Because it is small relative to the market, perfectly competitive firms face perfectly inelastic demand curves....

Because it is small relative to the market, perfectly competitive firms face perfectly inelastic demand curves.

		True
		False

If a perfectly competitive firm is incurring a short-run economic loss, it

		A. will continue to operate as long as its fixed costs are covered
		B. will go out of business
		C. will continue to operate if its variable costs are covered
		D. will shut down

In the short-run, a perfectly competitive firm determines its quantity supplied at various prices by using (hint: what is the PC firm's short-run supply curve?)

		A. the portion of its marginal cost curve that lies above its average total cost curve
		B. the portion of its marginal cost curve that lies above its average variable cost curve
		C. a flip of a coin
		D. its marginal revenue curve

In the long-run in perfect competition, no firm can earn a normal profit.

		True
		False

Expert Solution

1. False

Explanation: Perfectly competitive firms face perfectly elastic demand curves.

2. Option C. will continue to operate if its variable costs are covered

Explanation: The firm will operate as long as the price is higher than the average variable costs

3. Option B the portion of its marginal cost curve that lies above its average variable cost curve

Explanation: In perfect competition, the firm's supply curve is the segment of its marginal cost curve that lies above the minimum of the average variable cost curve.

4. False

Explanation: In perfect competition, all firms earn normal profit in the long-run.

Rahul Sunny answered 2 years ago

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