Figure 14-1 Suppose that a firm in a competitive market has the following cost c

Question

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves 13 MC ATC AVC 63 4.3 567891011 18. Refer to Figure 14-1. The firm's short-run supply curve is its marginal cost curve above b. $3. c. $4.50 d. $6.30 19. Refer to Figure 14-1. The firm should shut down if the market price is a. above $8. b. above $6.30 but less than $8. c. above $4.50 but less than $6.30. d. less than $4.50 20. Refer to Figure 14-1. The firm will earn a negative economic profit but remain in business in the short run if the market price is a. above $6.30 but less than $8. b. above $6.30 c. less than $6.30 but more than $4.50. d. less than $4.50 21. Refer to Figure 14-1. If the market price rises above $6.30, the firm will earn a. positive economic profits in the short run. b. negative economic profits in the short run but remain in business. c. negative economic profits and shut down. d. zero economic profits in the short run. 22. Refer to Figure 14-1. If the market price is $6.30, the firm will earn positive economic profits in the short run. a. b. negative economic profits in the short run but remain in business c. negative economic profits and shut down. d. zero economic profits in the short run.

Explanation / Answer

18) The firm's short-run supply curve is its marginal cost curve above

Solution: $4.50

Working: The firm's short-run supply curve is its marginal cost curve above minimum AVC

19) The firm should shut down if the market price is

Solution: less than $4.50

Explanation: It is the minimum AVC

20) The firm will earn a negative economic profit but remain in business in the short run if the market price is

Solution: less than $6.30 but more than $4.50

Explanation: Between the minimum ATC and AVC

21) If the market price rises above $6.30, the firm will earn

Solution: positive economic profits in the short run

Explanation: Above minimum ATC the firm will start earning economic profits

22) If the market price is $6.30, the firm will earn

Solution: zero economic profits in the short run

Explanation: It is the point of minimum ATC

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