Question

1. The vertical distance between the average total cost and the average variable cost curves is:

   	a.	constant with respect to output.
   	b.	decreasing with respect to output.
   	c.	increasing with respect to output.
   	d.	equal to total fixed costs.
   	e.	none of the above.

1 points   

QUESTION 11

1. The point at which the SRAC curve is tangent to the LRAC curve:

   	a.	represents the most efficient wa to use a given plant.
   	b.	is always the output where MC=AC.
   	c.	is never the output where MC=AC.
   	d.	always occurs where the minimum point on the short run average cost is to the right of its point of tangency with the long run average cost curve.
   	e.	none of the above.

1 points   

QUESTION 12

1. When there are decreasing returns to scale, the short-run average total cost of the firm is:

   	a.	equal to long-run average cost at some point above (i.e. to the right of) capacity output.
   	b.	equal to long-run average cost at the level of capacity output.
   	c.	equal to long-run average cost at some point below capacity output.
   	d.	above the long-run average cost at each level of output.
   	e.	never equal to the long-run average total cost

QUESTION 14

1. A perfectly competitive firm maximizes its profit by:

   	a.	setting its price so that it exceeds the marginal revenue.
   	b.	cutting wages.
   	c.	manipulating demand.
   	d.	setting its price so that it is equal to marginal cost.
   	e.	none of the above.

1 points   

QUESTION 15

1. The competitive firm's supply curve is :

   	a.	the upward sloping section of its marginal cost curve.
   	b.	the marginal cost curve above the intersection with average variable cost.
   	c.	its marginal cost curve above the intersection with average total cost.
   	d.	its average variable cost curve.
   	e.	none of the above.

1 points   

QUESTION 16

1. Other things equal, a decrease in demand for a product produced by a competitive industry will in the long run cause:

   	a.	all firms to decrease output.
   	b.	all firms to decrease price.
   	c.	a decline in profits for all firms.
   	d.	a decrease in the number of firms.
   	e.	none of the above.

1 points   

QUESTION 17

1. If there are external diseconomies in an industry, after a permanent increase in demand, the long-run market price:

   	a.	is higher than initially.
   	b.	is lower than initially.
   	c.	is the same as initially.
   	d.	may be higher or lower depending on whether the firm is earning economic profits.

1 points   

QUESTION 18

1. If the market price of a perfectly competitive firm's product is below its average variable cost, then the firm's:

   	a.	marginal revenue is zero.
   	b.	total revenue is as large as possible.
   	c.	total revenue if it stayed open would be less than its total variable costs.
   	d.	total revenue if it stayed open is less than its total costs but greater than its total fixed costs.
   	e.	none of the above.

Answer 1

1 - Option B

Decreasing with respect to output

This is because the gap between them i.e AFC declines with respect to output

2 - Option D

always occurs where the minimum point on the short run average cost is to the right of its point of tangency with the long run average cost curve.

3 - Option E

Never equal to long run ATC

This is because , as result of diseconomies of scale , the long run average cost rises and is not equal to SRAC

4 - Option D

Setting its price so that it is equal to marginal cost

MR = MC is the profit maximising condition

5 - Option B

Marginal cost curve above intersection with AVC.