The average cost of production at the profit maximizing output level for Jones Inc, is 4 per unit. The average variable cost of production is 3.5 per unit at this output level. The introduction of cheaper substitutes reduces the demand drastically and the market price falls to 1.5 per unit. If the minimum average variable cost the firm must incur is 2.5, identify the correct statement from the following.
a. There are output levels where revenue exceeds variable cost when the price is 1.5 per unit.
b. The firm will continue to operate in the short run.
c. The firm will breakeven at the price of 1.5 per unit.
d. The firm will shut down.
Question 2
If an individual firm in a market is a price taker, then:
a. it faces a horizontal demand curve.
b. it is operating in a monopolistically competitive market.
c. it sells its product at the market price that is solely determined by the buyers.
d. it faces a positively sloped marginal revenue curve.
e. it faces significant barriers to exit from the market.
A disposable cautery unit.
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