9.5 Profits In The Short Run

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, then the firm: Should increase price. Is earning a profit. Should increase output. Should shut down.

If a firm shuts down in the short run, it avoids its variable cost but not its fixed cost. (T/F)

If a perfectly competitive firm's price is above its average total cost, the firm: Should shut down. Is incurring a loss. Is breaking even. Is earning a profit.

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's profit? (P × Q) - (P × ATC) P - TC (P × Q) - TC P - ATC

What is always true at the quantity where a firm's average total cost equals average revenue? The firm breaks even. The firm's profit is maximized. Marginal cost equals marginal revenue. The firm's revenue is maximized.

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm: Is earning a profit. Is incurring a loss. Should shut down. Is breaking even.

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The fixed cost of production is $20,000. The price of each good is $10. Should the firm continue to produce in the short run? Yes, it should continue to produce because its price exceeds its average fixed cost. Yes, it should continue to produce because the firm's revenues cover the total variable cost of $16,000. No, it should shut down because it is making a loss. There is insufficient information to answer the question.

The minimum point on the average variable cost curve is called:

If a firm shuts down in the short run: Its loss equals its fixed cost. Its loss equals zero. Its total revenue is not large enough to cover its fixed cost. It makes zero economic profit.

When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell: Nothing at all; the firm shuts down. Any positive output the entrepreneur decides upon because all of it can be sold. The output where average total cost equals price. The output where marginal revenue equals marginal cost.