Question

The demand curve facing a perfectly competitive firm is:

a) the same as the market demand curve

b) downward-sloping and less flat than the market demand curve

c) downward-sloping and more flat than the market demand curve

d) perfectly horizontal

e) perfectly vertical

The supply curve for a competitive firm is:

a) its entire MC curve

b) the upward-sloping portion of its MC curve

c) its MC curve above the minimum point of the AVC curve

d) its MC curve above the minimum point of the ATC curve

e) its MR curve

In the short-run, a perfectly competitive firm earning a negative economic profit

a) is on the downward-sloping portion of its AVC

b) is at the minimum of its AVC

c) is on the upward-sloping portion of its AVC

d) is not operating on its AVC

e) can be at any point on its AVC

Answer 1

Ans.1- (D)

The demand curve for a perfectly competitive firm is perfectly horizontal at the market price because a perfectly competitive firm doesn't have any market power and therefore it has to accept the market price.

Ans.2- (C)

The supply curve for a perfectly competitive firm is the positively sloped portion above the minimum point of AVC. This is because a perfectly competitive firm never operated below the minimum point of AVC.

Ans.3- (C)

A perfectly competitive firm always operates at the upward sloping portion of AVC . Profit may be negative there because Price may be lower than ATC.