Explain why shutting down and going out-of-business are different concepts. What will be an ideal response? ANSWER Shutting down means that the firm seizes production with the option of starting up production any time in the future. Going out-of-business is equal to exiting the industry. This involves reducing the amount of (the fixed input) […]
If a competitive firm finds that it maximizes short-run profits by shutting down, which of the following must be TRUE? A) p < AVC for all levels of output. B) p < AVC only for the level of output at which p = MC. C) p < AVC only if the firm has no fixed […]
If the government desires to raise a certain amount of revenue by taxing a monopoly, an ad valorem tax will A) generate the same loss of consumer surplus as a specific tax. B) generate a greater loss of consumer surplus than a specific tax. C) generate a smaller loss of consumer surplus than a specific […]
The existence of a deadweight loss associated with a monopoly can be seen because A) consumers are willing to pay more for the last unit of output than it costs to produce. B) the cost of the last unit produced is more than consumers are willing to pay for it. C) the producer surplus is […]
The loss associated with the fact that at the profit-maximizing quantity consumers value the goods more than it cost to produce them is called A) deadweight loss. B) comparative loss. C) Lerner Loss. D) Consumer Value Loss. ANSWER A
In a graph of a firm’s short-run total costs and total revenue, the total cost and the total revenue curves, respectively, will intersect the vertical axis A) above the origin, above the origin. B) above the origin, at the origin. C) at the origin, at the origin. D) below the origin, below the origin. […]
If a firm traded on the New York Stock Exchange posts an accounting profit of $10 million, then the firm is making a positive economic profit A) only if the Securities and Exchange Commission (SEC) approves the accounting report. B) only if the firm’s opportunity cost is less than $10 million. C) only if the […]
Suppose there are 20 competitive firms in a market. The supply curve of each firm is q = 2p. The market demand is Q = 200 – 2p. What is the residual demand curve facing a typical firm? What will be an ideal response? ANSWER The residual demand curve is equal to the market […]
If a profit-maximizing firm finds that, at its current level of production, MR < MC, it will A) decrease output. B) increase output. C) shut down. D) operate at a loss. ANSWER A
If a firm sets marginal revenue equal to marginal cost, it will make an economic profit. Indicate whether the statement is true or false ANSWER False. When a firm sets MR=MC it maximizes profits but the profit-maximizing level of output might still be negative (the smallest loss possible).
