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Chapter 14/Firms in Competitive Markets ❖ 41
100. Refer to Scenario 14-1. At Q = 999, the firm's total costs equal
a.
$10,985.
b.
$10,990.
c.
$10,995.
d.
$10,999.
101. Refer to Scenario 14-1. At Q = 999, the firm's profits equal
a.
$993.
b.
$997.
c.
$1,003.
d.
$1,007.
102. Refer to Scenario 14-1. To maximize its profit, the firm should
a.
increase its output.
b.
continue to produce 1,000 units.
c.
decrease its output but continue to produce.
d.
shut down.
Scenario 14-2
Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals
$20 and its average total cost equals $25. The firm sells its output for $30 per unit.
103. Refer to Scenario 14-2. To maximize its profit, the firm should
a.
increase its output.
b.
continue to produce 1,000 units.
c.
decrease its output but continue to produce.
d.
shut down.
104. Refer to Scenario 14-2. At Q = 1,000, the firm's profits equal
a.
$-5,000.
b.
$2,500.
c.
$5,000.
d.
$10,000.
105. Refer to Scenario 14-2. At Q = 999, the firm's total costs equal
a.
$24,970.
b.
$24,975.
c.
$24,980.
d.
$25,025.
42 ❖ Chapter 14/Firms in Competitive Markets
106. Refer to Scenario 14-2. At Q = 999, the firm's profits equal
a.
$4,990.
b.
$5,000.
c.
$5,020.
d.
$5,030.
Scenario 14-3
Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is
$17, and the average total cost of producing 500 units is $12. The firm sells its output for $20.
107. Refer to Scenario 14-3. At Q=500, the firm’s profits equal
a.
$1,000.
b.
$4,000.
c.
$7,000.
d.
$10,000.
108. Refer to Scenario 14-3. At Q=499, the firm’s total costs equal
a.
$5,983.
b.
$5,988.
c.
$5,995.
d.
$5,999.
109. Refer to Scenario 14-3. At Q=499, the firm’s profits equal
a.
$3,980.
b.
$3,992.
c.
$3,997.
d.
$4,017.
110. Refer to Scenario 14-3. If the marginal cost of producing the 501st unit would be $19, producing and selling
the 501st unit would
a.
decrease the firm’s profit by $19.
b.
decrease the firm’s profit by $2.
c.
increase the firm’s profit by $1.
d.
increase the firm’s profit by $3.
111. Which of the following expressions is correct for a competitive firm?
a.
profit = (quantity of output) x (price - average total cost)
b.
marginal revenue = (change in total revenue)/(quantity of output)
c.
average total cost = total variable cost/quantity of output
d.
average revenue = (marginal revenue) x (quantity of output)
Chapter 14/Firms in Competitive Markets ❖ 43
112. Total profit for a firm is calculated as
a.
marginal revenue minus average total cost.
b.
average revenue minus average total cost.
c.
marginal revenue minus marginal cost.
d.
(price minus average cost) times quantity of output.
113. We can measure the profits earned by a firm in a competitive industry as
a.
(P - ATC) Q.
b.
(P - MC) Q.
c.
MR MC.
d.
(MC - ATC) Q.
114. When a profit-maximizing firm is earning profits, those profits can be identified by
a.
P Q.
b.
(MC - AVC) Q.
c.
(P - ATC) Q.
d.
(P - AVC) Q.
115. Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its aver-
age total cost is $4. Its profit is
a.
$-1,600.
b.
$1,600.
c.
$3,200.
d.
$8,000.
116. Which of the following could be used to calculate the profit for a firm?
a.
Profit = MR - MC
b.
Profit = MR - TC
c.
Profit = (P - MC) Q
d.
Profit = (P - ATC) Q
117. Suppose that a firm in a competitive market is currently maximizing its short-run profit at an output of 50
units. If the current price is $9, the marginal cost of the 50th unit is $9, and the average total cost of producing
50 units is $4, what is the firm's profit?
a.
$0
b.
$200
c.
$250
d.
