MRU11.3: MAXIMIZING PROFIT AND THE AVERAGE COST CURVE

Which of the following gives the formula for average cost? - AC = FC + VC - AC = (FC × Q) + (VC × Q) - AC = (FC / Q) + (VC / Q) - AC = (FC × VC) / Q

A: AC = (FC / Q) + (VC / Q)

Which of the equations below is correct? - AC = AFC − AVC - AC = AFC + AVC - AC = AFC × AVC - AC − AFC − AVC = 0

A: AC = AFC + AVC

The AC curve has the shape that it has because as quantity increases: - AVC falls dramatically at first, pulling AC down, and then AFC begins to rise, pulling AC up. - AFC falls dramatically at first, pulling AC down, and then AVC begins to rise, pulling AC up. - AFC rises dramatically at first, pulling AC up, and then AVC begins to fall, pulling AC down. - AVC rises dramatically at first, pulling AC up, and then AFC begins to fall, pulling AC down.

A: AFC falls dramatically at first, pulling AC down, and then AVC begins to rise, pulling AC up.

Professor Tabarrok uses the example of grades to demonstrate which property of the cost curves? - MC crosses AC at its minimum point. - MC rises as quantity increases. - AC falls first and then rises. - MR is horizontal at the market price.

A: MC crosses AC at its minimum point.

The rearranged formula for profit that Professor Tabarrok uses to find profit on the cost diagram is: - Profit = TR − TC - Profit = ½ × P × Q - Profit = P × (Q − AC) - Profit = (P − AC) × Q

A: Profit = (P − AC) × Q

If the price happens to be below the minimum of the AC curve, then what will be true? - The firm cannot employ a profit-maximization strategy since it will always suffer losses. - The best that the firm can hope to do is to break even. - The firm can maximize profits at a positive level of profits. - The firm can minimize its losses by producing at the profit-maximizing quantity.

A: The firm can minimize its losses by producing at the profit-maximizing quantity.

Under what conditions would a firm NOT want to enter an industry immediately when P rises above the minimum of AC? - When there are significant sunk costs associated with entry - When the firms in the industry are suffering economic losses - When MR and MC intersect at quantities to the left of the minimum AC - When the goods sold in the industry are similar across sellers

A: When there are significant sunk costs associated with entry

Profit at the profit-maximizing quantity can be shown on the AC, MC, and MR diagram as: - a rectangle between 0 and the profit-maximizing quantity and between 0 and the price. - a rectangle between 0 and the profit-maximizing quantity and between the price and the AC. - a triangle underneath the price and above the AC curve, between 0 and the profit-maximizing quantity. - a rectangle between the profit-maximizing quantity and the market quantity and between the price and the AC.

A: a rectangle between 0 and the profit-maximizing quantity and between the price and the AC.

The "break-even price," which leads to neither positive nor negative profit, is the price that is: - equal to the maximum of the AC curve. - equal to the minimum of the MC curve. - equal to the minimum of the AC curve. - equal to the maximum of the MC curve.

A: equal to the minimum of the AC curve.

If your average grade in a class is 90% but then you get a 75% on your next exam, your average grade will: - fall to somewhere below 75%. - fall to somewhere between 75% and 90%. - fall to exactly 82.5%. - fall to exactly 75%.

A: fall to somewhere between 75% and 90%.