Concept explainers
Whether to agree or disagree with the given statements.
Answer to Problem 1.1P
Option (a): Disagree
Option (b): Disagree
Explanation of Solution
Option ‘a’:
A firm which earns a profit in the short run may not necessarily increase its scale of operation in the long run. A firm may expand its production only if it also expects a profit in the long run. If there is no expected positive profit, the firm will not continue its production. Thus, the given statement is disagreed.
Option ‘b’:
The given statement is not true because the firm continues production until the total revenue covers the total variable cost and not the total fixed cost.
Fixed cost: Fixed cost is defined as the cost which is independent of the level of output or production of a firm.
Variable cost: Variable cost is defined as the cost which depends on the level of production or output of a firm.
Marginal cost: Marginal cost is defined as the additional cost that is incurred due to the production of an extra unit of output.
Want to see more full solutions like this?
Chapter 9 Solutions
PRINCIPLES OF MICROECONOMICS LOOSE LEAF
- Explain why a firm might want to produce its good even after diminishing marginal returns have set in and marginal cost is on the rise. People often believe that large firms in an industry have cost advantages over small firms in the same industry. For example, they might think a big oil company has a cost advantage over a small oil company. For this to be true, what condition must exist? Explain your answer.arrow_forwardIn the short run, if a firm is having economic losses, but the profit is greater than the average variable cost, then the firm should ____________.arrow_forwardLetters are used to represent the terms used to answer this question: price(P),quantity of output(Q),total cost(TC)and average total cost(ATC).Which of the following equations is equal to a firm's average profit? A. (P −ATC) × Q B. P−ATC C. (P×Q)−TC D. P−TCarrow_forward
- In the short-run, if the marginal cost of a firm in a competitive industry is increasing while its average variable cost is downward sloping, what can you say about slope of average total cost?arrow_forwardIf a firm is producing at a quantity in which the marginal cost exceeds marginal revenue, the firm _____.arrow_forwardA profit-maximizing business incurs an economic loss of $$30,000 per year. Its fixed cost is $45,000 per year. Should it produce or shut down in the short run? Explain Should it stay in the industry or exit in the long run? Explainarrow_forward
- For each of the following events identify which of the determinates of demand or supply are affected. Also indicate whether demand or supply is increased or decreased. Why? A stock market crash lowers people’s wealth. Batelco increases the prices of mobile services. Diminishing returns mean rising costs while economies of scale mean falling costs. Therefore, a firm cannot be facing both diminishing returns and economies of scale. Do you agree? Why or why not?arrow_forwardHow many of the following statements are true? (i) Maximising profit involves maximising Revenue (ii) Maximising profit involves maximising output (iii) Maximising profit involves minimising variable costs (iv) Maximising profit involves producing at the quantity where marginal profit is zero. a.Three b.One c.None d.Two e.Fourarrow_forwardSuppose an increase in the cost of land increases the firm's fixed costs, as a result, average total cost increases from ATC2 to ATC1. What is profit maximizing quantity and price after the increase in average total costs? After the increase in average total costs does the firm make economic profit, economic loss or breaks even? How do you know? explain your answer.arrow_forward
- Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, IncEconomics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
- Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning