Question 1(1 point)

A) To maximize profits, a competitive firm

1 Produces where average total costs are minimized

2 Sets a price that maximizes total revenue

3 Produces an output where marginal revenue is just equal to total costs

4 Produces an output where marginal revenue is just equal to marginal costs

B) For a competitive firm in the short run, if marginal revenue is greater than marginal cost, the firm should

1 Shut down the plant and move the capital into a more profitable industry

2 Decrease production until MR = MC

3 Not do anything because if MR > MC, profits must be at their maximum

4 Increase production until MR=MC.

C) For a competitive firm in the short run, if marginal cost exceeds marginal revenue, the firm should

1 Shut down the plant

2 Decrease production until MR = MC

3 Increase production until MR = MC

4 Increase the price for its output

D) For a competitive firm in the short run, if marginal revenue equals marginal cost which equals average total cost, and this is just equal to average revenue or price, then the firm is

1 Making economic profits

2 Making such large losses that it needs to close the firm

3 Making normal profits

4 Not producing enough output to make a profit