In the short-run, the firm will operate (not shut down) as long as revenue is mo
ID: 1141669 • Letter: I
Question
In the short-run, the firm will operate (not shut down) as long as revenue is more than enough to cover ________.
marginal cost
variable costs
fixed costs
total costs
$80
$64
$0 because the firm will shut down
$120
Suppose the monopolistic competitor faces costs and demand as depicted in the table below. Given the goal of maximizing profit, what level of output would the firm choose?
6
2
5
4
3
Given the level of demand below, what is the marginal revenue of the third unit of production?
$10
$6
$12
$0
Q = 1 2 3 4 5 6 Total Revenue = 10 18 24 28 30 30 Total Cost = 2 7 13 21 31 43 45 40 35 30 25 20 15 10 1 AVC1 R1 1 2 3 4 5 6 7 8 9Explanation / Answer
1) In the short run, the firm's shutdown point is at the minimum of AVerage variable cost. If the price falls below the minimum average variable cost then the firm cannot cover its fixed and makes loss on every additional unit produced.
In the short-run, the firm will operate (not shut down) as long as revenue is more than enough to cover Fixed costs.
2) Profit maximizing point is the point where MR=MC and this happens at the point where output is equal to 4 units and at this 4 units from the demand curve we know the price is $30.Thus revenue=30*4=$120
3) Firm chooses that level of output at which the difference between revenue and costs is the greatest. This difference is maximum at 3 units of output when the profit is 11. Thus the firm will produce 3 units of output.
4) Total Revenue from the 2nd unit=22*2=44
Total revenue from the 3rd unit=18*3=54
T=Marginal Revenue from the 3rd unit=Total revenue from the 3rd unit-Total Revenue from the 2nd unit=54-44=$10