Question

Chapter 9 Homework Chapter 9 Homework Name 1. (1.5 points) For each of the following decisions faced by a firm, write the rule/condition that the firm should follow to make a decision. a. What quantity of output will maximize a firm's profit? b. When should a firm shut down in the short run? c. When should a firm exit a market in the long run? 2. (1 point) A firm participating in a competitive market has costs shown in the table below. Use the information in the following table to answer questions a & b. Price Average Fixed Cost Average Variable Cost $3 $1 $0.50 $8 a. If the market price is $2, should the firm operate or shut down in the short run? b. If the market price is $6, should the firm operate or shut down in the short-run? 3. (1.5 points) Determine whether the following statements are true or false. a. A firm will make a profit when the price it charges is greater than the average total cost at the chosen output level. b. If a firm is earning positive economic profit, the firm will exit the market in the short run. c. When new firms enter a market, the market price will increase.

Answer 1

1 )

Part A )
The quantity that maximizes the profit is found by setting MC = MR

Part B )

The firm will shut down in the short run when the price is less than the shut down point, the shut down point is equal to the minimum AVC.

Part C )

The firm will exit the market in the long run when the price is less than its minimum ATC.