply Curve

The part of the LRMC curve that lies above the minimum LRAC. It shows the quantity supplied by a firm in the long run at different market prices.

Signup and view all the flashcards

Super-Normal Profit

The profits earned by the firm after accounting for normal profit (opportunity cost of entrepreneurship). It represents the extra profit beyond what's required to stay in business.

Signup and view all the flashcards

Short Run Shut Down Point

The point where average variable cost is at its minimum. In the short run, the firm will keep producing as long as price stays above this point. If price falls below, the firm might shut down in the short run.

Signup and view all the flashcards

Short Run Shut Down Point (for firms)

The point on the average variable cost curve (AVC) where the marginal cost curve (SMC) intersects. This represents the minimum AVC. Below this point, the firm would shut down in the short run.

Signup and view all the flashcards

Firm's Long Run Supply Curve

A firm's long-run supply curve is defined by its long-run marginal cost (LRMC) curve, which is plotted above the minimum point on the LRAC curve.

Signup and view all the flashcards

Opportunity Cost

The cost of using resources for one purpose versus another, which represents the lost profit from the next best alternative.

Signup and view all the flashcards

Short-run production: P < min AVC

A profit-maximizing firm in a competitive market will not produce any output in the short run if the market price is less than the minimum of AVC. This is because the firm's total revenue (PQ) would be less than its total variable cost (AVCQ), leading to a loss. It's better to shut down and minimize losses by only covering fixed costs.

Signup and view all the flashcards

Long-run production: P < min AC

In the long run, a profit-maximizing firm in a competitive market will not produce if the market price is lower than the minimum of AC. This is because the firm's total revenue will be less than its total cost, leading to a loss. In the long run, all costs are variable, so the firm can exit the market and avoid losses.

Signup and view all the flashcards

Short-run firm supply curve

The supply curve of a firm in the short run is the upward-sloping portion of its marginal cost (MC) curve above the minimum of its average variable cost (AVC).

Signup and view all the flashcards

Long-run firm supply curve

The long-run supply curve of a firm is the portion of its long-run marginal cost (LRMC) curve that lies above the minimum of its long-run average cost (LRAC).

Signup and view all the flashcards

Technological progress and supply

Technological progress shifts the firm's supply curve to the right. This is because technological improvements lower the cost of production, allowing the firm to produce more at any given price.

Signup and view all the flashcards

Unit tax impact on supply

Imposing a unit tax on a firm shifts its supply curve upward by the amount of the tax. This is because the tax increases the firm's marginal cost of production.

Signup and view all the flashcards

Input price increase and supply

An increase in the price of an input, such as labor or raw materials, shifts the firm's supply curve to the left. This is because the increase in input costs raises the firm's marginal cost of production.

Signup and view all the flashcards

Market supply and firm entry

An increase in the number of firms in a market shifts the market supply curve to the right. This is because the increase in the number of firms increases the total quantity supplied at any given price.

Signup and view all the flashcards

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 (Ï€): Total revenue (TR) minus total cost (TC), Ï€ = 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