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1 (a)Why the competitive firm faces a relatively horizontal demand curve.(

(b) The profit maximization rule for a perfectly competitive firm states that the perfectly competitive firm will maximize its profits when it produces that quantity where marginal revenue equals marginal cost for the last unit produced and sold. In your own words explain why the firm is better off producing that quantity where MR = MC rather than that quantity where

MR > MC or that quantity where MR < MC.                                            

(c)Should a firm shut down and why if its revenue is R=$1, 000.                       

  1. Its variable cost VC=$500 and its sunk fixed cost is F= $600.
  2. Its variable cost VC=$1, 500 and its sunk fixed cost is F= $500.

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