A firm will always elect to reduce production when marginal cost is greater than average total...
Question:
A firm will always elect to reduce production when marginal cost is greater than average total cost if:
A) The firm is a price-taker and average total cost is maximum.
B) The firm is a price-setter and average total cost is maximum.
C) The firm is a price-taker and marginal cost exceeds the market price.
D) The firm is a price-setter and marginal revenue is greater than the market price.
E) None of these
Price-Setters vs. Price-Takers:
Price-setters (also called price-makers) and price-takers are more accurately called monopolies and competitive firms, respectively. Monopolies and competitive firms maximize profits by the same rule: marginal revenue and marginal cost must be equal. The only difference is that for monopolies, price should be greater than marginal revenue/marginal cost, and for competitive firms, price should be equal to marginal revenue/marginal cost.
Answer and Explanation: 1
Become a Study.com member to unlock this answer! Create your account
View this answerThe answer is C) The firm is a price-taker and marginal cost exceeds the market price.
First, the firm will continue production in the short run...
See full answer below.
Ask a question
Our experts can answer your tough homework and study questions.
Ask a question Ask a questionSearch Answers
Learn more about this topic:
Get access to this video and our entire Q&A library
Perfect Competition: Definition, Characteristics & Examples
from
Chapter 3 / Lesson 62
275K
Learn the definition, characteristics, and benefits of perfect competition. Review real-life examples of perfect competition between different companies.
Related to this Question
- If a firm is producing the level of output at which average total cost equals marginal cost, then: a. Marginal cost is at its minimum point. b. Average total cost is at its minimum point. c. Total cos
- In the short run, if a firm produces the level of output at which marginal revenue is equal to marginal cost but price is less than average total cost, the firm will: a. Always shut down production, b. Expand output to lower its average fixed cost, c. C
- If a firm in a perfectly competitive market is currently producing the output where the price is equal to marginal cost and average total cost, what could we assume about the firm? A) The firm is suff
- A firm shuts down if the price is? A) below average total cost. B) above minimum average fixed cost. C) below minimum average variable cost. D) above minimum average variable cost. E) less than marginal cost.
- A firm shuts down if price is: A) below average total cost. B) above minimum average fixed cost. C) below minimum average variable cost. D) above minimum average variable cost. E) less than marginal cost.
- When a firm is experiencing diseconomies of scale, long-run: a. average total cost is minimized, b. average total cost is greater than the long-run marginal cost, c. average total cost is less than the long-run marginal cost, d. marginal cost is minimi
- By shutting down when the price is less than the average variable cost at the profit-maximizing level of output, a perfectly competitive firm will limit its losses to its: A) total variable costs B) total costs C) total fixed costs D) marginal costs
- A firm shuts down if price is: A) above minimum average variable cost. B) below minimum average variable cost. C) above minimum average fixed cost. D) less than marginal cost below average total cost.
- Suppose a perfectly competitive firm is producing a level of output for which price equals average total cost, and the average total cost is less than marginal cost. In order to maximize its profits, the firm should: a) reduce its output. b) expand its ou
- In a competitive industry, the market price of output is $24. A firm is producing that level of output at which average total cost is $30, marginal cost is $25, and average fixed cost is $5. In order to maximize profit (or minimize losses), the firm shoul
- A firm produces at the output level at which its average total costs are minimized. At this output level, its average total costs are equal to all of the following except a. price. b. MC. c. MR. d. AVC.
- A firm shuts down if price: a. is above minimum average variable cost. b. is above minimum average fixed cost. c. is below average total cost. d. is below minimum average variable cost. e. is less than marginal cost.
- Assume that the market determined price is $10 in a perfectly competitive industry. A firm is currently producing 100 units of output. Average total cost is $8 while marginal cost is $8 and average variable cost is $6. Is the firm producing the profit-max
- In the long-run, a firm in monopolistic competition has A. a price that exceeds its average total cost. B. a marginal cost that exceeds its price. C. a price that exceeds its marginal cost. D. an average total cost that exceeds its price.
