Question

28) In the short-run for a perfectly competitive market, a manufacturer will stop production when:

	a)	the total revenue is less than total costs
	b)	the total revenue cannot cover any fixed costs
	c)	the price is greater than AVC
	d)	operating at a negative economic profit

29) Economies of “scope” means that

a)		the average cost declines when output increases.
b)		the joint cost of producing two goods is less than the sum of separate costs to produce the two goods.
c)		economies of scale also exhibits.
		d) two goods can be produced more efficiently if their production processes are separate.

Answer 1

Answer to question number 28 is option B. According to the general rule for shutdown operations the firm must be able to cover its variable cost from its total revenue. This is true when fixed cost are sunk cost. In case fixed cost can be recoverable or avoidable then the firm will not operate if the total revenue is not able to cover the fixed cost. This is because it can avoid paying the fixed cost by not producing.

Answer to question number 29 is option B. When we can produce two goods jointly then the cost of production is reduced when there are the economies of scope. These are the advantages from joint production