Economics True/False

False. Quitting is not possible in the short run because short run, by definition, is a period of time which is too short for the existing firms to quit the industry. Therefore, a firm can quit the industry only in the long run.

False. Shut-down point occurs when a firm is just covering its variable costs only. Or, it is a situation when: TR=TVC or AR=AVC.

True. In a state of perfect competition, commodity price should not exceed MC. It should be equal to MC if profits are to be maximised.

True. In the long run, a firm must cover all costs of production. Because, in the long run, all costs are variable costs.

False. Profits are less compared to equilibrium level. Because in such a situation, addition to TVC is greater than addition to TR. So that TR-TVC, ie., profits will tend to shrink.

True. A producer strikes his equilibrium only when MP is diminishing. Because, diminishing MP means rising MC. The producer stops production when rising MC matches with MR. Beyond this point, rising MC would exceed MR, causing loss of profit.

False. MR=MC is only a necessary condition for profit maximisation, the sufficient condition also requires that MC should be rising.

False. MR=MC is a better situation as it coincides with producer's equilibrium where profits are maximised.

False. A firm maximises its profit when the difference between total revenue and total cost is maximum.

False. Losses occur when average cost is greater than average revenue, ie, AC > AR.

False. Gross profit is the difference between total revenue and total variable cost.

True. A producer strikes his equilibrium when he produces that amount of output at which the difference between total revenue and total cost is maximum. Because, net profit = TR-TC.

False. A producer strikes his equilibrium at that level of output where profit is maximised. Hence, producer's equilibrium is a situation of 'profit maximisation'.