Economics - Study Mode
[#896] In the short run if a perfectly competitive firm finds itself operating at a loss, it will
Correct Answer
(D) Continue to operate as long as it covers its variable cost
Explanation
Solution: In the short run if a perfectly competitive firm finds itself operating at a loss, it will continue to operate as long as it covers its variable cost.
[#897] A competitive firm maximizes profit at the output level where
Correct Answer
(D) All of the above
Explanation
Solution: A competitive firm maximizes profit at the output level where Price equals marginal cost, The slope of the firm's profit function is equal to zero and Marginal revenue equals marginal cost.
[#898] A necessity is defined as a good having
Correct Answer
(C) An income elasticity of demand between zero and 1
Explanation
Solution: A necessity is defined as a good having an income elasticity of demand between zero and 1. If income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good. A zero income elasticity of demand occurs when an increase in income is not associated with a change in the demand of a good.
[#899] In the long run, any firm will eventually leave the industry if
Correct Answer
(A) Price does not at least cover average total cost
Explanation
Solution: In the long run, any firm will eventually leave the industry if Price does not at least cover average total cost. Exit is the long-run process of firms reducing production and shutting down in response to industry losses.
[#900] If a firm's average variable cost curve is rising, its marginal cost curve must be
Correct Answer
(C) Above the average variable cost curve
Explanation
Solution: If a firm's average variable cost curve is rising, its marginal cost curve must be above the average variable cost curve. If average costs are falling then marginal costs must be less than average while if average costs are rising then marginal must be more than average. Marginal cost on its way up must cut the cost curve at its minimum point. If Marginal Cost is less than Average Variable Cost, then Average Cost goes down.