Question

Question 28

1. Competitive markets are characterized by

   
   

   	a.	the interdependence of firms.
   	b.	a small number of buyers and sellers.
   	c.	free entry and exit by firms.
   	d.	unique products.

Question 29

1. A firm that shuts down temporarily has to pay

   
   

   	a.	both its variable costs and its fixed costs.
   	b.	its variable costs but not its fixed costs.
   	c.	its fixed costs but not its variable costs.
   	d.	neither its variable costs nor its fixed costs.

Question 30

1. A profit-maximizing firm will shut down in the short run when

   
   

   	a.	average revenue is greater than average fixed cost.
   	b.	price is less than average total cost.
   	c.	average revenue is greater than marginal cost.
   	d.	price is less than average variable cost.

Answer 1

28
Option c
free entry and exit by firms
A perfectly competitive market has free entry and exit by firms, many firms, identical product, perfect information, price taker, etc.
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29
Option c
its fixed costs but not its variable costs
A firm shut down then the fixed costs are the same because fixed costs are the same at all(zero) level output.
Variable cost is the cost of production, and after shutdown, there is no production, so the variable cost is zero.
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30
Option d
price is less than average variable cost.
A firm shut down to minimize losses in the short run because it can not cover its variable costs.