Suppose you find that the price of your product is less than minimum AVC. You should:
A. minimize your losses by producing where P = MC.
B. maximize your profits by producing where P = MC.
C. close down because, by producing, your losses will exceed your total fixed costs.
D. close down because total revenue exceeds total variable cost.
Answer: C
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Why does the quantity demanded decrease when the price of a good increases?
A. People choose to reduce consumption of the item. B. People “drop out” of the market for the item. C. People find substitutes for the item. D. All of these responses are correct.
If the ratio of the dollar price of a U.S. toy to the dollar price of a Chinese toy is less than one:
A) retailers in the U.S. should buy the toys from both Chinese suppliers and American suppliers. B) retailers in the U.S. should not buy the toys from both Chinese suppliers and American suppliers. C) retailers in the U.S. should buy the toys from Chinese suppliers. D) retailers in the U.S. should buy the toys from American suppliers.
A natural monopoly arises when
a. there are constant returns to scale over the relevant range of output. b. there are economies of scale over the relevant range of output. c. one firm owns a key natural resource. d. the government gives a single firm the exclusive right to produce a particular good or service.
Tony's Taco Truck has an average variable cost of $1.50 and a marginal cost of $2 when it produces 50 units of output (tacos). We can conclude that the average variable cost of producing 51 tacos is a. higher than $1.50
b. lower than $1.50. c. equal to $1.50 d. either higher or lower than $1.50 depending on the direction of the marginal cost curve.