Do you agree or disagree with each of the following statements? Explain why: a.

Question

Do you agree or disagree with each of the following statements? Explain why:
a. For a competetive firm facing a market price above average total cost, the existence of economics profits mean that the firm should increase output in the short run even if the price is below marginal cost.
b. if marginal cost is rising with increasing output, average cost must also be rising.
c. fixed cost is constant at every level of output except zero. when a firm produces no output, fixed costs are zero in the short run.

Explanation / Answer

Do you agree or disagree with each of the following statements? Explain why:

a. For a competetive firm facing a market price above average total cost, the existence of economics profits mean that the firm should increase output in the short run even if the price is below marginal cost.

Yes, I agree with the statement, if the price is above ATC, than the firm will definetely acheive profist as its Price per unit is higehr than the cost per unit ( ATC). But it can still earn a higher profits, as its price is lower than the MC, so the firm can increase its output and also the price equal to MC where it achieves maximum profit.


b. if marginal cost is rising with increasing output, average cost must also be rising.
No,
Marginal cost initially declines and reaches a minimum and rises after certain level of out put, and the ATC curve is U shaped, it first decreases, than reaches a minimum point and rises again, the MC curve cuts the ATC at its minimum point.
Thus we cannot accurately predict that when MC is rising ATC will also rise, i.e it might be constant or increasing.


c. fixed cost is constant at every level of output except zero. when a firm produces no output, fixed costs are zero in the short run. No, At zero level output also the firm incurs fixed cost, It is the cost of infrastructure, machineary and all fixed items, whether we produce output or not, if we start a firm it definetely incurs fixed cost, and it is constant at all level of output. No, At zero level output also the firm incurs fixed cost, It is the cost of infrastructure, machineary and all fixed items, whether we produce output or not, if we start a firm it definetely incurs fixed cost, and it is constant at all level of output.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.