Question

QUESTION 1

1. A characteristic that distinguishes monopolistic competition from perfect competition is:

		no long-run economic profits.
		no barriers to market entry or exit.
		differentiated products.
		many buyers and sellers.

QUESTION 2

1. A firm in a perfectly competitive industry is maximizing its profits at 400 units. If the marginal revenue and marginal cost are each $35 and the firm's average total cost is $25, this firm's profit is:

		$0.
		$10.
		$4,000.
		$14,000.

QUESTION 3

1. A perfectly competitive firm shuts down in the short run when:

		economic losses occur.
		the price is below the average total cost curve.
		the price is below the average fixed cost curve.
		the price is below the average variable cost curve.

QUESTION 4

1. A perfectly competitive firm should continue to produce until:

		MC = TC.
		MC = P.
		ATC is at a minimum.
		MC is at a minimum.

Answer 1

Question 1) Differentiated products.

In a perfect competition products which are sold are identical , whereas in a Monopolist competition products are differentiated

Question 2) $ 4000.

The firm maximized profit when , MR= MC, that is at price = $ 35. It is mentioned in the question that the profit maximization output level is 400 units. The firms cost is $ 25 ( also given in question ) Therefore total profit is = Revenue - cost =( 400 * 35) - (400 * 25) = 14000 - 10000 = $ 4000

Question 3 ) the price is below the average variable cost.

A perfectly competitive firm is presumed to shutdown production and produce no output in the short run, if price is less than average variable cost.

Question 4) ATC is at its minimum.

The marginal cost curve always intersects the average total cost curve at its lowest point because the marginal cost of making the next unit of output will always affect the average total cost. As a result, so long as marginal cost is less than average total cost, average total cost will fall. Eventually, the marginal cost of producing another unit will be greater than the average total cost and then the average total cost curve will start to rise.