14. Refer to Table 14-15. What is the lowest price at which this firm would oper
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Question
14. Refer to Table 14-15. What is the lowest price at which this firm would operate in the short run? a. S3. b. S4. c. S5. d. $6. 15. If the profit-maximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm a. will be earning positive economic profit at the profit-maximizing quantity b. will have economic profit less than zero at the profit-maximizing quantity. c. will have zero economic profit at the profit-maximizing quantity d. should increase the quantity of production to increase profit. 16. Which of the following is a characteristic of a natural monopoly? a. Average cost exceeds marginal cost over large regions of output. b. Increasing the number of firms increases each firm's average total cost. c. One firm can supply output at a lower cost than two firms. d. All of the above are correct. 17. The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following ways? a. A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost. b. A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost. c. For a competitive firm, marginal revenue at the profit-maximizing level of output is equal to marginal revenue at all other levels of output; for a monopolist, marginal revenue at the profit-maximizing level of output is smaller than it is for larger levels of output than it is for a profit-maximizing monopolist. d. For a profit-maximizing competitive firm, thinking at the margin is much more importantExplanation / Answer
(14) (a)
Fixed cost (FC) is $2 (= Total cost (TC) when quantity (Q) is zero).
Variable cost (VC) = TC - FC = TC - $2, and Average variable cost (AVC) = TC / Q, computed below.
In short run, minimum price is the lowest value of AVC, i.e. $3.
(15) (d)
When AVC is falling, MC is falling (since MC intersects AVC at its minimum point from below). For competitive firms, price equals Marginal revenue (MR) and profit is maximized when Price = MR = MC at the range where MC is rising. So, output should be increased to reach the profit-maximizing point.
(16) (a)
When AC > MC, this is the region where AC curve is falling, meaning AC falls as output rises, which arises from economies of scale which is the characteristic of a natural monopoly.
(17) (b)
In competitive market, profit is maximized when Price (= AR = MR) equals MC. In this case AR is horizontal. For monopoly, demnd (AR) and MR are both downward sloping and MR lies below the AR curve while profit is maximized when MR equals MC. Therefore price (AR) exceeds MC.
Q TC VC AVC 0 2 0 1 7 5 5 2 10 8 4 3 11 9 3 4 18 16 4 5 27 25 5 6 38 36 6Related Questions
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