ECONOMICS
SUPPLY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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when profit per hour is lower than operating cost per hour
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when revenue per hour is lower than operating cost per hour
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when revenue per hour and marginal cost per hour are equal
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when fixed cost per hour and marginal cost per hour are equal
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Detailed explanation-1: -At what point should the owners of a failing factory shut it down? when revenue that is made per hour is lower than what it would cost to operate the factory per hour.
Detailed explanation-2: -A firm will shut down in the short run if revenue is not sufficient to cover its variable cost curve, above the minimum of marginal cost. The supply curve of a firm in a competitive market is the average variable cost curve, above the minimum of marginal cost.
Detailed explanation-3: -According to the graph, Demand curve 2 is associated with the shutdown point for this perfectly competitive firm. At Demand 2, the firm is at the point where marginal revenue exactly equals average variable cost so there is no reason to continue production.
Detailed explanation-4: -Any change in the cost of an input used to produce a good-such as raw materials, machinery, or labor-will affect supply. A rise in the cost of an input will cause a fall in supply at all price levels because the good has become more expensive to produce.