Question

MicroEcon 7&8

22.	The demand curve for an individual perfectly competitive firm:
	A)	is a downward sloping demand curve.
	B)	is perfectly elastic.
	C)	is perfectly inelastic.
	D)	is equal to the firms average variable cost curve.

23.	In a perfectly competitive market, individual firms set:
	A)	prices and quantities.
	B)	neither prices nor quantities.
	C)	quantities but not prices.
	D)	prices but not quantities.

		24.			Which industry best illustrates a perfectly competitive market?
					A)		automobile industry
					B)		soft drink industry
					C)		public utility
		25.			Profit maximizing firms will always operate where:
					A)		MC = MR.
					B)		MC > MR.
					C)		MC < MR.
					D)		It will vary from firm to firm.
26.			When a firm experiences economies of scale:
A)			average costs fall as output rises.
B)			average costs remain constant as output rises.
C)			average costs rise as output falls.
D)			average costs increase as output increases.

Answer 1

22) B). This is because price is set by the market demand and supply and each firm faces the same price for any unit sold. So demand curve is fixed at the market price.

23) C). This is because price is set by the market demand and supply and each firm just compares this price with its marginal cost and decides to produce a quantity at which P = MC

24) None of the three options. It is actually a stock market or a wheat market or more generally agricultural market because of the presence of large number of buyers and sellers and the sale of identical products

25) A). This is because when MR > MC profits can be increased and when MR < MC losses can be reduced. only at MR = MC profits are maximum, or losses are minimum

26) A). Average cost falls because increased production brings in specialization and this uses lower and lower resources to produce output. Other advantages such as bulk purchases, volume discounts are attained which reduces per unit cost