Answer to Question #165398 in Macroeconomics for retaa

Question

Question three: Characterize each of the following statements as true or false, and

explain your answer.

a)     If marginal revenue is less than average revenue, the demand curve will be downward sloping.

b)    Profits will be maximized when total revenue equals total cost.

c)     Marginal cost must be falling for average cost to decline as output expands.

d)     Marginal profit is the difference between marginal revenue and marginal cost and will always equal zero at the profit-maximizing activity level.

Question Four: The market for pizza has the following demand and supply schedules:

                           

a)     Graph the demand and supply curves. What are the equilibrium price and quantity in this market?

b)     If the actual price in this market were above the equilibrium price, what would drive the market toward the equilibrium?

c)     If the actual price in this market were below the equilibrium price, what would drive the market toward the equilibrium?

Answer 1

a)  

True. When put on graph, marginal revenue curve is always below the demand curve when the demand curve is downward sloping because, when a producer has to lower his price to sell more of an item, marginal revenue is less than price.

b)  

False. Profits are maximized when marginal revenue equals marginal cost. Profits equal zero at the breakeven point where total revenue equals total cost.

When the total revenue and total cost are equal the firm is not incurring any loss at the same time it is not gaining any profit. It is on the no-profit-no loss position which is the break even point.

c) 

False. Average cost will fall as output expands so long as marginal cost is simply less than average cost. If this condition is met, average cost will decline whether marginal costs are falling, rising, or constant.

When marginal cost is below average total cost, average total cost will be falling, and when marginal cost is above average total cost, average total cost will be rising. A firm is most productively efficient at the lowest average total cost, which is also where average total cost (ATC) = marginal cost (MC).

d)  

True. Marginal profit equals marginal revenue minus marginal cost and will equal zero at the profit-maximizing activity level.

When marginal cost equals marginal revenue, then profit is maximized. When marginal revenue is greater than marginal cost, that means creating one more product would bring more in revenue than it would cost, so profit would increase.

NOTE: QUESTION 4 LACKS VALUES.