If the price of a product falls below average total cost in the short run, the firm:
a. has an economic profit.
b. cannot cover total fixed costs.
c. experiences a loss.
d. must always shut down.
e. should expand output until MC = MR.
QUESTION 2The price elasticity of demand between milk and soda is likely to be:
a. negative, because the goods are complements.
b. positive, because the goods are complements.
c. negative, because the goods are substitutes.
d. positive, because the goods are substitutes.
e. 0, because the goods are not usually consumed by the same person at one time.
QUESTION 3Consider a firm with the following cost and revenue information: ATC = 8, AVC = 7, and MR = MC = 6 . If the firm produces Q = 60 in the short run, it:
a. is minimizing losses.
b. makes a total loss of 60.
c. should produce more output.
d. is making a mistake and should shut down.
e. is maximizing total profit.
QUESTION 4The price elasticity of demand between rifles and bullets is likely to be:
a. negative, because the goods are complements.
b. positive, because the goods are complements.
c. negative, because the goods are substitutes.
d. positive, because the goods are substitutes.
QUESTION 5Consider a firm with the following cost information: ATC = 15, AVC = 12, and MC = 14 . If we know that this firm has decided to produce Q = 20 by following the rule to maximize profits or minimize losses, then the price of the output is:
a. 12.
b. 14.
c. 15.
d. 20.
QUESTION 6The value of cross elasticity of demand between orange soda and grape soda is:
a. negative.
b. positive.
c. 0.
d. between 1 and 0.
e. less than 1.
QUESTION 7Jerome, the florist, sold 500 bridesmaid's bouquets in June. He estimates his costs that month were ATC = 10, AVC = 6, and MC = 9 . If he sold each bouquet at the constant market price of 9, Jerome:
a. made an economic profit of 500.
b. made a loss of 500.
c. made an economic profit of 1,500.
d. made a loss of 1,500.
e. should have shut down in June.
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