$450
44 ❖ Chapter 14/Firms in Competitive Markets
118. In a competitive market the price is $8. A typical firm in the market has ATC = $6, AVC = $5, and MC = $8.
How much economic profit is the firm earning in the short run?
a.
$0 per unit
b.
$1 per unit
c.
$2 per unit
d.
$3 per unit
119. Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average
total cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current
market price?
a.
$9
b.
$10
c.
$11
d.
$12
120. Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average
total cost of production equal to $6, and is earning $240 economic profit in the short run. What is the current
market price?
a.
$0
b.
$6
c.
$10
d.
$12
121. In the short run, a firm operating in a competitive industry will produce the quantity of output where price
equals marginal cost as long as the
a.
price is less than average total cost.
b.
marginal revenue exceeds the marginal cost.
c.
price is greater than average variable cost.
d.
price is greater than average fixed cost but less than average variable cost.
122. In the short run, a firm operating in a competitive industry will shut down if price is
a.
less than average total cost.
b.
less than average variable cost.
c.
greater than average variable cost but less than average total cost.
d.
greater than marginal cost.
Chapter 14/Firms in Competitive Markets ❖ 45
123. The short-run supply curve for a firm in a perfectly competitive market is
a.
horizontal.
b.
likely to slope downward.
c.
determined by forces external to the firm.
d.
the portion of its marginal cost curve that lies above its average variable cost.
124. A competitive firm's short-run supply curve is part of which of the following curves?
a.
marginal revenue
b.
average variable cost
c.
average total cost
d.
marginal cost
125. Which of these curves is the competitive firm's short-run supply curve?
a.
the average variable cost curve above marginal cost
b.
the average total cost curve above marginal cost
c.
the marginal cost curve above average variable cost
d.
the average fixed cost curve
126. The competitive firm's short-run supply curve is that portion of the
a.
average variable cost curve that lies above marginal cost.
b.
average total cost curve that lies above marginal cost.
c.
marginal cost curve that lies above average variable cost.
d.
marginal cost curve that lies above average total cost.
127. When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded
as its supply curve because
a.
the position of the marginal cost curve determines the price for which the firm should sell its
product.
b.
among the various cost curves, the marginal cost curve is the only one that slopes upward.
c.
the marginal cost curve determines the quantity of output the firm is willing to supply at any price.
d.
the firm is aware that marginal revenue must exceed marginal cost in order for profit to be
maximized.
46 ❖ Chapter 14/Firms in Competitive Markets
128. A firm in a competitive market has the following cost structure:
Output
Total Costs
0
$1
1
$6
2
$9
3
$10
4
$17
5
$26
What is the lowest price at which this firm might choose to operate?
a.
$2
b.
$3
c.
$4
d.
$5
129. The competitive firm's short-run supply curve is its
a.
marginal revenue curve, but only the portion where marginal revenue exceeds marginal cost.
b.
marginal cost curve.
c.
marginal cost curve, but only the portion above the minimum of average total cost.
d.
marginal cost curve, but only the portion above the minimum of average variable cost.
130. Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for
rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average
variable cost, in the short run the firm will
a.
experience losses but will continue to produce rubber bands.
b.
shut down.
c.
earn both economic and accounting profits.
d.
raise the price of its product.
131. Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for
rubber bands rises above the minimum of its average variable cost, but still lies below the minimum of average
total cost, in the short run the firm will
a.
experience losses but will continue to produce rubber bands.
b.
shut down.
c.
earn both economic and accounting profits.
d.
raise the price of its product.
Chapter 14/Firms in Competitive Markets ❖ 47
132. Shrimp Galore, a shrimp harvesting business in the Pacific Northwest, has a 30-year loan on its shrimp har-
vesting boat. The annual loan payment is $25,000 and the boat has a market (salvage) value that exceeds its
outstanding loan balance. Prior to the 2010 shrimp harvesting season, Shrimp Galore's accountant predicted
that at expected market prices for shrimp, Shrimp Galore would have a net loss of $75,000 dollars after paying
all 2010 expenses (including the annual loan payment). In this case, Shrimp Galore should
a.
produce nothing and experience a loss of $25,000.
b.
produce nothing and experience a loss of $75,000.
c.
continue to operate because expected profits will rise in the future.
d.
continue to operate even though it predicts a loss of $75,000.
