Some competitive firms are willing to operate at a loss, in the short run, because:
a. their average variable cost is less than the price.
b. their fixed costs are less than their current losses.
c. their average total cost is less than the price.
d. they do not attempt to maximize profits or minimize losses.
e. their revenues are at least able to cover their fixed costs.
QUESTION 2At his current level of output, a monopolist has a MR of 10, a MC of 6, and an economic profit of zero. If the market demand curve is downward sloping and his marginal cost curve is upward sloping, the monopolist:
a. is producing at the profit-maximizing level of output.
b. could increase profit by increasing output.
c. could increase profit by increasing his price.
d. should exit the market if significant fixed costs have been incurred.
QUESTION 3According to empirical observations, the cost of restricting international trade in the U.S. is much greater than the benefits generated from restriction. In the light of the above observation, which of the following statements is true?
a. Domestic producers end up earning lower profits than what they would earn without trade restrictions.
b. Consumers end up paying much more for the goods they buy in order to subsidize the relatively inefficient domestic producer.
c. U.S. GDP would be over 14 billion higher with import restrictions than without restrictions.
d. Protection of the U.S. textile and sugar industries means that all consumers pay a lower price for clothing and sugar.
e. Protection of the domestic industries enable the producers to charge lower prices for their products.
QUESTION 4Define returns to scale.
QUESTION 5A perfectly competitive firm decides to shut down if:
a. the price falls below the average-total-cost.
b. average revenue falls below the average-variable-cost.
c. the price falls below the marginal cost.
d. the average revenue curve lies below the marginal cost curve.
e. the total revenue is less than total cost.
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