The owner of Tie-Dyed T-shirts, a perfectly competitive firm, has hired you to give him some economic advice. He has told you that the market price for his shirts is $20 and that he is currently producing 200 shirts at an AVC of $15 and an ATC of $25. What would you recommend to him?
A. To shut down in the short run, as he is incurring a loss, and to leave the industry in the long run, if there are no changes in economic conditions.
B. To continue producing in the short run, as his loss from production is less than his fixed costs, but to exit the industry in the long run if there are no changes in economic conditions.
C. To continue to produce in the short run, even though he is earning a loss, and to expand in the future with the hope of increasing market share and total revenue.
D. You tell him you cannot make any recommendations until you know what his fixed costs are.
Answer: B
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If a price ceiling is imposed, then:
a. the market supply curve will shift to the right. b. the market demand will shift to the left. c. a shortage of product will result. d. the government would be required to buy-up the surplus product. e. the market equilibrium price is below the level the government wishes to achieve.
"As income rises, the demand for most goods also rises." This statement
a. is inconsistent with the law of demand b. suggests that many goods are inferior goods c. shows that the quantity demanded is inversely related to price d. suggests that most goods are normal goods e. does not apply to goods traded in competitive markets
Total revenue minus only explicit costs is called
a. accounting profit. b. economic profit. c. average total cost. d. implicit profit.
The production possibilities frontier shows:
a. possible combinations of two types of goods that can be produced when all available resources are fully and efficiently employed. b. possible combinations of two types of resources that can be used to produce a given combination of two goods. c. possible quantity of a good that will be consumed at various possible prices. d. possible quantity of a good that will be supplied at various possible prices.