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Economics
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21 Jan 2018

True or False, and explain (one sentence is sufficient)

A.) If P > ATC then a firms is making economic profit.

B.) In a perfectly competitive industry, it is possible for a firm to earn P > ATC in the long run.

C.) If P = AVC in the long run, then the firm should shut down and exit.

D.) If P < ATC in the short run, then a firm should shut down and exit.

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23 Jan 2018
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Principles of Economics
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Related questions

Explain: The short-run rule for operating or shutting down is P > AVC, operate; P < AVC shut down. The long-run rule for continuing in the business or exiting the industry is P = ATC, continue; P < ATC, exit.

10-When marginal cost is greater than average total cost,
A. Average total cost must be increasing with output
B. Average variable cost must be decreasing with output
C. Average fixed cost must be increasing with output
D. Marginal cost must be increasing with output

11-If a firm's demand curve falls below its AVC curve, then the firm should
A. Shut down now
B. Operate in the short run but not the long run
C. Set price = marginal cost
D. Shutdown in the long-run

12- The demand curve facing a perfectly competitive firm is
A. Upward sloping
B. Perfectly inelastic
C. Downward sloping
D. Perfectly elastic

13-If the demand curve falls below the ATC curve but lies above AVC, then the firm should
A. Should shut down
B. Operate in the short run but not the long run
C. Set price = marginal cost
D. Operate in the short run and the long run

14-At the output where MC = ATC = P, the perfectly competitive firm
A. Should shutdown
B. Has no economic profit
C. Is not profit maximizing
D. Should raise output

25. At the current level of output, a firm faces the following situation: AC > P= MR > MC > AVC. On the basis of this information, we can conclude that: (A) This is a monopoly firm that is currently producing too much output to maximize profit. If nothing changes, it should shut down in the long run. (B) This is a perfectly competitive firm that is currently producing too much output to maximize profit. If nothing changes, it should shut down in the long run. (C) This is a monopoly firm that is currently producing too little output to maximize profit. If nothing changes, it should shut down in the long run. (D) This is a perfectly competitive firm that is currently producing too little output to maximize profit. If nothing changes, it should shut down in the long run. (E) This is a monopoly firm that is producing the profit-maximizing output. It should continue to do what it is doing. (F) This is a perfectly competitive firm that is producing the profit-maximizing output. It should continue to do what it is doing. (G) This is a monopoly firm that is currently producing too much output to maximize profit. It should not necessarily shut down in the long run. (H) This is a perfectly competitive firm that is currently producing too much output to maximize profit. It should not necessarily shut down in the long run. (1) This is a monopoly firm that is currently producing too little output to maximize profit. It should not necessarily shut down in the long run. (J) This is a perfectly competitive firm that is currently producing too little output to maximize profit. It should not necessarily shut down in the long run.

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