The price-taker firm should discontinue production immediately if:
a. the market price exceeds the firm's average total costs.
b. the market price is less than the firm's average variable costs.
c. the market price is less than the firm's average total costs, but greater than its average variable cost.
d. its accounting statement indicates that it is suffering losses.
QUESTION 2If automobiles and gasoline are complements, then their cross-elasticity coefficient will be:
a. strictly greater than one.
b. positive.
c. equal to zero.
d. negative.
QUESTION 3Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC), and the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would:
a. immediately shut down and get out of the industry.
b. continue to produce a quantity such that marginal revenue equals marginal cost.
c. shut down temporarily, in hopes of restarting in the near future.
d. cut price and expand output in hopes of achieving economies of scale
QUESTION 4To determine whether two goods are substitutes or complements, an economist would estimate the:
a. price elasticity of demand.
b. income elasticity of demand.
c. cross-elasticity of demand.
d. price elasticity of supply.
QUESTION 5In the short run, a firm will stay in business as long as:
a. price equals average revenue.
b. marginal revenue is greater than or equal to marginal cost.
c. price exceeds average variable cost.
d. price is less than average variable cost.
QUESTION 6The number of computers bought increased by 20 percent when the price of on-line services declined by 10 percent. Assuming other factors are held constant, computers and on-line services are classified as:
a. complements.
b. unrelated goods.
c. substitutes.
d. social goods.
QUESTION 7A profit-maximizing firm will continue to expand output:
a. as long as the revenues from the production and sale of an additional unit exceeds the average cost of the unit.
b. until the average cost of producing the good or service is at a minimum.
c. as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit.
d. until the marginal cost of producing a good or service is at a minimum.
QUESTION 8The number of cases of Coca-Cola bought increased by 50 percent when the price of pretzels declined by 10 percent. Assuming other factors are held constant, Coca-Cola and pretzels are classified as:
a. complements.
b. unrelated goods.
c. substitutes.
d. social goods.
QUESTION 9When the marginal cost of a price-taker firm is more than the market price of its product, the firm should:
a. expand output.
b. reduce output.
c. maintain output.
d. charge more than the market price.
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