Question

If MC is greater than MR, total profit must be negative. True False QUESTION 19 Given the information in the table to the right, where does diminishing MPP set in? Labor TPP 120 45 380 110 115 100 A. before the first unit of labor B. between the first and second units of labor C. between the second and third units of labor D. between the third and fourth units of labor E. between the fourth and fifth units of labor

Answer 1

1.

The profit-maximizing condition of perfectly competitive firm is

MR=P=MC

Profit=(P-ATC)Q

When MC is greater than MR, then profit may be positive and negative both. Hence the given statement is false.

TVC P AFC 1 AVC 300 150 100 75 60 ATC 100 75 70 73 80 MC 400 225 170 148 140 140 146 157 171 190 100 50 60 80 110 4 5 100 150 210 292 400 540 721 952 1242 1600 Profit 150 -250 150 - 150 150 -60 150 8 150 50 150 150 28 -56 150 -189 150 -400 140 43 38 33 30 103 119 138 160 180 230 2 90 360 150

19.

The diminishing marginal return sets in when MPL of starts decreasing.

The diminishing return set in between third and fourth units of labor.

Hence option D is the correct answer.

LTP MP 20 un WN 80 110 115 100

20.

The profit-maximizing condition of perfectly competitive firm is

MR=P=MC

Profit=(P-ATC)Q

When MC is greater than MR, then by reducing output, profit can be maximized. Hence firm will reduce output.

Hence option C is the correct answer.

21.

TC=TFC+TVC

ATC=TC/Q

AVC=TC/Q

AFC=TFC/Q

MC=TCn-TCn-1

ATC=AVC+AFC

Since MC is part of TC, so when MC increases, then ATC also increase. But ATC consists of AVC and AFC, so it means ATC will be affected by change in the TFC and TVC both but MC is affected by only change in the TVC.

Hence it can be said that a factor that raises marginal cost will raise average cost, but a factor that raises average cost will not necessarily raise. Hence the given statement is true.