133. When a profit-maximizing competitive firm finds itself minimizing losses because it is unable to earn a posi-
tive profit, this task is accomplished by producing the quantity at which price is equal to
a.
sunk cost.
b.
average fixed cost.
c.
average variable cost.
d.
marginal cost.
134. When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch,
which of the following principles is (are) best demonstrated?
(i)
Fixed costs are sunk in the short run.
(ii)
In the short run, only fixed costs are important to the decision to stay open for lunch.
(iii)
If revenue exceeds variable cost, the restaurant owner is making a smart decision to remain
open for lunch.
a.
(i) and (ii) only
b.
(ii) and (iii) only
c.
(i) and (iii) only
d.
(i), (ii), and (iii)
135. A profit-maximizing firm in a competitive market is able to sell its product for $7. At its current level of out-
put, the firm's average total cost is $10. The firm’s marginal cost curve crosses its marginal revenue curve at
an output level of 9 units. The firm experiences a
a.
profit of more than $27.
b.
profit of exactly $27.
c.
loss of more than $27.
d.
loss of exactly $27.
48 ❖ Chapter 14/Firms in Competitive Markets
136. Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business.
She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her
business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment.
For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for
the past several months she has taken in $3,500 in monthly revenue.
a.
In the short run, Susan should shut down her business, and in the long run she should exit the
industry.
b.
In the short run, Susan should continue to operate her business, but in the long run she should exit
the industry.
c.
In the short run, Susan should continue to operate her business, but in the long run she will
probably face competition from newly entering firms.
d.
In the short run, Susan should continue to operate her business, and she is also in long-run
equilibrium.
137. A firm in a competitive market has the following cost structure:
Output
Total Cost
0
$5
1
$10
2
$12
3
$15
4
$24
5
$40
If the market price is $4, this firm will
a.
produce 2 units in the short run and exit in the long run.
b.
produce 3 units in the short run and exit in the long run.
c.
produce 4 units in the short run and exit in the long run.
d.
shut down in the short run and exit in the long run.
138. Competitive firms that earn a loss in the short run should
a.
shut down if P < AVC.
b.
raise their price.
c.
lower their output.
d.
All of the above are correct.
139. Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At her profit-maximizing
level of output, her average total cost of production is $7.00, and her average variable cost of production is
$6.00. Which of the following statements about Mrs. Smith’s firm is correct?
a.
Mrs. Smith is earning a loss and should shut down in the short run.
b.
Mrs. Smith is earning a loss but should continue to operate in the short run.
c.
Mrs. Smith is earning a profit since the price is above the average variable cost.
d.
Without knowing Mrs. Smith's marginal cost, we cannot determine whether she should stay in
business or shut down.
Chapter 14/Firms in Competitive Markets ❖ 49
Figure 14-1
Suppose that a firm in a competitive market has the following cost curves:
MC
ATC
AVC
4.5
6.3
1 2 3 4 5 6 7 8 9 10 11 Quantity
1
2
3
4
5
6
7
8
9
10
11
12
13
Price
140. Refer to Figure 14-1. The firm’s short-run supply curve is its marginal cost curve above
a.
$1.
b.
$3.
c.
$4.50.
d.
$6.30.
141. Refer to Figure 14-1. The firm should shut down if the market price is
a.
above $8.
b.
above $6.30 but less than $8.
c.
above $4.50 but less than $6.30.
d.
less than $4.50.
142. Refer to Figure 14-1. If the market price falls below $4.50, the firm will earn
a.
positive economic profits in the short run.
b.
negative economic profits in the short run but remain in business.
c.
negative economic profits in the short run and shut down.
d.
zero economic profits in the short run.
50 ❖ Chapter 14/Firms in Competitive Markets
143. Refer to Figure 14-1. The firm will earn a negative economic profit but remain in business in the short run if
the market price is
a.
above $6.30 but less than $8.
b.
above $6.30.
c.
less than $6.30 but more than $4.50.
d.
less than $4.50.
