If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be TRUE at that level of output? A) p > MC B) MR > MC C) p ¥ AVC D) All of the above. ANSWER C
Date: September 9th, 2020
The Lerner Index is derived from the profit-maximizing condition of a firm. Indicate whether the statement is true or false ANSWER True . Start out with MR = MC, realize that MR = P(1 + 1/e), and solve.
Date: September 9th, 2020
Suppose a firm has the following total cost function: TC = 50 + 2q2. What is the minimum price necessary for the firm to earn profit? A) p = $20 B) p = $30 C) p = $35 D) p = $40 ANSWER A
Date: September 9th, 2020
If a firm doesn’t make an economic profit, it will shut down. Indicate whether the statement is true or false ANSWER False. The firm compares its losses from operating with its losses when shutting down and will shut down if the latter loss is less.
Date: September 9th, 2020
As the ratio of price to marginal cost decreases, the Lerner index A) stays the same. B) increases. C) decreases. D) can increase or decrease depending upon the shape of the demand curve. ANSWER C
Date: September 9th, 2020
If a monopoly discovers that the demand for its output has become more elastic at the original output level, then it will respond by A) producing more and setting a higher price. B) setting a lower price. C) setting a higher price. D) producing more while leaving price unchanged. ANSWER B
Date: September 9th, 2020
Even though fixed costs do not affect the output decision, an increase in fixed costs results in a wider range of prices for which the firm operates at a loss. Indicate whether the statement is true or false ANSWER True . An increase in fixed costs will shift AC upward but leave AVC unchanged. […]
Date: September 9th, 2020
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 […]
Date: September 9th, 2020
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 […]
Date: September 9th, 2020
If a firm makes zero economic profit, then the firm A) has no incentive to stay in the industry. B) is better off exiting the industry. C) is indifferent between staying and exiting the industry. D) will shut down. ANSWER C
Date: September 9th, 2020
