Question

Use the following to answer questions 11-13: Figure: Interpreting Short-Run Cost Curves ATC 1.2 AVC 1.0 MC 0.8 0.6 0.4 0.2 0 0.2 0.4 0.6 0.8 1.0 1.2 Output 11. (Figure: Interpreting Short-Run Cost Curves) Using information from the figure equals $0.40, the firm should: A) stay open because it is making an economic profit B) stay open in the short run because it is operating at an economic loss C) stay open because it is making a normal profit. shut down D) 12. (Figure: Interpreting Short-Run Cost Curves) Using information from the figure equals $0.70, the firm should: A) stay open in the short run because will minimize its loss В) stay open because it is making a normal profit shut down C) stay open because it is making an economic profit D) 13. (Figure: Interpreting Short-Run Cost Curves) Using information from the figure, equals $1.00, the firm should: A) stay open because it is making an economic profit В) stay open in the short run because it is operating at an economic loss C) stay open because it is making a normal profit shut down D) Price and Cost ($)

Answer 1

a) At the price of 0.40 the firm is at the shutdown point they will shut down in the short run. The answer is "D". Shutdown.

b) "D"

At this price the firm is making an economic loss because they are producing at the point where the price is less than ATC but more than AVC.

c) "A"

here, the firm in the market is making an economic profit.