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Which of the following statements is/are TRUE?
  1. If the market price falls below the Average Fixed Costs (AFC) of production then the firm will minimize losses by "shutting down" production.
  2. A firm will earn an economic profit if it sells output at a market price that exceeds the Average Variable Costs (AVC) of production.
  3. At the current level of production (Q), if the Marginal Revenue is (MR) is equal to $25 and the Marginal Cost is (MC) is equal to $20, the perfectly competitive firm should decrease its level of production.
(i) Only Statement (1) is TRUE.
(ii) Only Statements (2) and (3) are TRUE.
(iii) Only Statement (3) is TRUE.
(iv) Only Statements (1) and (3) are TRUE.
(v) None of the Statements is TRUE.

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Khushboo Goyal
Khushboo GoyalLv5
17 Jan 2020

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Related questions

Which of the following statements is/are TRUE?
 
1) If the market price falls below the Average Fixed Costs (AFC) of production then the firm will minimize losses by "shutting down" production.
 
2) A firm will earn an economic profit if it sells output at a market price that exceeds the Average Variable Costs (AVC) of production.
 
3) At the current level of production (q) the Marginal Revenue (MR) is $25 and Marginal Cost (MC) is $20 the perfectly competitive firm should decrease its' level of production.
 
A. Only Statement (1) is TRUE.
 
B. Only Statements (2) and (3) are TRUE.
 
C. Only Statement (3) is TRUE.
 
D. Only Statements (1) and (3) are TRUE.
 
E. None of the Statements is TRUE.

13. Consider the following three statements about perfect competition: In the long run, firms enter or exit a perfectly competitive industry in search of higher profits II. Every firm in long run equilibrium will be exactly the right size to deliver the lowest possible average costs of production III. As we move to the right along the long-run supply curve of the perfectly competitive industry, each firm is supplying more output to the market Which of the above statements are true about a perfectly competitive industry? (A) I only (B) II only (C) III only (D) I and II (E) I and III (F) II and III (G) I and II and III (H) none of the above

A firm is producing where its marginal costs are at the lowest level. What can one most likely infer from this? a. there is either lost opportunity for further profits by producing more, or the firm should shut-down if it is competitive and price is at that low level. b. It is a price-taker who is producing too much. c. It is a monopolist who is producing the socially optimal quantity. d. The firm is producing rationally.

6. A single-price monopolist sets price a. where MR=demand. b. where supply=demand c. from the demand curve at the quantity for which MC=MR. d. where MR=MC.

7. Assume that the Law of Diminishing Marginal Product applies at the current output level of a competitive firm. The price is $20 and, at the current output level, marginal cost is $16 and average total cost is $20. To maximize profits the firm should: a. produce the current output level, since average revenue (price) = average cost. b. produce more since marginal revenue exceeds marginal cost at current output. c. produce less since marginal revenue is always below average revenue. d. any of the above is possible, without further information.

8. Which of the following statements is true? (i) When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price. (ii) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price. (iii) Average revenue is the same as price for both competitive and monopoly firms. a. (i) only b. (iii) only c. (i) and (ii) d. (ii) and (iii)

9. If a firm in a competitive market triples the number of units of output sold, then total revenue will a. more than triple. b. less than triple. c. exactly triple. d. All of the above are potentially true.

10. When a competitive firm makes a decision to shut down, it is most likely that a. marginal cost is above average variable cost. b. marginal cost is above average total cost. c. price is below the minimum of average variable cost. d. fixed costs exceed variable costs.

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