For a perfectly competitive firm that should continue to operate in the short run, loss is minimized where
a. MR is maximized
b. MR = MC
c. P < MC
d. MR < MC
e. MR > ATC
QUESTION 2Suppose Arf n' Barf restaurant has a monopoly on restaurant food in a certain small town. Their rent, which is one of several fixed costs they pay whether they sell food or not, has gone up. In the short run, the Arf n' Barf should
a. pay the higher rent and increase menu prices
b. pay the higher rent and leave menu prices unchanged
c. pay the higher rent and lower prices
d. go out of business
e. shut down
QUESTION 3Suppose the local government is considering using marginal cost pricing to set rates for a cable TV company. Which of the following arguments supports marginal cost pricing?
a. Marginal cost pricing gives the monopoly economic profit and a reason to stay in business.
b. Marginal cost pricing gives the firm a normal economic profit and a reason to stay in business.
c. Marginal cost pricing is allocatively efficient.
d. Average cost pricing requires subsidies, which can be costly.
e. Average cost pricing forces monopolies to operate at a loss.
QUESTION 4For a perfectly competitive firm operating at the profit-maximizing output level in the short run,
a. MR = TR
b. MC = price
c. MC = ATC
d. MC = AVC
e. AFC = price
QUESTION 5In the short run, how will a profit-maximizing monopolist react if its marginal cost suddenly increases? It will
a. lower price to expand revenue possibilities
b. restrict output to extract a higher price from customers
c. maintain the current price if profit is still positive
d. increase plant size to lower marginal cost
e. decrease plant size to lower marginal cost
QUESTION 6Which of the following is true of a natural monopoly?
a. If regulated, the firm will have a higher level of output than an unregulated firm, whether the regulation is based on average cost, marginal cost, or normal profit.
b. If regulated, the firm will have a lower level of output than an unregulated firm, whether the regulation is based on average cost, marginal cost, or normal profit.
c. If regulated, the firm that is only allowed a normal profit will be allowed to charge a price in excess of its average cost.
d. If regulated, the firm that is only allowed a normal profit will be allowed to produce more than a firm that must set a price equal to its marginal cost.
e. If regulated, the firm that is only allowed a normal profit will be allowed to produce more than a firm that must set a price equal to its average cost.
QUESTION 7Suppose a firm finds it is better off operating than shutting down in the short run. What is true at the quantity at which marginal cost equals marginal revenue?
a. total cost equals total revenue
b. average cost equals average revenue
c. profit is maximized
d. revenue is maximized
e. cost is minimized
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