7/2/2018 Quiz Homework 04 The shutdown point for a perfectly competitive firm is

Question

7/2/2018 Quiz Homework 04 The shutdown point for a perfectly competitive firm is the O lowest point on the ATC curve point t which fs long-un supply urve ends. O lowest point on the AVC curve Olowest point on the marginal cost curve. Question 16 2 pts A firm can minimize its losses by shutting down whenare costs. less than . O variable costs; fixed Ofixed costs; variable O revenues; variable operating profits; sunk Question 17 2 pts A firm will choose to operate rather than shut down as long as price is greater than or equal to AFC. O AFC is greater than AVC. Oprice is greater than or equal to AVC O AVC is greater than MC

Explanation / Answer

Question 15 -

The shut down point of a perfectly competitive firm is the lowest point on the AVC curve.

Explaination:

The shut down point for a perfectly competitive firm is where Price < minimum AVC. It means where the firm is not able to cover it's variable cost, it should shut down. That's why the firm shut down point is at minimum of AvC.

Option C) is correct.

Question 16-

A firm can minimise....

When revenues are less than variable cost.

It is so because, if the firm continue to operate even when revenues are less than variable cost than the firm must bear huge loss because it has to pay even for the operation of the firm by its own pocket. So it is better for the firm to shut down when revenues are not even able to cover the variable cost to minimise the losses.

Correct option is c) revenue, Variable

Question 17-

A firm will choose to operate rather than shut down as long as price is greater than or equal to AVC.

Option C) is correct.

It is so because, when price is greater than or equal to AVC, the firms are able to cover it's variable cost from the revenues. It does not have to pay it from its own pocket so it will continue to operate in the short run rather than shut down when price is equal to or greater than AVC.

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