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Answer to Question #52928 in Microeconomics for Yana

Question #52928
Multiple choice
1. A perfectly competitive firm sells its output for $100 per unit and marginal cost is $100 per unit. To maximize short-run profit, the firm should:
a. increase output.
b. decrease output.
c. maintain its current output.
d. shut down.

2. Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC), and the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would:
a. immediately shut down and get out of the industry.
b. continue to produce a quantity such that marginal revenue equals marginal cost.
c. shut down temporarily, in hopes of restarting in the near future.
d. cut price and expand output in hopes of achieving economies of scale.
Expert's answer
1. A perfectly competitive firm sells its output for $100 per unit and marginal cost is $100 per unit. To maximize short-run profit, the firm should:
c. maintain its current output.
Because P = MR = MC and profit is maximized.
2. Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC), and the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would:
b. continue to produce a quantity such that marginal revenue equals marginal cost.
Because it will cover variable costs waiting when P=ATC

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