144. Refer to Figure 14-1. The firm will earn a positive economic profit in the short run if the market price is
a.
above $6.30.
b.
less than $6.30 but more than $4.50.
c.
less than $4.50.
d.
exactly $6.30.
145. Refer to Figure 14-1. If the market price rises above $6.30, the firm will earn
a.
positive economic profits in the short run.
b.
negative economic profits in the short run but remain in business.
c.
negative economic profits and shut down.
d.
zero economic profits in the short run.
146. Refer to Figure 14-1. If the market price is $6.30, the firm will earn
a.
positive economic profits in the short run.
b.
negative economic profits in the short run but remain in business.
c.
negative economic profits and shut down.
d.
zero economic profits in the short run.
147. Refer to Figure 14-1. If the market price is $5.00, the firm will earn
a.
positive economic profits in the short run.
b.
negative economic profits in the short run but remain in business.
c.
negative economic profits and shut down.
d.
zero economic profits in the short run.
148. Refer to Figure 14-1. If the market price is $4.00, the firm will earn
a.
positive economic profits in the short run.
b.
negative economic profits in the short run but remain in business.
c.
negative economic profits and shut down.
d.
zero economic profits in the short run.
Chapter 14/Firms in Competitive Markets ❖ 51
Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves:
MC
ATC
AVC
P1
P3
P4
P2
1 2 3 4 5 6 7 8 Quantity
1
2
3
4
5
6
7
8
9
10 Price
149. Refer to Figure 14-2. If the market price is P1, in the short run the firm will earn
a.
positive economic profits.
b.
negative economic profits but will try to remain open.
c.
negative economic profits and will shut down.
d.
zero economic profits.
150. Refer to Figure 14-2. If the market price is P2, in the short run the firm will earn
a.
positive economic profits.
b.
negative economic profits but will try to remain open.
c.
negative economic profits and will shut down.
d.
zero economic profits.
151. Refer to Figure 14-2. If the market price is P3, in the short run the firm will earn
a.
positive economic profits.
b.
negative economic profits but will try to remain open.
c.
negative economic profits and will shut down.
d.
zero economic profits.
152. Refer to Figure 14-2. If the market price is P4, in the short run the firm will earn
a.
positive economic profits.
b.
negative economic profits but will try to remain open.
c.
negative economic profits and will shut down.
d.
zero economic profits.
52 ❖ Chapter 14/Firms in Competitive Markets
153. Refer to Figure 14-2. Which of the four prices corresponds to a firm earning positive economic profits in the
short run?
a.
P1
b.
P2
c.
P3
d.
P4
154. Refer to Figure 14-2. Which of the four prices corresponds to a firm earning zero economic profits in the
short run?
a.
P1
b.
P2
c.
P3
d.
P4
155. Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the
short run but trying to remain open?
a.
P1
b.
P2
c.
P3
d.
P4
156. Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the
short run and shutting down?
a.
P1
b.
P2
c.
P3
d.
P4
Chapter 14/Firms in Competitive Markets ❖ 53
Figure 14-3
Suppose a firm operating in a competitive market has the following cost curves:
MC
ATC
1 2 3 4 5 6 7 8 Quantity
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19 Price
157. Refer to Figure 14-3. If the market price is $10, what is the firm’s short-run economic profit?
a.
$9
b.
$15
c.
$30
d.
$50
158. Refer to Figure 14-3. If the market price is $10, what is the firm’s total cost?
a.
$15
b.
$30
c.
$35
d.
$50
159. Refer to Figure 14-3. If the market price is $10, what is the firm’s total revenue?
a.
$15
b.
$30
c.
$35
d.
$50
160. Refer to Figure 14-3. The firm will earn zero economic profit if the market price is
a.
$0
b.
$6
c.
$7
d.
$10
54 ❖ Chapter 14/Firms in Competitive Markets
Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves:
MC
ATC
AVC
P4
P1
P3
Q1 Q3 Q5
P2
Q2 Q4
Quantity
Price
161. Refer to Figure 14-4. When price rises from P2 to P3, the firm finds that
a.
marginal cost exceeds marginal revenue at a production level of Q2.
b.
if it produces at output level Q3 it will earn a positive profit.
c.
expanding output to Q4 would leave the firm with losses.
d.
it could increase profits by lowering output from Q3 to Q2.