- When a perfectly competitive firm is in long-run equilibrium, the firm is producing at _ cost. a. Minimum long-run average total b. Minimum marginal c. Maximum average total d. Maximum average variabl
- In the short run, if the marginal cost of production is equal to the average total cost of production, then the average total cost is: A) less than the average variable cost. B) less than the average fixed cost. C) maximized. D) minimized. E) equal t
- When a firm is experiencing economies of scale, long-run: a. average total cost is minimized, b. average total cost is greater than long-run marginal cost, c. average total cost is less than long-run marginal cost, d. marginal cost is minimized.
- In a competitive industry, the market price of output is $24. A firm is producing that level of output at which the average total cost is $30, the marginal cost is $25, and the average fixed cost is $5. In order to maximize profit (or minimize losses), th
- If the marginal cost of production exceeds the average cost of production, then: 1) the marginal cost is falling. 2) the marginal cost is rising. 3) the average cost is falling. 4) the average cost is rising. 5) the firm should shut down.
- A firm has a fixed production cost of $10,000 and a constant marginal cost of $1000 per unit. A. Calculate the firm's average variable cost, average fixed cost and average total cost curves. B. If the firm wishes to minimize the average total cost of prod
- When a firm can increase its output with a less than proportional increase in total costs, which of the following is true? 1) The firm has economies of scale. 2) The firm's average cost is decreasing with output. 3) The firm's marginal cost is less tha
- When a firm can increase its output with a less than proportional increase in total costs, which of the following is true? 1) The firm has economies of scale. 2) The firm's average cost is decreasing with output. 3) The firm's marginal cost is less th
- In the long-run equilibrium of a market with free entry and exit: a. Marginal cost exceeds the average total cost, b. The price of the good exceeds the average total cost, c. The average total cost exceeds the price of the good, d. Firms are operating at
- A firm will go out of business if the price is below: A. marginal cost B. marginal revenue C. average total cost D. average fixed cost
- A competitive firm maximizes profit by choosing the quantity at which: A. average total cost is at its minimum. B. marginal cost equals the price. C. average total cost equals the price. D. marginal
- When price and marginal cost are equal for a perfectly competitive firm, the firm is: a. Minimizing average total cost, b. Maximizing total revenue, c. Maximizing economic profit, d. Earning negative economic profit.
- The marginal cost of production must always: a. be equal to the minimum of the average total cost of production. b. be equal to the minimum of both the average total cost and the average variable costs of production. c. be higher than the fixed costs of p
- A monopolistic competitor is currently producing 2,000 units of output; price is $100, marginal revenue is $80, average total cost is $130, marginal cost is $60, and average variable cost is $60. The firm should: a) Raise price because the firm is losing
- The price taker firm should discontinue production immediately if: a. The market price is less than the firm's average variable costs, b. The market price is less than the firm's average total costs, but greater than its average variable cost, c. The mark
- If a perfectly competitive firm finds that it is producing an output level where price is above average variable cost but less than marginal cost, it should [{Blank}] A. increase its output B. shut down. C. decrease its price. D. increase its price. E
- Consider a firm that produces output in a perfectly competitive market. The firm's total cost curve takes the form of TC=100+10Q+Q^2 and marginal cost takes the form MC=10+2Q. The point of the minimum average total cost is Q=10. a. If the market price is
- 1. For any firm, whether it is a price taker or a price maker, profit maximization occurs at a rate of output for which a. marginal revenue equals marginal cost b. average total cost is minimized c. m
- 28) Consider a perfectly competitive firm that is producing a level of output such that price equals average total cost and average total cost is less than marginal cost. In order to maximize its profits, the firm should A) reduce output. B) expand output
- When a firm in perfect competition is maximizing profits and produces that level of output where price, marginal revenue, marginal cost, average total cost, long-run marginal cost, and long run average total cost are all equal, the firm _____. a. earns a
- As a firm increases its output, which of the following costs should decrease? A. Average total cost B. Average variable cost C. Marginal cost D. Average fixed cost
- A competitive firm maximizes profit by choosing the quantity at which a. average total cost is at its minimum. b. marginal cost equals price. c. average total cost equals the price. d. marginal cost equals average total cost.
