Question

1.Consider a firm that operates in a perfectly competitive market. The firm is producing at its profit maximizing output level.  If this is true, then

	a.	​marginal revenue is greater than the market price.
	b.	​price must be equal to marginal cost.
	c.	​the firm must be earning a positive economic profit.
	d.	average revenue is maximized.

2.In order to make the shut-down decision, a perfectly competitive firm compares

	a.	price with average variable cost.
	b.	price with average total cost.
	c.	price with marginal cost.
	d.	price with fixed cost.

3.In exiting decisions, a perfectly competitive firm compares the

		a.price with marginal cost.
	b.	price with average fixed cost.
c.		price with average variable cost.
d.		price with average total cost

4.Total cost = Average Total Cost x Quantity

a.True

b.False

5. A restaurant, which operates in a perfectly competitive market, is evaluating whether it should serve breakfast on a daily basis.  It would choose to do this when its revenues cover its variable costs.

a. True

b. False

Answer 1

Q1
Option b
price must be equal to marginal cost
The firm maximizes profit at MR=MC, and the MR and P are same because the firm has horizontal demand curve so the P=MC.
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Q2
Answer
Option a
Price with average variable cost.
It shut down operations if P<AVC to minimize losses like the loss after the shutdown is equal to fixed cost and before shutdown is above fixed cost because the firm can not corve its variable cost as P<AVC.
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Q3
Option d
price with average total cost
P<ATC, then the firm exits the market in the long run as the firm can not afford to be in the industry.
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Q4
true
Total cost = Average Total Cost x Quantity
as the
ATC=TC/Q
TC=ATC*Q
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Q5
True
a production decision is depend on the variable costs