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1. A price-taking firmâs short-run supply curve is
a. the portion of its marginal cost curve above the average variable cost curve.
b. its average total cost curve.
c. its average variable cost curve.
d. its entire marginal cost curve. e. none of the above.
2. Which of the following is incorrect?
a. For a firm facing a downward-sloping demand curve, marginal revenue will be less than price.
b. In making output decisions, a firm should produce the output level for which marginal revenue equals marginal cost.
c. A price-taking firm will maximize profits by choosing that level of output for which price equals marginal cost.
d. The demand curve facing a price-taking firm is downward-sloping to the right.
The supply curve of a perfectly competitive firm in the short run is:
a. average total cost curve
b. demand curve above marginal revenue curve
c. same as the market supply curve
d. marginal cost curve above the average variable cost curve
(a) Explain the difference between average, total, and marginal revenue? What is the shape of the total and marginal revenue curves for the individual perfectly competitive firm? [5marks]
(b) Why does price equal marginal revenue for the perfectly competitive firm? What is the relationship to the demand curve for the firm? [5marks]
(c) Why is the level of output at which marginal revenue equals marginal cost the profitmaximizing output? [5marks]
(d) What conditions are necessary to determine if the purely competitive firm should produce in the short run? State the marginal revenue and marginal cost conditions and the total revenue and total cost conditions.