The Graph Shown Displays the Cost Curves for a Firm

question 159

Multiple Choice

The graph shown displays the cost curves for a firm in a perfectly competitive market. If the market price is $2:

• A)the firm should produce 100 units in the short run but will earn zero profit.
• B)the profit-maximizing quantity is 60 units.
• C)the profit-maximizing quantity is zero units.
• D)the firm can earn positive profits in the short run but will earn zero profit in the long run.

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Definitions:

Disposable Income

The funds that are available to households for saving and spending activities after the deduction of income taxes.

Induced Consumption

The portion of consumer spending that increases with an increase in disposable income, implying that as people earn more, they tend to spend more.

APC

In economics, it stands for Average Propensity to Consume, indicating the fraction of income that is spent.

Disposable Income

Resources households have at their disposal for saving and expenditure once income taxes have been accounted for.