Consider a perfectly competitive firm in the short run. Assume that it is sustaining economic losses...

Consider a perfectly competitive firm in the short run. Assume that it is sustaining economic losses but continues to produce. At the profit-maximizing (loss-minimizing) output, all of these statements are true EXCEPT:

A. Marginal cost is less than average total cost

B. Marginal cost is less than average variable cost

C. Price is equal to marginal cost

D. Marginal cost is equal to marginal revenue

Solutions

Expert Solution

Option (B).

For a perfectly competitive firm, price equals MR, and profit is maximized (or loss is minimized) when Price = MR = MC. A firm will incur loss if Price (MC) < ATC, but will continue to operate in short run if Price (MC) > AVC.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

A perfectly competitive firm is making losses in the short-run. Will the market price rise or...

A perfectly competitive firm is making losses in the short-run. Will the market price rise or fall in the long-run? Explain your answer.

Question 19 In a perfectly competitive market, a firm may have losses in the short run....

Question 19 In a perfectly competitive market, a firm may have losses in the short run. Suppose the firm’s total costs are $1,000 and fixed costs are $200 when outputs are 100. The market-determined price of the good is $9 per unit. Which of the following statement is true? a. The price is less than the average variable cost b. The firm should shut down business c. The firm should continue doing business d. The price is less than average...

1. a. Consider a perfectly competitive firm in the short run. On a diagram, draw the...

1. a. Consider a perfectly competitive firm in the short run. On a diagram, draw the firm's average cost, average variable cost, and marginal cost curves. Briefly discuss the relationship among these curves. b. On your diagram, show how the profit maximizing level of output is determined for this firm, given a market price. Show the firm making a positive profit. c. On your diagram, show total revenue, total cost and profits associated with the production level from part b....

The short-run supply curve for a firm in a perfectly competitive industry is: The short-run marginal...

The short-run supply curve for a firm in a perfectly competitive industry is: The short-run marginal cost curve that is above minimum average variable cost (which takes into account the fact that the firm should shut down if price falls below average variable cost). The entire average variable cost. The entire short-run marginal cost curve. The entire average total cost curve. Which of the following statements is true regarding short-run and long-run costs? (Assume all cost curves have typical shapes,...

Consider a perfectly competitive market that is currently in a short-run equilibrium, and where each firm...

Consider a perfectly competitive market that is currently in a short-run equilibrium, and where each firm in the market is making strictly positive profits. Each firm in the market is using a technology called the type A technology. Suppose that the type A technology is available in some finite number. Passed some threshold, new firms that would enter the market would have to use the type B technology, a different (and inferior) technology. The type B technology results in a...

The following table shows the short-run cost data of a perfectly competitive firm. Assume that output...

The following table shows the short-run cost data of a perfectly competitive firm. Assume that output can only be increased in batches of 100 units. Quantity Total Cost (dollars) Variable Cost (dollars) 0 $1000 $0 100 1360 360 200 1560 560 300 1960 960 400 2760 1760 500 4000 3000 600 5800 4800 a. Explain how a firm chooses quantity to maximise profit in a competitive market. b. What is the firm’s fixed cost? (1 mark) c. Suppose...

Consider a firm that operates in the perfectly competitive salmon farming industry. The short-run total cost...

Consider a firm that operates in the perfectly competitive salmon farming industry. The short-run total cost curve is TC(Q)=250+3Q+Q2 , where Q is the number of salmon harvested per month. What is the equation for the average variable cost (AVC)? Solve for the firm's operation condition, MC≥AVC. Assuming MC≥AVC, what is the firm's short-run supply curve? Find the supply function, NOT the inverse supply function. In light of the answer in part 2, What is the minimum price at which...

In the short run, a perfectly competitive firm will shut down and produce nothing if: a....

In the short run, a perfectly competitive firm will shut down and produce nothing if: a. economic profits equal zero. b. total cost exceeds total revenue. c. total variable cost exceeds total revenue. d. the market price falls below the minimum average total cost.

Assume a firm in a monopolistically competitive industry is currently making a short run positive economic profit.

Assume a firm in a monopolistically competitive industry is currently making a short run positive economic profit. Describe what is likely to happen to this firm's profit in the long run. What role does elasticity play in this story?

2. (a) “The short-run equilibrium of a perfectly competitive firm is similar to its long-run equilibrium”....

2. (a) “The short-run equilibrium of a perfectly competitive firm is similar to its long-run equilibrium”. Do you agree? Explain your answer (b) Monopolists have adverse effects on the consumer society and should be eliminated”. Discuss. (1200 words)

Subjects