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 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
Date: September 9th, 2020
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).
Date: September 9th, 2020
Suppose a monopolist has TC = 40 + 10Q + Q2, and the demand curve it faces is p = 130 – 2Q. What is the Lerner index of this profit-maximizing monopolist? A) 0.222 B) 0.35 C) 0.444 D) 0.50 ANSWER C
Date: September 9th, 2020
If a firm goes out of business because of negative economic profits, its books A) might indicate a positive accounting profit. B) might indicate that opportunity costs were zero. C) might indicate that taxes are too high. D) might suggest a mistaken value of explicit costs. ANSWER A
Date: September 9th, 2020
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
If a firm makes zero economic profit, then the firm A) has total revenues greater than its economic costs. B) must shut down. C) can be earning positive business profit. D) must have no fixed costs. ANSWER C
Date: September 9th, 2020
