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11) Refer to Figure 13-4.  What is the area that represents the total fixed cost of production?

A) 0P1aQa

B) P0adP3

C) P1bdP3

D) That information cannot be determined from the graph.

12) Refer to Figure 13-4.  What is the area that represents the loss made by the firm?

A) the area P0adP3

B) the area P1bcP2

C) the area P0acP2

D) the area P2cdP3

13) Refer to Figure 13-4.  Should the firm represented in the diagram continue to stay in business despite its losses?

A) No, it should shut down.

B) Yes, its total revenue covers its variable cost.

C) No, it is not able to cover its fixed cost.

D) Yes, it should increase its revenue by raising its price.

14) In the short run, a profit-maximizing firm's decision to produce should be guided by whether

A) it makes a profit.

B) its marginal profit is maximized.

C) its total revenue exceeds its fixed cost.

D) its total revenue covers its variable cost.

15) Suppose Jason owns a small pastry shop. Jason wants to maximize his profit, and thinking back to the college microeconomics class he took in college, he decides he needs to produce a quantity of pastries which will minimize his average total cost. Will Jason's strategy necessarily maximize profits for his pastry shop?

A) Yes; since Jason's pastry shop is in a perfectly competitive market, the only way to maximize profit is to produce the quantity where average total cost is minimized.

B) Not necessarily; this strategy will only maximize Jason's profit in the long run, but not in the short run.

C) No; in order to maximize profit, Jason would never want to produce the quantity where average total cost is minimized.

D) Not necessarily; depending on demand, Jason may maximize profit by producing a quantity other than that where average total cost is at a minimum.

16) If price exceeds average variable cost but is less than average total cost, a firm

A) should further differentiate its product.

B) should stay in business for a while longer until its fixed costs expire.

C) is making some profit but less than maximum profit.

D) should shut down.

Table 13-3

 

Quantity

 

Price

(dollars)

Total Revenue

(dollars)

Total Variable Cost

(dollars)

Total Cost

(dollars)

0

$21

  $0

$0

$50

1

20

  20

16

66

2

19

  38

31

81

3

18

  54

45

95

4

17

  68

59

109

5

16

  80

75

125

6

15

  90

93

143

7

14

  98

112

162

8

13

104

140

190

9

12

108

180

230

10

11

110

230

280

Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm.

17) Refer to Table 13-3.  What are the profit-maximizing/loss-minimizing output level and price?

A) Q = 0 (firm should not produce)

B) Q = 3; P = $18

C) Q = 4; P = $17

D) Q = 5; P = $16 

18) Refer to Table 13-3.  What is the amount of the firm's loss at its optimal output level?

A) $0

B) $41

C) $45

D) $50

19) Refer to Table 13-3.  What is its average variable cost of production at its optimal output level?

A) $0 (because its optimal output = 0)

B) $15

C) $14.75

D) $29

20) Refer to Table 13-3.  What is the best course of action for the firm in the short run?

A) It should shut down.

B) It should stay in business because it covers some of its fixed cost.

C) It should increase its sales by lowering its price.

D) It should not cut its price, but it should increase its sales by advertising.

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