162. Refer to Figure 14-4. When price falls from P3 to P1, the firm finds that it
a.
decreases its fixed costs.
b.
should produce Q1 units of output.
c.
should produce Q3 units of output.
d.
should shut down immediately.
163. Refer to Figure 14-4. When price rises from P3 to P4, the firm finds that
a.
fixed costs decrease as output increases from Q3 to Q4.
b.
it can earn a positive profit by increasing production to Q4.
c.
profit is still maximized at a production level of Q3.
d.
average revenue exceeds marginal revenue at a production level of Q4.
Chapter 14/Firms in Competitive Markets ❖ 55
Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves:
MC ATC
AVC
P7
P4
Q2 Q5
P1
Q1 Q4
P6
P2
Q3
P3
P5
Quantity
Price
164. Refer to Figure 14-5. When market price is P7, a profit-maximizing firm's short-run profits can be represent-
ed by the area
a.
P7 Q5.
b.
P7 Q3.
c.
(P7 - P5) Q3.
d.
We are unable to determine the firm’s profits because the quantity that the firm would produce is
not labeled on the graph.
165. Refer to Figure 14-5. In the short run, if the market price is higher than P1 but less than P4, individual firms
in a competitive industry will earn
a.
positive profits.
b.
zero profits.
c.
losses but will remain in business.
d.
losses and will shut down.
166. Refer to Figure 14-5. In the short run,if the market price is higher than P4 but less than P6, individual firms in
a competitive industry will earn
a.
positive profits.
b.
zero profits.
c.
losses but will remain in business.
d.
losses and will shut down.
56 ❖ Chapter 14/Firms in Competitive Markets
167. Refer to Figure 14-5. In the short run, if the market price is P4, individual firms in a competitive industry will
earn
a.
positive profits.
b.
zero profits.
c.
losses but will remain in business.
d.
losses and will shut down.
168. Refer to Figure 14-5. Firms would be encouraged to enter this market for all prices that exceed
a.
P1.
b.
P2.
c.
P3.
d.
P4.
169. Refer to Figure 14-5. When market price is P2, a profit-maximizing firm's losses can be represented by the
area
a.
(P4 - P2) Q2.
b.
(P2 - P1) (Q2-Q1).
c.
At a market price of P2, the firm earns profits, not losses.
d.
At a market price of P2 the firm has losses, but the reference points in the figure don't identify the
losses.
Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves:
MC
ATC
AVC
P5
P3
Q2 Q4
P1
Q1 Q3
P2
P4
Quantity
Price
170. Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's total revenue
a.
can be represented by the area P3 Q3.
b.
can be represented by the area P3 Q2.
c.
can be represented by the area (P3-P2) Q3.
d.
is zero.
Chapter 14/Firms in Competitive Markets ❖ 57
171. Refer to Figure 14-5. Firms will be encouraged to enter this market for all prices that exceed
a.
P1.
b.
P2.
c.
P3.
d.
None of the above is correct.
172. Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's total costs
a.
can be represented by the area P2 Q2.
b.
can be represented by the area P3 Q2.
c.
can be represented by the area (P3-P2) Q3.
d.
are zero.
173. Refer to Figure 14-6. Firms will earn positive profits in the short run if the market price
a.
is less than P1.
b.
is greater than P1 but less than P3.
c.
equals P3.
d.
exceeds P3.
174. Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's profit
a.
can be represented by the area P3 Q3.
b.
can be represented by the area P3 Q2.
c.
can be represented by the area (P3-P2) Q3.
d.
is zero.
175. Refer to Figure 14-6. Firms will be earn losses in the short run but will remain in business if the market price
a.
exceeds P3.
b.
is less than P1.
c.
is greater than P1 but less than P3.
d.
exceeds P2.