- A competitive firm maximizes profit by choosing the quantity at which a. average total cost is at its minimum. b. marginal cost equals the price. c. average total cost equals the price. d. marginal cost equals average total cost.
- A perfectly competitive firm is producing at an output level where marginal cost is $8 and the average total cost is $7. The current price of the good is $7.50. To maximize its profit, what should this firm do? Assume that the firm is currently operating
- In a competitive industry the market-determined price is $12. A firm is currently producing 50 units of output; average total cost is $10, marginal cost is $15, and average variable cost is $7. In order to maximize profit, the firm should: a. produce more
- A monopolistic competitor is producing a level of output at which price is $200, marginal revenue is $100, average total cost is $210, marginal cost is $100, and average variable cost is $180. In order to maximize profit, the firm should increase a. out
- A competitive firm maximizes profit by choosing the quantity at which: a. average total cost is at its minimum. b. average total cost equals the price. c. marginal cost equals the price. d. marginal cost equals average total cost.
- A competitive firm maximizes profits by choosing the quantity at which a. average total cost is at its minimum. b. marginal cost equals its price. c. average total cost equals the price. d. marginal cost equals average total cost.
- If the marginal cost of production is smaller than the average total cost, does this tell you whether the average total cost is increasing or decreasing? What if the marginal cost is equal to the aver
- A perfectly competitive firm has the following short-run total cost. Calculate the firm's marginal cost and, for all output levels except zero, the firm's average variable cost and average total cost.
- If price is less than average cost, A. the firm may still make profits as long as marginal cost is low. B. the firm's maximum profit is negative. C. there is no profit-maximizing level of output. D. marginal cost must necessarily be high.
- If a perfectly competitive firm is producing an output at which price is equal to the average total cost, the firm: a) is making an economic profit. b) is not producing its profit-maximizing quantity. c) is breaking even. d) should shut down. e) is incurr
- A perfectly competitive firm is is currently producing at a point at which price is $10 and both marginal cost and average variable cost are $7. To maximize profit or minimize loss in the short run, this firm should do what?
- In a perfectly competitive industry the market price is $12. A firm is currently producing 50 units of output; average total cost is $10, and average variable cost is $7. In order to maximize profit, the firm should: a. produce more because the firm is ea
- A firm will shut down in the long-run if the: a. firm is making zero economic profits. b. price is anywhere above the minimum average variable cost (AVC). c. price is anywhere below the minimum average total cost (ATC). d. price is above the minimum avera
- A monopolistically competitive firm will increase its production if a. marginal revenue is greater than marginal cost. b. marginal revenue is greater than average total cost. c. price is greater than marginal cost. d. price is greater than average total c
- In perfect competition, a firm maximizing its profits will set its output at that level where a. Average variable cost = price b. Marginal cost = price c. Total cost = price d. Average fixed cost = price
- To compute the level of output that a firm would produce to maximize profits, you must compute the level of output where equals the price of the product. a. marginal cost b. average revenue c. total cost d. average total cost
- The decrease(s) as the firm increases production. a. explicit costs b. implicit costs c. fixed cost d. variable cost e. average fixed cost f. average total cost g. marginal cost h. diminishing marginal product of labor i. increasing marginal product of la
- A monopolistic competitor is producing a level of output at which price is $200, marginal revenue is $100, average total cost is $210, marginal cost is $100, and average variable cost is $180. In order to maximize profit, the firm should: a) keep output t
- Which of the following is a criterion for profit maximization of a price-taking firm, if it is always better to produce something rather than shut down? (a) Price and average total cost are equal. (b) The price and the marginal cost are equal. (c) Price a
- A perfectly competitive firm should shut down in the short run if price falls below the minimum of: A) average variable costs. B) marginal revenue. C) average total cost. D) fixed costs. E) marginal cost.
