Question

1. In the long run in competitive industries: A. the number of firms is fixed B....

1. In the long run in competitive industries:

A. the number of firms is fixed

B. firms must earn positive economic profit

C. firms earn zero economic profit

D. firms have an incentive to increase output

2. If a firm's total cost is defined as TC = 100 + 4Q + 2Q2 then which of the following is true?

A. Fixed cost is 100

B. Variable cost is 4Q + 2Q

C. marginal cost is 4Q

D. marginal cost if 4 - 2Q

3. Economies of scale occurs when ATC ___________ as output _____________

A. increases; increases

B. decreases; decreases

C. decreases; increases

D. none of the above

4. A firm is producing 10,000 units of output at a total cost of $5,000. If the firm increases output by 5,000 units and costs rise by $2000 the firm is experiencing:

A. economies of scale

B. economies of scope

C. constant returns to scale

D. diseconomies of scale

Homework Answers

Answer #1

C. Firm earns zero economic profits

In perfect competition, entry is free so when it starts becoming profit making more new firms leading to zero economic profits in long run.

A. Fixed Cost is 100

Fixed cost is independent of outpit level. It remains fixed at all level of output. 100 is fixed here

C. Decreases, increases

It is logical that economies occur when we benefit more than cost. Similarly when ATC falls as output increases that part is called economies of scale.

A. Economies of Scale

ATC at 10,000 units is $0.5

ATC at 15,000 units is $0.46

Since, ATC is falling as output rising, it is economies of scale

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