Question

1, Which of the following is characteristic of a perfect competitive seller's demand curve?

A, Price and marginal revenue are equal at all levels of output.

B, marginal revenue is less than price.

C, The price elasticity |E| is always 1.

D, It is the same as the market demand curve.

2,A perfect competitive firm will always make an economic profit if:

A, P = AC.

B, P > AVC.

C, P = MC.

D, P > AC.

3, If a firm is confronted with economic losses in the short run, it will decide whether or not to produce (or shutdown) by comparing:

A, marginal revenue and marginal cost.

B, price and average variable cost.

C, total revenue and total cost.

D, total revenue and total fixed cost.

4, A firm finds that at its MR = MC output, its TC = $5000, VC = $4000 and total revenue is $2000. In the short run, this firm should:

A, shut down and lose $0

B, produce and lose $3000

C, produce and earn $3000 profits

D, shutdown and lose $1000

E, produce and lose $1000

5, In the short run a perfectly competitive seller will shut down if:

A, it cannot produce at an economic profit.

B, price is less than average variable cost.

C, price is less than average fixed cost.

D, price is less than average cost.

Answer 1

Q1) option A)

In perfect Competition, P = MR = MC

& It's a perfectly elastic curve , a horizontal line at the given level of price

2) option D)

Profit is = (P-AC)*Q

So positive profit if, P > AC

3) option B)

in Short Run, losses are made & Firm shut down if,

P < AVC

4) option. E)

π = TR - TC

=2000-5000

= -3000

So not even all variable costs are covered,

So firm should shut down ,

& It will lose Fixed cost = 1000

( TC = FC + VC )

5) option B)

Shut down price is when P < AVC

Bcoz then even all variable costs aren't covered at atll