Question

23

As you draw the Average Fixed Cost curve it generally rises higher and higher as production increases.

True or False

27

If a firm adjusted their prices to be high enough to cover their Average Total Costs and if they were not concerned with MC=MR, then we could probably assume they are a nonprofit entity.        

True or False

28

Who will really end up paying for higher taxes on corporate profits if we assume the product that they sell is very inelastic?

Multiple Choice

• The stockholders of the firm will pay this tax when they file their individual tax returns.

• The retail consumer will pay these taxes through higher prices.

• The state government pays these taxes to the federal government

• 1. The senior executives actually pay these taxes when they file their individual tax returns.    

29

If we took an elastic demand curve and raised the price, then this would be the best pricing strategy to maximize total revenue.

                                               

True or False

Answer 1

1 - False

The AFC curve falls as output rises and is not upward sloping

2 - False

Non profit entity will keep the level of MC = MR and keep the prices enough to earn ATC in long run and above AVC in short run

3 - Option B

The consumer pay these taxed through higher prices.

This is because the product is inelastic , hence burden of tax will be transferred to consumer

4 - False

Since demand is elastic , demand and revenue will both decrease as prices increase.