In the short run, a profit-maximizing firm should shut down if which of the following is true?

Q: When should firm shut down in short run?

In addition, in the short run, if the firms total revenue is less than variable costs, the firm should shut down.

INSTRUCTIONS: Select the BEST answer for each question by marking the circle next to your selection

Inhaltsverzeichnis Show

When should firm shut down in short run?
What should the firm do to maximize profit in the short run?
What does it mean for a firm to shut down in the short run?
What happens to profit

Given the table below, what is the short-run profit-maximizing level of output for the firm?

Output	Total revenue	Total cost
1	$ 4	$ 2
2	8	3
3	12	6
4	16	9
5	20	14

Assume the price of a product sold by a purely competitive firm is $5. Given the data in the accompanying table, at what output is total profit highest in the short run?

Output	Total cost
20	$ 70
25	75
30	85
35	100
40	125
45	155
50	190

In which market model would the number of firms be the fewest?

A.	monopolistic competition

Under which market model are the conditions of entry into the market easiest?

C.	monopolistic competition

Which idea is inconsistent with pure competition?

B.	product differentiation

C.	freedom of entry or exit for firms

D.	a large number of buyers and sellers

Which characteristic would best be associated with pure competition?

D.	product differentiation

7.	In pure competition, the average revenue of a firm always equals:

Answer the question based on the table below.

Price	Quantity	TFC	TVC
$ 5	5	$25	$10
5	10	25	20
5	15	25	50
5	20	25	60

At what point on the table would a purely competitive firm cover all of its costs and earn only normal profits?

Let us suppose Harry's, a local supplier of chili and beer, has the following revenue and cost structure:

total revenue$3,000 per week
total variable cost$2,000 per week
total fixed costs$2,000 per week

A.	Harry's should stay open in the long run.

B.	Harry's should shut down in the short run.

C.	Harry's should stay open in the short run.

D.	Harry's should shut down in the short run but reopen in the long run.

10.

R-1 REF 23-45

Refer to the above graph. Which of the output levels is the profit-maximizing output level for this firm?

11.

Use the table below to answer the next question(s) for a purely competitive firm.

Output	Total revenue	Total cost
0	$ 0	$ 50
1	40	74
2	80	94
3	120	117
4	160	142
5	200	172

R-2 REF 23-49 (REF23049)

Refer to the above table. The marginal revenue from the third unit of output is:

12.

Use the table below to answer the next question(s) for a purely competitive firm.

Output	Total revenue	Total cost
0	$ 0	$ 50
1	40	74
2	80	94
3	120	117
4	160	142
5	200	172

R-2 REF 23-49 (REF23049)

Refer to the above table. When the firm produces 3 units of output, it makes an economic:

13.

Use the table below to answer the next question(s) for a purely competitive firm.

Output	Total revenue	Total cost
0	$ 0	$ 50
1	40	74
2	80	94
3	120	117
4	160	142
5	200	172

R-2 REF 23-49 (REF23049)

Refer to the above table. The marginal cost of the third unit of output is:

14.

Which is true for a purely competitive firm in short-run equilibrium?

A.	The firm is making only normal profits.

B.	The firm's marginal cost is greater than its marginal revenue.

C.	The firm's marginal revenue is equal to its marginal cost.

D.	A decrease in output would lead to a rise in profits.

15.

R-3 REF 22-68

Using the diagram above, in order to maximize profits, this firm would produce ____________ which would result in ____________.

A.	0D units, a loss equal to ABGH

B.	0E units, a loss equal to ALFH

C.	0D units, economic profits equal to BCFG

D.	0E units, economic profits equal to ABGH

16.

Pure competition produces a socially optimal allocation of resources in the long run because:

A.	marginal cost equals marginal revenue.

B.	marginal cost equals average total cost.

C.	marginal revenue equals price.

D.	marginal cost equals price.

17.

In long-run equilibrium a purely competitive firm will operate where price is:

A.	greater than MR but equal to MC and minimum ATC.

B.	greater than MR and MC, but equal to minimum ATC.

C.	greater than MC and minimum ATC, but equal to MR.

D.	equal to MR, MC, and minimum ATC.

18.