176. Refer to Figure 14-6. Firms will shut down in the short run if the market price
a.
exceeds P3.
b.
is less than P1.
c.
is greater than P1 but less than P3.
d.
exceeds P2.
58 ❖ Chapter 14/Firms in Competitive Markets
Figure 14-7
Suppose a firm operating in a competitive market has the following cost curves:
MC
ATC
C
A
B
F
D
AVC
Quantity
Price
177. Refer to Figure 14-7. Which line segment best reflects the short-run supply curve for this firm?
a.
ABCF
b.
CD
c.
DF
d.
BCD
178. Refer to Figure 14-7. Which segment of the supply curve represents the firm shutting down?
a.
ABCD
b.
BCD
c.
CD
d.
AB
Figure 14-8
Suppose a firm operating in a competitive market has the following cost curves:
MC
ATC
C
A
B
D
Quantity
Price
Chapter 14/Firms in Competitive Markets ❖ 59
179. Refer to Figure 14-8. Which line segment best reflects the long-run supply curve for this firm?
a.
ABCD
b.
BC
c.
ABC
d.
None of the above is correct. We must know the firm’s average variable cost.
180. Refer to Figure 14-8. The firm will exit the market for any price on the line segment
a.
ABCD.
b.
AB.
c.
CD.
d.
None of the above is correct.
181. If a firm operating in a competitive industry shuts down in the short run, it can avoid paying
a.
fixed costs.
b.
variable costs.
c.
total costs.
d.
The firm must pay all its costs, even if it shuts down.
182. Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1,000 per month on
the loan that he took out to buy them. He rents each boat for $200 per month. The variable cost for each boat
rental is $50. In the off season, Bill should
a.
operate his business as long as he rents at least 7 boats per month.
b.
operate his business as long as he rents at least 1 boat per month.
c.
operate his business as long as he rents all 10 boats each month.
d.
raise the price he charges per boat rental.
183. When a perfectly competitive firm decides to shut down, it is most likely that
a.
marginal cost is above average variable cost.
b.
marginal cost is above average total cost.
c.
price is below the firm’s average variable cost.
d.
fixed costs exceed variable costs.
184. When total revenue is less than variable costs, a firm in a competitive market will
a.
continue to operate as long as average revenue exceeds marginal cost.
b.
continue to operate as long as average revenue exceeds average fixed cost.
c.
shut down.
d.
raise its price.
60 ❖ Chapter 14/Firms in Competitive Markets
185. When price is below average variable cost, a firm in a competitive market will
a.
shut down and incur fixed costs.
b.
shut down and incur both variable and fixed costs.
c.
continue to operate as long as average revenue exceeds marginal cost.
d.
continue to operate as long as average revenue exceeds average fixed cost.
186. Which of the following statements best reflects the production decision of a profit-maximizing firm in a com-
petitive market when price falls below the minimum of average variable cost?
a.
The firm will continue to produce to attempt to pay fixed costs.
b.
The firm will immediately stop production to minimize its losses.
c.
The firm will stop production as soon as it is able to pay its sunk costs.
d.
The firm will continue to produce in the short run but will likely exit the market in the long run.
187. A profit-maximizing firm will shut down in the short run when
a.
price is less than average variable cost.
b.
price is less than average total cost.
c.
average revenue is greater than marginal cost.
d.
average revenue is greater than average fixed cost.
188. In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to
shut down if
a.
price is less than average total cost.
b.
price is greater than average total cost.
c.
average revenue is greater than average fixed cost.
d.
average revenue is greater than marginal cost.
189. Which of the following statements is correct regarding a firm's decision-making?
a.
The decision to shut down and the decision to exit are both short-run decisions.
b.
The decision to shut down and the decision to exit are both long-run decisions.
c.
The decision to shut down is a short-run decision, whereas the decision to exit is a long-run
decision.
d.
The decision to exit is a short-run decision, whereas the decision to shut down is a long-run
decision.
190. A firm that shuts down temporarily has to pay
a.
its variable costs but not its fixed costs.
b.
its fixed costs but not its variable costs.
c.
both its variable costs and its fixed costs.
d.
neither its variable costs nor its fixed costs.
