Question

Question 7 5 pts Let's say that you know the following information for an oligopoly firm: Total Revenue equals $200 million. Variable Costs are $170 million. Fixed Costs equal $20 million. The firm is currently producing 2,000 products at the MC = MR point (and the MC curve is rising). What recommendation do you have for this firm? Assuming the firm's costs remain the same, the firm should produce fewer products in order to decrease its marginal costs. The profit maximizing quantity occurs at the point where ATC is at its lowest. The firm should continue to produce 2,000 products since it is producing a quantity at which MC equals MR and it has a profit The firm should temporarily shut down until either the costs decrease or the revenue increases. Assuming that the firm's costs remain the same, the firm should produce more quantity and sell more products since it is operating at a loss.

Answer 1

(7) (B)

When firm is earning profit and producing where MR = MC, this is an equilibrium point.

(12) (B)

Since monopolisic competitive firms sell differential products, their demand is imperfectly elastic and demand curve slopes downward. But since pure competitive firms sell identical products, their demand is perfectly elastic and demand curve is horizontal.

(13) (B)

In long run monopolistic competitive equilibrium, MR = MC and P = ATC, so ATC is in its downward falling range. In pure competition, P = ATC when ATC is lowest.

(16) (E)

At the kink, if the firm raises price above that price, rivals don't follow suit but if the firm lowers its price, all other firms follow suit.

(20) (C)

Explained in (12).