- A firm's markup is: A) the amount by which price equals marginal cost. B) the amount by which price exceeds marginal cost. C) the firm's total cost. D) the firm's total profit. E) the amount by which price is less than marginal cost.
- A firm's marginal cost is $30, its average total cost is $50, and its output is 800 units. Its total cost of producing 801 units is A. between $40,050 and $40,080. B. greater than $40,080. C. less than $40,000. D. between $40,000 and $40,050.
- A firm's marginal cost is $82, its average total cost is $50, and its output is 800 units. Its total cost of producing 801 units is A. greater than $40,080. B. between $40,050 and $40,080. C. less than $40,000. D. between $40,000 and $40,050.
- A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has a price of $10, an average total cost of $8, and a fixed cost of $200. Given this, the profit is, the marginal cost is, and the average variable cost is. a
- A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has a price of $10, an average total cost of $8, and a fixed cost of $200. Given this, profit is, marginal cost is, and the average variable cost is. a. 0, $8,
- When price is greater than average variable cost but less than average total cost at the profit-maximizing level of output, a firm should: a. continue to produce the level of output at which marginal revenue equals marginal cost. b. shutdown to minimize i
- In the long run, a profit-maximizing firm will choose to exit a market when: a. fixed costs exceed sunk costs. b. average fixed cost is rising. c. revenue from production is less than total costs. d. marginal cost exceeds marginal revenue at the curren
- A perfectly competitive firm will not produce any output in the short run and will shut down if price is: a. greater than marginal cost. b. less than marginal cost. c. less than average variable cost. d. greater than average variable cost and less tha
- Monopolistic competitive firms have excess capacity. To maximize profits, firms will: a) increase their output to lower their average total cost of production and eliminate the excess capacity. b) produce where price equals marginal cost to eliminate th
- Profit Maximizing firms in competitive industries with free entry and exist face a price equal to the lowest possible: a. Marginal cost of production, b. Fixed cost of production, c. Total cost of production, d.Average total cost of production.
- The perfectly competitive firm should shut down where: A. marginal revenue is less than marginal cost B. price is less than average total cost C. total revenue is less than total cost D. price is less than average variable cost
- The perfectly competitive firm will suspend operations (shut down) when a. price exceeds marginal cost. b. price is equal to average total cost. c. price exceeds average variable cost. d. price is
- Which of the following is consistent with competitive long-run equilibrium? a. Economic profits are maximized. b. Average total costs of production are minimized. c. Price equals the maximum of the average total cost. d. Marginal costs are minimized.
- A price-taking firm has marginal cost MC = 20 + 10q, average variable cost AVC = 20 + 5q, and fixed costs of 500, where q refers to the output of the firm. a. Write down the firm's total cost (TC) function. b. What is the firm's profit-maximizing output
- A firm's cost curve is TC(q) = 250 + 10q + 2q^2, q is the quantity produced. What is the firm's marginal cost (MC), average variable cost (AVC), and average total cost (ATC)?
- If marginal cost is less than average cost, at current levels of production, a. average cost is increasing with output. b. average cost is decreasing with output. c. total cost is decreasing. d. average cost is at a minimum.
- According to the shutdown rule, a firm should produce no output in the short run if: a. price is below minimum average total cost. b. total revenues are lower than total fixed costs. c. price is above minimum average total cost. d. price is below minimum
- A monopolistically competitive firm is producing at a short-run output level where the average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should A) decrease the level of output.
- If a firm shuts down in the short-run, its cost will equal its: a. average total cost b. total cost c. variable cost d. fixed cost e. average fixed cost
- If a competitive firm is producing a quantity at which marginal cost is between average variable cost and average total cost, it will: A. keep producing in the short run and exit in the long run B.
