Consider the Total Cost and Revenue Curves Shown Below, for Two

question 3

Multiple Choice

Consider the total cost and revenue curves shown below, for two perfectly competitive firms, Firm A and Firm B. FIGURE 9- 5
-Refer to Figure 9- 5. If both Firms A and B are producing a level of output such that the slope of the TC curve is equal to the slope of the TR curve,

• A) then both firms are earning positive economic profits because the distance between TR and TC is the greatest.
• B) then both firms are suffering losses because the distance between TR and TC is the smallest.
• C) then MC = MR and the firm is maximizing profit (or minimizing losses).
• D) then MC = MR but the firm may not be maximizing its profits.
• E) then the ATC is at a minimum and the firm is maximizing profits.

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Definitions:

Fixed Costs

Expenses that do not change in proportion to the level of production or sales, such as rent and salaries.

High-low Method

A technique used in accounting and finance to estimate fixed and variable costs based on the highest and lowest levels of activity.

Variable Electrical Costs

Costs associated with electricity that vary depending on the amount of usage or consumption over a period.

High-low Method

A technique in cost accounting used to determine the variable and fixed components of a company's costs by analyzing the highest and lowest levels of activity.