Question

Use the following to answer questions 14-16: Costs for Toy-Making Firm ATC AVC AFC MC 8 40 54 66 76 84 91 96 93.75 58.82 46.30 37.50 32.41 30.30 29.61 29.76 30.22 31.25 31.25 29.41 27.78 25.00 23.15 22.73 23.03 23.81 24.73 26.04 62.50 29.41 18.52 12.50 9.26 7.58 6.58 5.95 5.49 5.21 31.25 27.78 25.00 19.23 17.86 20.83 25.00 31.25 35.71 50.00 14. (Table) If the toy-making firm in the table faces a market price of $20 in the short run it should: A) produce 40 toys. B) produce 96 toys. C) produce 76 toys. D) shut down. 15. (Table) If the toy-making firm in the table faces a market price of $25 in the short run, it will: A) minimize its losses by producing 27 toys. B) maximize its profits by producing 96 toys. C) minimize its losses by producing 76 toys. D) minimize its losses by shutting down. 16. (Table) If the toy-making firm in the table faces a market price of $36 in the short run, it will maximize its profits by producing __toys. A) 54 B) 91 C) 84 D) 96 17. A perfectly competitive firm: A) will budget money to advertise its product. B) can adjust the price of the product that it sells in order to make more money. C) can make an economic profit in the long run. D) has output that is so small, relative to market supply, that it cannot influence the market price.

Answer 1

14) Setting P=MC, the firm will shut down because the price is less than minimum AVC

option(D)

15) setting P=MC, it will produce 76 units where ATC = 29.61 so it will minimize loss

option(C)

16) P=36, so it will produce 91 output

option(B)

17) Has a very small share of output so it cannot influence the price

option(D)