Question

For firms in perfectly competitive markets, the market price is

	A.	constant, regardless of quantity sold.
	B.	equal to average revenue for a firm.
	C.	equal to marginal revenue for a firm.
	D.	All of the above are correct.

A firm in a perfectly competitive market will maximize its profits by producing

	A.	the highest level of output at which marginal cost equals marginal revenue.
	B.	any level of output below at which marginal cost equals marginal revenue.
	C.	any level of ourput beyond at which marginal cost equals marginal revenue.
	D.	any level of output at which price equals marginal revenue.

If the market price falls below the minimum point of the firm’s ATC curve,

		there is no level of output at which the firm can make a positive profit.
		the firm is earning profits.
		the market price must be lower than the firm’s AVC.
		Total revenue must be higher than total cost.

In the short run, the relevant costs for a firm to consider in deciding whether to shut down production are

		average total costs.
		average variable costs.
		average fixed costs.
		fixed costs.

Answer 1

Ans.1- (D)

P= AR =MR for a perfectly competitive firm.

Ans.2- (A)

Profit is maximized by produing at a point where P=MR = MC for a perfectly competitive firm.

Ans.3- (A)

Profit = (P-ATC)*Q

If P<ATC, firm will incur a loss.

Ans.4- (B)

Average variable cost are considered for shutting down decisions,

If P>AVC ,continue to operate.

If P<AVC, shut down.