Question : 12.4   Deciding Whether to Produce or to Shut Down in : 1387798

12.4   Deciding Whether to Produce or to Shut Down in the Short Run

1) If, for a given output level, a perfectly competitive firm’s price is less than its average variable cost, the firm

A) is earning a profit.

B) should shut down.

C) should increase output.

D) should increase price.

2) A perfectly competitive firm’s supply curve is its

A) marginal cost curve.

B) marginal cost curve above its minimum average total cost.

C) marginal cost curve above its minimum average variable cost.

D) marginal cost curve above its minimum average fixed cost.

3) When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell

A) the output where marginal revenue equals marginal cost.

B) any positive output the entrepreneur decides upon because all of it can be sold.

C) nothing at all; the firm shuts down.

D) the output where average total cost equals price.

4) Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Sylvia Sidney. The lease has five years remaining and requires a monthly payment of $4,000. The lease

A) is a fixed cost of operating the tattoo parlor.

B) is a variable cost of operating the tattoo parlor.

C) is an implicit cost of operating the tattoo parlor.

D) is part of the marginal cost of operating the tattoo parlor.

5) Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Sylvia Sidney. The lease has five years remaining and requires a monthly payment of $4,000. Max’s explicit cost amounts to $3,000 per month more than his revenue. Should Max continue operating his business?

A) Max’s explicit cost exceeds his total revenue. He should shut down his tattoo parlor.

B) Max should continue to run the tattoo parlor until his lease runs out.

C) If Max’s marginal revenue is greater than or equal to his marginal cost, then he should stay in business.

D) This cannot be determined without information on his revenue.

Figure 12-9

Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.

6) Refer to Figure 12-9.  At price P1, the firm would produce

A) Q1 units

B) Q3 units.

C) Q5 units.

D) zero units.

7) Refer to Figure 12-9. At price P1, the firm would

A) lose an amount equal to its fixed cost.

B) lose an amount more than fixed cost.

C) lose an amount less than fixed cost.

D) break even.

8) Refer to Figure 12-9.  At price P2, the firm would produce

A) Q2 units.

B) Q3 units.

C) Q4 units.

D) zero units.

9) Refer to Figure 12-9.  At price P2, the firm would

A) lose an amount equal to its fixed cost.

B) lose an amount more than fixed cost.

C) lose an amount less than fixed cost.

D) break even.

10) Refer to Figure 12-9.  At price P3, the firm would produce

A) Q2 units

B) Q3 units.

C) Q4 units.

D) Q5 units.