Chapter 6.2 questions

Question 1

Even when a firm produces the level of output at which price equals marginal cost, it should shut down if its total revenue is less than its
a. marginal cost.
b. fixed cost.
c. variable cost.
d. total cost.

Answer 1

c. variable cost.

Question 2

Suppose that when a perfectly competitive firm produces 1,000 units of output, its total variable cost is $1,900. If the marginal cost of producing the 1,000th unit is $1.70, and if the market price of each unit of output is $1.70, then the firm should
a. shut down.
b. raise its price.
c. increase output.
d. continue to produce 1000 units.

Answer 2

a. shut down.

Question 3

Suppose a firm is collecting $1,700 in total revenues and the total costs of its variable factors of production are $1,900 at its current level of output. One can predict that the firm will
a. shut down.
b. raise its price.
c. earn a loss
d. continue to operate.

Answer 3

a. shut down.

Question 4

If a firm shuts down in the short run, then its
a. total revenue and total cost will fall to zero.
b. profit will equal zero.
c. economic loss will equal its fixed costs.
d. economic loss will equal its variable costs.

Answer 4

c. economic loss will equal its fixed costs.