Question

QUESTION 12

1. 12) If a firm's total revenue equals its total costs:

   		a. it breaks even (zero economic profit) or incurs a normal profit
   		b, it incurs an abnormal or economic profit
   		c. it incurs an economic loss that is below a normal profit
   		d. it will leave the industry

3 points   

QUESTION 13

1. 13) If the marginal product of an additional unit of a variable input is greater than its marginal cost:

   		a. the firm's abnormal or economic profit decreases
   		b. the firm's abnormal or economic profit increases
   		c. the firm's abnormal or economic profit stays the same
   		d. that unit of the variable input would not be hired

3 points   

QUESTION 14

1. 14) If the marginal cost of a variable input is greater than the average cost of all the previous units of a firm's variable inputs, then its average variable costs:

   		a. increase
   		b. decrease
   		c. stay the same
   		d. decrease more than they increase

3 points   

QUESTION 15

1. 15) Economies of scale occur when as a firm increases output:

   		a. its total costs increase
   		b. its total costs decrease
   		c its total costs remain the same
   		d. its total costs increase more than they decrease

Answer 1

12. a. it breaks even (zero economic profit) or incurs a normal profit

When total revenue is equal to total cost, there are no net gains or net loss. The break even point helps to determine how much revenue will cover the total cost including both fixed cost and the variable costs. Inorder to reach any profitable place, the firm has to first reach its break even point and only then can it reach normal or abnormal profits.

The formula for the breakeven point is as follows:

N =Fixed costs / (Price per unit - Variable costs) w

where N is the break even point.

The break even point is important for making important economic and financial decisions for the firm such as how much minimum sales will covef the total cost.