Question

Question 16 On a perfectly competitive market, if marginal cost is constant,

A. then marginal cost equals average total cost.

B. then average cost equals total cost.

C. then marginal cost equals average variable cost.

D. then fixed cost is zero.

17 A perfectly competitive firm should always shut down if:

A. it makes a positive profit, but smaller than the fixed costs.

B. it makes a negative profit that is larger than its fixed costs.

C. it makes a negative profit

D. it makes a positive profit

Answer 1

16. Ans: then marginal cost equals average variable cost.

Explanation:

TC = TFC + TVC

MC = change in TC / Change in quantity of output

Since fixed cost is fixed in nature, total cost changes due to change in variable cost only.

AVC = TVC / Q

So, when MC is constant, it means it is equal to AVC.

Thus, option [C] is correct answer

17. Ans: it makes a negative profit that is larger than its fixed costs.

Explanation:

Negative profit means loss. So, if the loss amount is larger than fixed cost means the firm is not able to cover its total amount of fixed cost and a part of variable cost. So, when a firm is not able to cover up all its variable cost, it should shut down.

Thus, option [B] is correct answer