Question

1)If a perfectly competitive firm is producing a quantity where P < MC, then profit:

Group of answer choices

a)can be increased by increasing production.

b)is maximized.

c)can be increased by decreasing the price.

d)can be increased by decreasing production.

2)Which of the following accurately explains why firms in perfectly competitive markets are price takers?

Group of answer choices

a)prices in perfectly competitive markets are set by government regulation.

b)prices in perfectly competitive markets are determined by the costs of production, which firms cannot control.

c)consumers in markets for perfectly competitive goods determine the price that firms must take based on their individual demands.

d)the pressure of competition forces all firms to accept the prevailing equilibrium price in the market.

3)In the case of Snack Corp, when the price they sell their product at is _______ average cost of production, profits are ______ due to ________ average profit.

Group of answer choices

a)below; negative; positive

b)below; negative; negative

c)below; positive; positive

d)above; negative; negative

4)A firms supply curve is equal to _________________ above the minimum point on the ________________curve.

Group of answer choices

a)marginal cost; average variable cost

b)marginal revenue; average total cost

c)average variable cost, average total cost

d)average total cost, marginal cost

5)In a perfectly competitive market in long-run equilibrium, a decrease in demand creates economic ________ in the short run and _________________ in the long run.

a)Group of answer choices

b)losses, induces entry

c)losses, forces some firms to exit

d)profits, induces entry

profits, forces some firms to exit

Answer 1

1)If a perfectly competitive firm is producing a quantity where P < MC, then profit:

d)can be increased by decreasing production.

Reason: When P < MC, then it means at the current output level the cost of producing an additional unit exceeds the price, which leads to losses for the firm. In order to increase profits, output must be reduced.

2)Which of the following accurately explains why firms in perfectly competitive markets are price takers?

d)the pressure of competition forces all firms to accept the prevailing equilibrium price in the market.

Reason: Firms in perfectly competitive markets are price takers. Price is set by market forces of demand and supply and the high degree of competition forces firms to accept the market price as their own

3)In the case of Snack Corp, when the price they sell their product at is _______ average cost of production, profits are ______ due to ________ average profit.

b)below; negative; negative

Reason: When P < AC, profits are negative and so are average profits (since profit = (P-AC)Q))

4)A firms supply curve is equal to _________________ above the minimum point on the ________________curve.

a)marginal cost; average total cost

Reason: A typical firm’s supply curve is represented as that part of MC curve which lies above the point of intersection of MC and ATC curves

5)In a perfectly competitive market in long-run equilibrium, a decrease in demand creates economic ________ in the short run and _________________ in the long run.

c)losses, forces some firms to exit

Reason: When demand falls, price falls, leading to losses for the firms in the market. This forces some firms to exit the industry in the long run