Question

if a total cost function has the same slope as the total revenue function

• A. the firm must be maximizing revenue
• B. the firm will be earning zero economic profit
• C. the firm must be maximizing profit
• D. the firm must be minimizing costs

If output is always increasing at a decreasing rate:

• A. average variable cost will always be below marginal cost
• B. marginal cost will cross average variable cost at its minimum
• C. marginal cost will be a horizontal line
• D. average variable cost will always be above marginal cost

Answer 1

Option C is correct. Slope of the total revenue is marginal revenue and slope of the total cost is marginal cost. When marginal cost is equal to marginal revenue it means that profit is maximized

Option B is correct. if output is always increasing at decreasing rate it means marginal product is continuously declining and marginal cost is continuously rising. Average variable cost reaches its minimum when marginal cost cuts it from above. this implies that average variable cost first decreases and then increases even when marginal cost is increasing.