Question

 

1. Firms operating in a perfectly competitive market have an incentive to advertise their products since this will increase the demand for their products. False

2. The manager of a firm operating in a competitive market can ignore sunk costs when making business decisions. True

3. In a long-run equilibrium where firms have identical costs, it is possible that some firms in a competitive market are making a positive economic profit. True

4. The supply curve of a firm in a competitive market is the average variable cost curve above the minimum of marginal cost. False

5. When economic profits are zero in equilibrium, the firm's revenue must be sufficient to cover all opportunity costs. True

6. When a resource used in the production of a good sold in a competitive market is available in only limited quantities, the long-run supply curve is likely to be upward sloping. True

 

Answer 1

1) as the product is homogenous, all the sellers sell the same product, so advertising does not affect your demand as nothing is different in the product you sell so it only incurs cost not the demand.

2) sunk cost refers to that cost that cannot be recovered or changed, and it is independent of future costs of a business that will occur. since the decision- making only affects future course of business and for this sunk cost is irrelevant.

3) because A profit-maximizing firm in a perfectly competitive characterised by firm with identical cost is genrally said that it operates in efficent scale

4)The supply curve of a firm in a perfectly competitive market is the Marginal cost curve(MPC), above the average total cost(ATC)

5)Because all costs are opportunity costs

6)The long-run supply curve in a competitive market has three parts Downward sloping, parallel to the x-axis and upward sloping

so upward sloping because when there is an economic profit in perfect competition then they enter into the market, as more and more firms enter into the market, production yields less and less return than the number of goods that go into product, which causes the market to enter into a period of decreasing returns to scale(DRS) and the market’s supply curve is upward sloping.