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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.

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Chika Ilonah
Chika IlonahLv10
29 Sep 2019
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Related questions

In perfect competition, a firm should shut down in the short-run when

Ā 

a) P < AVC.

b) P > AVC.

c) P = AVC.

d) None of the above.

Ā 

Given the following information, state whether the perfectly competitive firm should continue to operate or shut down. If the choice is to operate, explain whether this is a short-term or long-term decision. (Chapter 8 of your textbook)

1. Q = 100; P = $10; AFC = $3; AVC = $4

2. Q = 70; P = $5; AFC = $2; AVC = $7

3. Q = 150; P = $7; AFC = $5; AVC = $6

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

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