Question

1.) The competitive firm's demand curve is

a.) unit elastic over the relevant range of output.

b.) perfectly elastic over the relevant range of output

c.) perfectly inelastic over the relevant range of output

d.) elastic above the market price and inelastic below the market price

.

2.) If you were operating a fast-food restaurant, which of the following would represent a fixed cost of production in the short run?

a.) an annual business license fee paid to the local government

b.) wages paid to workers

c.) the cost of electricity to light the restaurant

d.) the cost of paper supplies (napkins, bags, etc.

.

3.) If MR > MC, then

a.) profits will be at their maximum.

b.) the firm is producing too much of the good to be maximizing profits

c.) the firm can increase its profits or minimize its losses by increasing output.

d.) the firm is necessarily incurring losses

Answer 1

1) it can be mentioned that for a perfectly competitive firm the demand curve is perfectly horizontal which means whatever the quantity maybe there would be no change in price as a result of which it is elastic in nature

(b) is the answer to this question

2) wages, electricity and paper supplies would directly depend on the amount of sales you have done and these represent the variable cost while the annual licence fee is fixed at independent of the amount of sales and therefore it is a fixed cost and therefore

(a) is the answer

3) is the marginal revenue is greater than the marginal cost, increasing output can decrease the marginal revenue and increase the marginal cost because marginal revenue is a decreasing function with marginal cost is increasing function so thatthey would come closer and meet at a point as a result of which the profit maximization condition can be established and therefore

(c) is the answer to this question