Question

“In a perfectly competitive market, firms always operate at the lowest per-unit cost.” Is the preceding statement true or false? Explain your answer.

For a perfectly competitive firm, profit maximization does not conflict with resource allocative efficiency. Do you agree? Explain your answer.

The perfectly competitive firm does not increase its quantity of output without limit, even thought it can sell all it wants at the going price. Why not?

Why is the marginal revenue curve for a perfectly competitive firm the same as its demand curve?

Complete the following cost schedule:

Quantity 0 1 2 3 4 5 6 7

Total Cost $9 $12 $16 $21 $30 $40 $52 $66

ATC

MC

Assuming a price of this product is $10, at what output rate is

a. Total revenue maximized?

b. ATC minimized?

c. Profit per unit maximized?

d. Total profit maximized?

Answer 1

The perfect competition firms operate in at minimum average cost in long run ,when they earn zero economic profit. So statement is wrong as it says always but it only applies in long run.

Allocative efficiency condition: P=MC

Because perfect competition firm is price takers so MR is equal to price . So Profit Maximizing quantity at MR=MC or P=MR=MC

Because of increasing marginal cost of Production, firm doesn't Increase Production limit even it can sell as much it want at market price.

Because perfect competition firm is pricr taker. So it means by selling additional unit it generate revenue Equal to price ,so p=MR . So price curve or demand curve is same as marginal curve.

A) total revenue is Maximizing at Q=7 and TR=7*10=70

b) AC is Minimum at Q=3( AC=7)

C) At minimum average point ,Q=3( per unit Profit=(10-7)=3

D) Profit Maximizing at P=MC

Q=5, where MC=P=10