1. A firm that is a pure competitor has P > ATC and P > MC on the output (Q) it is presently producing and selling. Is this firm maximizing its profits? If not, which direction should it change its output if it wants to maximize its total profit?
2. Is a pure competitor in short-run or long-run equilibrium if it has P=MC=ATC? Explain.
3. There is free entry in the model of pure competition. Assuming that P > ATC for a vast number of firms producing a standardized product for a given market, what will happen to market supply as the consequence? What will happen to the market price (P) of the product these firms are producing?
4. Firms in the pure competition have horizontal demand functions. (The market determines product price, so firms in this competitive market are price takers.) Do firms in this model have to lower prices if they want to sell more output? Why or why not?
1. A firm that is a pure competitor has P > ATC and P > MC on the output (Q) it is presently producing and selling. Is this firm maximizing its profits? If not, which direction should it change its output if it wants to maximize its total profit?
2. Is a pure competitor in short-run or long-run equilibrium if it has P=MC=ATC? Explain.
3. There is free entry in the model of pure competition. Assuming that P > ATC for a vast number of firms producing a standardized product for a given market, what will happen to market supply as the consequence? What will happen to the market price (P) of the product these firms are producing?
4. Firms in the pure competition have horizontal demand functions. (The market determines product price, so firms in this competitive market are price takers.) Do firms in this model have to lower prices if they want to sell more output? Why or why not?
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QUESTION 22
For a perfectly competitive firm, profit maximization (or loss minimization) occurs at the level of output at which
a. |
MR = MC. |
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b. |
MR = AVC. |
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c. |
P = ATC. |
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d. |
MR = ATC. |
4 points
QUESTION 23
If MR > MC, then
a. |
profits are being maximized. |
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b. |
the firm is producing too much of the good to be maximizing profits. |
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c. |
the firm can increase its profits (or minimize its losses) by increasing output. |
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d. |
the firm must be incurring losses. |
4 points
QUESTION 24
If firms are earning zero economic profits, they must be producing at an output level at which
a. |
price minus marginal cost. |
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b. |
total revenue equals total costs, in other words, normal profits. |
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c. |
price equals average variable cost. |
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d. |
marginal revenue equals marginal cost. |
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e. |
none of the above |
4 points
QUESTION 25
In the theory of perfect competition,
a. |
the market demand curve is horizontal. |
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b. |
the single firm faces a horizontal demand curve. |
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c. |
the single firm faces a downward-sloping demand curve. |
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d. |
the market demand curve is downward sloping. |
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e. |
b and d |