When Acme Dynamite produces 250 units of output, its variable cost is $2,000, and its fixed cost is $500. It sells each unit of output for $25. If the price of dynamite drops to $10, should Acme Dynamite continue to operate in the short run?
A. No, because price is less than average total cost.
B. Yes, because price is greater than average variable cost.
C. Yes, because price is less than average variable cost.
D. No, because price is not greater than average total cost.
Answer: B
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Monopolistic competition is judged to be economically inefficient because
A) the price is greater than marginal cost. B) firms earn zero economic profit in the long run. C) marginal revenue equals marginal cost. D) firms have deficient capacity in the long run. E) firms earn an economic profit in the long run.
A marginal cost pricing rule for a natural monopoly sets ________
A) price equal to marginal cost and greater than average total cost B) marginal revenue equal to marginal cost C) marginal revenue equal to average total cost D) price equal to marginal cost