Question

1)TRUE OR FALSE

a)For a firm in a competitive market,marginal revenue is always equal to average revenue

b)The assumption of free entry and exit is necessary for firms in a competitive market to be price takers

c)A profit-maximizing firm in a competitive will increase production when average revenue exceeds marginal cost

d)In marketing a short-run profit -maximizing production decision , the firm must consider both fixed and variable cost

e)A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run

f)A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production

g)the supply curve of a firm in a competitive market is the average variable cost curve,above the minimum of marginal cost

h)A firm in a competitive market will maximize profit when the level of production is such that marginal cost equal price

Answer 1

(a) True

In perfect competition, Price = AR = MR

(b) True

Free entry and exit ensures that no firm gets large enough to influence market price.

(c) True

When AR > MC, there is a marginal profit which can be increased by increasing output.

(d) False

In short run, P = MC and fixed cost does not influence MC.

(e) False

In long run firm earns zero economic profit.

(f) True

Firm shuts down in short run if P < AVC.

(g) False

Short run firm supply curve is the portion of MC lying above minimum point of AVC.

(h) True

In competitive equilibrium, P = AR = MR = MC.