Question

31. If a firm can influence the market price by changing its quantity of output, then the firm.

a. must be a monopoly

b. has market power

c. will set the price equal to its average total costs

d. earns a normal profit in both short-run and long-run

34. A firm will shutdown in the short-run if

a.		it makes a negative profit.
b.		the market price is lower than its average total cost (ATC).
c.		the market price is lower than its average variable cost (AVC).
d.		the fixed cost can be only covered partially.

Answer 1

Answer to question number 31 is option B. Imperfect competition usually has firms that are able to influence the market price because they have market power. They produce according to the marginal cost and marginal revenue rule and charge the relevant price determined by the demand. They can earn economic profit in short run but only Monopoly and oligopoly can long run economic profit.

Answer to question number 34 is option C. This is because if price is less than AVC then it implies that the firm is not able to earn enough revenue to cover their variable cost.