Gce Model Questions Vol1 2017 Economics Question 5

Practice objective / multiple choice question 5 from the 2017 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2017 Economics Objective / Multiple Choice Medium Difficulty
Question 5 GCE_MODEL_QUESTIONS_VOL1 • 2017 • ECONOMICS • objective

A firm's total cost function is \(TC = 0.5Q^{3} - 3Q^{2} + 20Q + 100\) (where \(Q\) is output). The market price is constant at £30 per unit. (a) Determine the output level that maximises profit. (b) Calculate the maximum profit (or minimum loss). (c) Given that fixed costs are £100, should the firm continue producing in the short run? Explain.

Answer Options

A. Profit‑maximising output ≈ 5.3 units; maximum profit ≈ -£10 (loss); the firm should keep producing in the short run because price (£30) exceeds AVC.
Correct Answer B. Profit‑maximising output ≈ 5.3 units; maximum profit ≈ -£37 (loss); the firm should keep producing in the short run because price (£30) exceeds AVC.
C. Profit‑maximising output ≈ 6.7 units; maximum profit ≈ -£55 (loss); the firm should shut down in the short run because price (£30) is below AVC.
D. Profit‑maximising output ≈ 4.1 units; maximum profit ≈ -£20 (loss); the firm should keep producing in the short run because price (£30) exceeds AVC.
Correct Answer
B
Correct Option:
Profit‑maximising output ≈ 5.3 units; maximum profit ≈ -£37 (loss); the firm should keep producing in the short run because price (£30) exceeds AVC.

About This Question

This is Gce Model Questions Vol1 2017 Economics Question 5. It is one of the objective questions from the 2017 Gce Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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