Choose the correct answer:

In the short run, when should a firm decide to shut down?

Select each correct answer:

1.When total cost exceeds total revenue

2.When average variable cost exceeds price

3.When average cost exceeds marginal revenue

4.When fixed cost exceeds total revenue

5.When total variable cost exceeds total revenue

2.The elasticity of demand facing one firm in a perfect competitive market is _____ the market elasticity of demand.

1.Much larger in magnitude than

2.About the same as

3.Much smaller in magnitude than

4.Perfectly uncorrelated with

5.None of the above

3.A firm has total revenues of 14 billion dollars. It spends 5 billion dollars on fixed costs, and spends 7 billion dollars on variable costs.

1.The firm is making economic profits

2.The firm is not making economic profits

3.It cannot be determined from this data whether the firm is making economic profits

4.In the short run, what is the profit maximizing condition for firms in perfectly competitive markets?

1.Marginal productivity of labor equals the marginal productivity of capital

2.Total revenue is maximized

3.Average cost equals marginal cost

4.Total costs are minimized

5.None of the above

5.Suppose a forestry services firm in a perfectly competitive market has a cost functionC=10+2q+q², and takes a price ofp=10

.What is the profit-maximizing quantity for the firm to produce?

6.Suppose a forestry services firm in a perfectly competitive market has a cost functionC=10+2q+q² and takes a price ofp=10. (Use your answer for problem number 5 as the pre-tax quantity.)

What is the change in profits after a $2/unit tax is assessed on the firm?

(Provide the difference between post-tax and pre-tax values. Use positive numbers for an increase and negative numbers for a decrease.)

7.In the short run, when should a firm decide to shut down?

(Select each correct answer.)

1.When total cost exceeds total revenue

2.When average variable cost exceeds price

3.When average cost exceeds marginal revenue

4.When fixed cost exceeds total revenue

5.When total variable cost exceeds total revenue

8.What happens as firms enter the market?

1.The market supply curve becomes more elastic

2.The market supply curve becomes more inelastic

3.The market demand curve becomes more elastic

4.The market demand curve becomes more inelastic

5.None of the above