Question

Figure 1 7. Referring to Figure 1, if the market price was Ps, the profit- maximizing (or loss-minimizing) firm will: A. shut down in the short run and incur a loss equal to area P PsAK B. produce output qs, resulting in total revenue equal to area 0PsEqs. total cost equal to area OPsEqs and zero economic profits produce output q, resulting in total revenue equal to area 0PsBq total cost equal to area OP:Fqs and economic profits equal to area P:PsBF produce output q, resulting in total revenue equal to area OP Cq, C. D. otal cost equal to area OP Gqs and economic profits equal to area- P PsCG. E. leave the industry in the short run. 8. Referring to Figure 1, if the market price was Pl, the profit- maximizing (or loss-minimizing) firm will: A. leave the industry in the short run. B. produce output qi, incurring a loss in the short run and causing the firm to leave the industry in the long run. shut down in the short-run and incur a loss equal to fixed cost which equals area P:PsAK C. D. produce output q, resulting in total revenue equal to area OP lq:, total cost equaling area 0PsAq and a loss equaling area E. produce output qp and earn normal profits in the short run. PiPSAL 9. Referring to Figure 1, if the market price was P A. in the short run, the firm would produce output qi. In this case, total revenue equals area OP Fqs, total cost equals area OP:Fqs and the firm earns only a normal profit. in the short run, the firm would produce output q. In this case, total revenue equals area OP Fq, total cost equals area OPsFq and the firm incurs a loss. B. C. in the short run, the firm would produce output q. In this case, total revenue equals area OP Fq, total cost equals area OP Fq and the firm earns an economic profit. D. in the long run, firms would leave the industry. E in the long run, firms would enter the industry Figure 2 10. Referring to Figure 2, if the market price was P, the profit- maximizing (or loss-minimizing) firm will: A. leave the industry in the short rurn. B. produce output qi and earn normal profits in the short run. C. shut down in the short-run and incur a loss equal to fixed cost which equals area PiPAE AvC D. produce output q, resulting in total revenue equal to area OP C, total cost equaling area OP Ba and a loss equal to area 2 P:P:BC E produce output q, resulting in total revenue equal to area OPsBq: total cost equaling area OP-Cq: and an economic profit P___ equaling area P:P BC 11. Refer to Figure 2. In the short run, given a market price equal to P: A. if the firm produced output qi, its total revenue would equal area 0P Eqi, its total cost would equal area OP Aqi and the firm would incur a loss equal to area PiPAAE B. if the firm shuts down, then q would equal zero and the firm would incur a loss equal to fixed cost which equals area PPAAE C. the loss-minimizing firm would be indifferent between producing output qu and shutting down. D. All of the above E None of the above.

Answer 1

7. Option D. It is at the point where MC=MR=P=P5 and quantity at q4

8. Option C. As it cannot cover the variable cost to continue with production

9. Option A, as it is producing at no loss and no profit situation

10. Option D, as it is able to cover only variable cost it is earning loss

11. Option C, as it is not able to cover variable cost