Question

5:42 luET 09. Which statement is true? A. Economies of scale are more common when Q is low and occur when increasing production lowers ATC as for natural monopolies. B. Diseconomies of scale are more common when Q is high and occur when increasing production decreases ATC as for natural monopolies. C. Economies of scale are more common when Q is high and occur when increasing production increases ATC as in a perfect competition framework. D. Diseconomies of scale are more common when is low and occur when increasing production decreases ATC as in a perfect competition framework. Q10. Which of the following is an implicit cost? A. The salary earned by a corporate executive B. Corporate taxes C. The opportunity cost of using your office space instead of renting D. All of the above are implicit costs. Q11. If the accounting profit is equal to zero. A. The economic profit which considers both implicit and explicit costs can be positive. B. The economic profit which ignores implicit costs is certainly positive. C. The economic profit which considers both implicit and explicit costs cannot be positive. D. The economic profit which ignores implicit costs is certainly negative. Q12. Ellay corp. is a profit-maximizing competitive firm selling baby diapers. The company sells each box for $30. Total costs are $4000 per day, of which $1200 are a fixed cost. The number of boxes sold per day is 100. What can you say about Ellay corp. short-run and long run decisions? A. Ellay corp. will shut down in the short run and exit the market in the long run. B. Ellay corp. will not shut down in the short run and will not exit the market neither in the long run. C. Ellay corp. Will shut down in the short run but will remain in the industry in the long run. D. Ellay corp. will not shut down in the short run but will exit the industry in the long run. Use Figure 2 to answer the following questions (Q13., Q14. and Q15.)

Answer 1

9. A
(Economies of scale occurs when ATC decreases with increase in Q.)

10. C
(Implicit cost is the opportunity cost.)

11. C
(Economic profit = Accounting profit - Implicit cost. So, it will be negative.)

12. D
(In SR, Variable cost, VC = 4000 - 1200 = 2800. So, AVC = 2800/100 = 28. So, P > AVC. Thus, firm will not exit in the short run. In LR, profit = TR - TC = (30*100) - 4000 = 3000 - 4000 = -1000 < 0. So, firm will exit in the LR.)