Question 1

If a firm shuts down in the short run,

Accepted Answer

When a firm shuts down in the short run, it still has to cover its fixed costs, such as rent or long-term loans, even though it's not producing anything. Therefore, its losses would equal its fixed costs.

Question 2

A firm is indifferent between staying in business and shutting down in the short run when,at the loss-minimizing level of output,

Accepted Answer

In the short run, a firm will be indifferent between staying in business and shutting down when the total revenue (TR) it earns from producing goods or services equals its total variable costs (TVC). This is because, at this point, the firm is covering all its variable costs but not making any contribution to its fixed costs. If the firm's total revenue were less than its total variable costs, it would minimize its losses by shutting down. If the total revenue were more than the total variable costs, the firm would cover some or all of its fixed costs, making staying in business more appealing.

Question 3

If Carol's Crayon Factory's price exceeds its average total cost in the short run,then

Accepted Answer

When a firm's price exceeds its average total cost in the short run, it means the firm is covering all its costs and earning a profit on each unit sold.

Question 4

When a firm incurs losses in the short run,the most important consideration in determining whether to continue producing is whether

Accepted Answer

When a firm incurs losses in the short run, it should continue producing as long as its revenues cover some of its fixed costs and all of its variable costs. This is because in the short run, fixed costs cannot be changed and must be covered by some revenue. By continuing to produce and cover variable costs, the firm can minimize its losses and potentially earn profits in the long run. Marginal cost, average total cost, and average variable cost are important considerations, but not as crucial as covering costs in the short run. Total revenue exceeding total cost is ideal, but not always achievable in the short run.

Question 5

If a firm's short-run total cost curve lies above its total revenue curve at all output levels,the firm should

Accepted Answer

The answer of If a firm's short-run total cost curve...

Question 6

Which of the following does not apply to a firm that has shut down in the short run?

Accepted Answer

In the short run, fixed cost cannot be recovered, so even if the firm shuts down, it will still have incurred some fixed costs. Therefore, total cost cannot be zero.

Question 7

Many gift shops along the ocean shut down during the winter because

Accepted Answer

The reason many gift shops along the ocean shut down during the winter is that their revenues cannot cover their variable costs. As there are fewer tourists and visitors to the area during this season, sales and revenues drop. However, shops still have to bear their costs such as rent, utilities, and employee wages, which are the variable costs. As a result, to minimize losses, many shops opt to close down during the off-season.

Question 8

If a firm minimizes its losses by shutting down in the short run,then at all other output levels,

Accepted Answer

When a firm minimizes its losses by shutting down in the short run, it means that the revenue it would earn from producing is not enough to cover its variable costs. At any level of output greater than zero, the firm's variable cost would exceed its total revenue, leading to greater losses than if it were to produce nothing at all.

Question 9

Assume that a firm is able to cover its variable costs if it operates in the short run.If marginal cost equals $0 for all output levels,then the firm's profit-maximizing output level occurs where

Accepted Answer

When marginal cost is zero, the profit-maximizing output level occurs where marginal revenue equals zero. This is because at this output level, any increase or decrease in output would not affect the total revenue and hence would not affect the profit. Therefore, the firm should produce until marginal revenue equals zero to maximize its profits.

Question 10

If a firm is experiencing an economic loss in the long run,then

Accepted Answer

If a firm is experiencing an economic loss in the long run, it means that its total revenue is not sufficient to cover all its costs, including its opportunity cost of capital. In this case, the firm should exit from the industry to avoid further losses and allocate its resources to other more profitable ventures. Staying in business to cover fixed costs is not a wise strategy because it only delays the inevitable exit and results in more losses in the long run.

Question 11

If a firm shuts down in the short run,then

Accepted Answer

In the short run, if a firm shuts down, its total revenue drops to zero because it is not producing any output. However, the firm still has to pay its fixed costs such as rent, loan payments or property taxes. Therefore, total cost does not drop to zero. The firm will incur losses equal to its fixed costs.

Question 12

The two important contributions of entrepreneurs are

Accepted Answer

Innovation and risk taking are the two most important contributions of entrepreneurs. Innovation is the ability to create new products or services, improve existing ones, or find new ways of doing things. Risk taking is the willingness to invest time, money, and effort into a new venture, even though there is a chance of failure. These two qualities are essential for entrepreneurs to succeed in the competitive business world. Good management skills, honesty, and independent wealth may be important for success, but they are not the primary contributions of entrepreneurs.

Question 13

In the short run,if a firm's total variable cost curve lies above its total revenue curve at all possible output levels,the firm's minimum short-run loss

Accepted Answer

If the total variable cost curve lies above the total revenue curve, the firm is not covering its variable costs and is making a loss. The firm's minimum short-run loss would be equal to its total fixed cost because in the short run, fixed costs are sunk and cannot be recovered. Therefore, the minimum loss would be the amount of fixed costs the firm has already incurred.

Question 14

If a firm's short-run total cost curve lies above its total revenue curve at all output levels,the goal of the firm should be to

Accepted Answer

Since the short-run total cost curve lies above the total revenue curve at all output levels, the firm is incurring losses. In order to minimize its loss, the firm should continue to produce at a level where marginal cost equals marginal revenue, but the price should be set at the point where the output level meets the demand curve. This will result in a lower production level, but it will minimize losses in the short run until the firm can either improve efficiency or find a way to increase revenue. Therefore, the correct goal for the firm in this situation is to minimize its loss.

Question 15

In the short run,if a firm's total variable cost curve lies everywhere above its total revenue curve,the firm should produce

Accepted Answer

If the total variable cost curve lies everywhere above the total revenue curve, it means that the firm is not able to cover its variable costs with the revenue it generates. This implies that producing any output level will result in a loss for the firm. Therefore, the best choice for the firm would be to shut down temporarily in the short run, and produce no output.

Question 16

In the long run,if a firm's total cost exceeds its total revenue at all output levels,it should

Accepted Answer

If a firm's total cost exceeds its total revenue at all output levels, it means the firm is operating at a loss, and it is not able to cover its costs. In the long run, it is best for the firm to exit the industry to avoid further losses. Continuing to operate would only lead to more losses and eventual bankruptcy. Therefore, option A is the best choice in this scenario.

Question 17

Profit is the payment for

Accepted Answer

Profit is primarily seen as the reward for risk-taking and innovation in a business context. Entrepreneurs take risks by investing resources into new or ongoing ventures, and innovate to create value, for which they receive profits as compensation.

Question 18

-Figure 8-13 shows a firm's total variable cost and total revenue curves.In the short run,this firm

Accepted Answer

The answer of 
-Figure 8-13 shows a firm's total variable...

Quiz 8: How Firms Make Decisions: Profit Maximization