If a firm's demand curve falls below its AVC curve, then the firm should
A. shut down now.
B. shutdown in the long-run.
C. set price = marginal cost.
D. operate in the short run but not the long run.
Answer: A
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Rent-seeking activities:
A. have no effect on society's welfare. B. require resources, and the net result is to reduce total welfare to society. C. require resources, but the net result is to increase total welfare to society. D. do not require resources.
In 1960, out-of-pocket spending on health care in the United States was
A) 2.2 percent. B) 6 percent. C) 48 percent. D) 64 percent.
Suppose that once a well is dug, water flows out of it continuously without any additional effort. Customers collect their water and pay a per gallon fee when they leave the site of the well. In the short run, the competitive firm in this market
A) will not shut down because variable costs are zero. B) has no fixed costs. C) faces diminishing marginal returns. D) can act as a price setter.
Voluntary agreements may not be a feasible method to internalize an externality when
A) the dollar value of the externality is large. B) the externality is negative rather than positive. C) there are significant transaction costs. D) there are high taxes on the firms that cause the externalities.