- If price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will: a. produce at a loss. b. produce at a profit. c. shut down production. d. produce more than the profit-maximiz
- A firm's average total cost is $80, its average variable cost is $75, and its output is 50 units. Its total fixed cost is A. less than $100. B. more than $300. C. between $200 and $300. D. between $100 and $200.
- To find the output at which the firm maximizes its profits, you must know the firm's: A. average total costs B. average variable costs C. average fixed costs D. marginal costs
- If average total cost is greater than average variable cost is greater than price, a profit-maximizing firm in a perfectly competitive market should: a. shut down in the short run. b. increase its output level to minimize its loss. c. none of these
- Calculate this firm's marginal cost and, for all output levels except zero, the firm's average variable cost and average total cost.
- At the level of output where marginal revenue equals marginal cost, assume that the price of a competitive firm's product is between the firm's average total cost curve and its average variable cost curve. In this case, the firm would: a) decrease output
- If a firm is a price taker, STC = 15q^2 + 8q + 45 SMC = 30q + 8 a) Find the firm's fixed cost and variable cost, average total cost, and average variable cost in the short run. b) Find the firm's sho
- In a monopolistically competitive industry in long-run equilibrium: A. Each firm is making a normal profit. B. Each firm is producing the output at which long-run average cost is at its minimum point. C. Price equals marginal cost for each firm. D. All of
- A monopolistically competitive firm will increase its production if; a. marginal revenue is greater than marginal cost. b. marginal revenue is greater than average total cost. c. price is greater than marginal cost. d. price is greater than average tot
- The competitive firm maximizes its profit by operating at a point where ____ and price is greater than the average variable cost. A. average cost is at a minimum. B. total revenue is at a maximum. C. profit per unit is at a maximum. D. marginal cost equa
- If a firm's average cost is rising, then _______. (a) marginal cost is less than the average cost (b) marginal cost is rising (c) marginal cost is greater than the average cost (d) the firm is making an economic profit.
- If a competitive firm in the short run has its average total costs below the price: a) the firm has an economic loss. b) the firm should shut down. c) the firm should exit the industry. d) the firm has an economic profit.
- A profit-maximizing firm with market power will always produce a level of output where: a) demand is elastic. b) demand is inelastic. c) price is greater than average total cost. d) marginal value is greater than the average total cost.
- A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has an average revenue of $9 and an average total cost of $7. It follows that the firms: a. Average total cost curve intersects the marginal cost curve at an
- Let a firm be in long run competitive equilibrium. The market price will be equal to A. The marginal revenue. B. The marginal cost. C. The average total cost. D. All of the above.
- A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has an average revenue of $10, and its average total cost is $8. It follows the firms: a. Average total cost curve intersects the marginal cost curve at an out
- A firm will want to increase its scale of plant if: a. it is persistently producing on the downward-sloping part of its short-run average total cost curve. b. it is producing below minimum efficient scale. c. marginal cost is below average total cost. d.
- The cost of producing an additional unit of output is the firm's? a. Marginal cost. b. Average total cost. c. Variable cost. d. Average variable cost.
- When a competitive firm makes a decision to shut down, it is most likely that: a. marginal cost is above average variable cost. b. marginal cost is above average total cost. c. price is below the minimum of average variable cost. d. fixed costs exceed var
- If a profit-maximizing, competitive firm is producing a quantity at which marginal cost is between average variable cost and average total cost, it will a. keep producing in the short run but exit the market in the long run. b. shut down in the short run
- When price is greater than average variable cost but less than average total cost at the profit-maximizing level of output, a firm should _____. a. continue to produce the level of output at which marginal revenue equals marginal cost b. shutdown to minim
- If average total cost exceed price (TR<TC) production results in no economic profit, a firm will record a loss when total costs are greater than total revenue. Fixed cost is considered sunk costs in a
Explore our homework questions and answers library
Browse
by subject