In the short run, a monopolistically competitive firm calculates that marginal cost is $6.00, average total costs are $4.00, and marginal revenue is $3.00. The firm is charging a price of $6.00 and producing 200 units of output. How much profit is the
firm making? What output recommendation would you make as the company economist?
What will be an ideal response?
The firm is not maximizing profits because the marginal cost of $6.00 is greater than marginal revenues of $3.00. The firm should cut back its production to an output level where marginal cost equals marginal revenue. At the current output level of 200 units, the firm is making economic profits per unit of $2.00 ($6.00 price minus $4.00 ATC) for a total profit of $400. But setting output at where MR = MC, the firm will reduce output, increase price, and increase economic profits.
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If both the marginal cost and the average variable cost curves are U-shaped. At the minimum point on the average variable cost curve, the marginal cost must be:
a. greater than the average variable cost. b. less than the average variable cost. c. equal to the average variable cost. d. at its minimum.
With free entry
A) economic profits are possible over the long run. B) economic profits are possible but only over limited amounts of time. C) economic profits are not possible. D) the cost of capital will not be covered.
Keynesians believe that the transactions demand for money influences the velocity of money
Indicate whether the statement is true or false
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What will be an ideal response?