Question

1. In the long run the effect of economic profits is to:

Increase market supply and increase market price.

Decrease market supply and increase market price

Decrease market supply and decrease market price.

Increase market supply and decrease market price.

2.To maximize profits, a competitive firm will seek to expand output until:

Price equals marginal cost.

The elasticity of demand equals 1.

Total revenue equals total cost.

Price equals $0.

3.A firm should shut down production when:

P < minimum AVC.

P > minimum AVC.

P = MC.

P = minimum ATC.

4. If a firm can at least cover variable costs but not total cost they will:

Keep producing in the short run, hoping for things to improve.

None of the above.

Shut down becasue they are experiencing losses.

Expand production because the are experiencing profits.

5.Technological improvements cause:

Marginal Cost to shift to the right.

The supply curve to shift to the right.

ATC to shift down.

All of the above.

Answer 1

1. Option 4. The economic profits attracts new firms which increases more supply which makes the price to decrease

2. Option 1. At, MC=MR, a competitive firm would maximize profit

3. Option 1. When the firm is not able to cover the minimum average variable expenses

4. Option 1. In short run it can continue to produce hoping market improves

5. Option 4. The supply increases which reduces ATC and MC