A Firm in a Competitive Industry Faces the Following Short-Run

question 110

Multiple Choice

A firm in a competitive industry faces the following short-run cost and revenue conditions: ATC = $16; AVC = $8; and MR = MC = $12. This firm should

• A) expand production and keep price constant.
• B) decrease production and raise its price.
• C) shut down.
• D) continue to operate at the same price and output level in the short run.

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Definitions:

Marginal Utility

The additional satisfaction or utility that a consumer derives from consuming one more unit of a good or service.

Income Function

A mathematical representation that shows the relationship between an individual's or entity's income and one or more variables, such as the level of education or experience.

Diminishing Marginal Utility

Principle that as more of a good is consumed, the consumption of additional amounts will yield smaller additions to utility.

Utility Of Income

The perceived value or satisfaction that an individual gains from receiving a certain amount of income.