Productive efficiency refers to:

A.	cost minimization, where P = minimum ATC.

B.	production, where P = MC.

C.	maximizing profits by producing where MR = MC.

19.

R-4 REF 23-130

According to the graphs above, what will happen in the long run to industry supply and the equilibrium price of the product?

A.	S will decrease, P will decrease.

B.	S will increase, P will decrease.

C.	S will decrease, P will increase.

D.	S will increase, P will increase.

20.

If firms enter a purely competitive industry, then in the long run this change will shift the industry:

A.	demand curve to the left, and the market price will decrease.

B.	demand curve to the right, and the market price will increase.

C.	supply curve to the right, and the market price will decrease.

D.	supply curve to the left, and the market price will increase.

21.

R-5 REF 23-126

A purely competitive firm, as shown above, will face what kind of change in profits over the long run, assuming industry demand is constant?

A.	Profits will increase.

B.	Profits will decrease.

C.	Profits will be unchanged.

D.	Cannot be decided from the information given.

22.

In the short run, fixed costs for a profitable firm are:

C.	important determinants of the output level.

D.	irrelevant in determining the optimal level of output.

23.

R-6 REF 23-97

Which point above is definitely not on a competitive firm's short-run supply curve?

24.

R-7 REF 23-96

This pure competitive firm in the above graph will not produce unless price equals at least:

25.

The short-run supply curve for a competitive firm is the:

B.	segment of the MC curve lying below the AVC curve.

C.	segment of the MC curve lying above the AVC curve.

D.	segment of the AVC curve lying to the right of the MC curve.

26.

R-8 REF 23-81

The purely competitive firm above will:

B.	produce with short-run losses.

C.	produce with long-run economic profits.

D.	produce with short-run economic profits.

27.

R-9 REF 23-80

The graph above shows a profit-maximizing purely competitive firm operating in the short run. Which area in the graph represents the amount the firm can save by continuing to produce in the short run rather than closing down immediately?

28.

R-10 REF 23-79

The graph above represents a profit-maximizing firm producing under conditions of pure competition. When the firm is in equilibrium in the short run, its average fixed cost is:

29.

A firm should always continue to operate at a loss in the short run if:

A.	the firm will show a profit.

B.	the owner enjoys helping her customers.

C.	it can cover its variable costs and some of its fixed costs.

D.	the firm cannot produce any other products more profitably.

30.

R-11 REF 22-72

Consider the purely competitive firm pictured above. The firm is earning:

A.	normal profits, since price is above AVC.

B.	economic profits, since its price is above AVC.

C.	normal profits, since its price just covers ATC.

D.	losses, since it is operating at the shutdown point.

31.

A purely competitive firm is in short-run equilibrium and its MC exceeds its ATC. It can be concluded that:

A.	firms will leave the industry in the long run.

B.	the firm is realizing an economic profit.

C.	the firm is realizing a loss.

D.	this is an increasing-cost industry.

32.

R-12 REF 22-66

Refer to the above graph. The level of output at which this firm will produce is:

This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.

When should firm shut down in short run?

In addition, in the short run, if the firm's total revenue is less than variable costs, the firm should shut down.

What should the firm do to maximize profit in the short run?

Short‐run profit maximization. A firm maximizes its profits by choosing to supply the level of output where its marginal revenue equals its marginal cost. When marginal revenue exceeds marginal cost, the firm can earn greater profits by increasing its output.

What does it mean for a firm to shut down in the short run?

Shutting down is a short-run decision. A firm that has shut down is not producing, but it still retains its capital assets; however, the firm cannot leave the industry or avoid its fixed costs in the short run. However, a firm will not choose to incur losses indefinitely.

What happens to profit

The Profit Maximizing Price and Quantity in the Short Run The firm maximizes profits at the quantity where marginal cost equals marginal revenue (at a quantity of 400). The price is found by going straight up to the demand curve, so the profit-maximizing price is $7.

In the short run, a profit-maximizing firm should shut down if which of the following is true?

When should firm shut down in short run?

What should the firm do to maximize profit in the short run?

What does it mean for a firm to shut down in the short run?

What happens to profit

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