13. Which of the following is not correct in the graph of a perfectly competitive firm...

13. Which of the following is not correct in the graph of a perfectly competitive firm with a profit?

Group of answer choices

Price is equal to marginal cost at the profit maximizing output.

The average total cost curve dips below the horizontal price line.

The firm’s marginal revenue and price are equal to each other.

The average total cost curve lies entirely above the horizontal price line.

14. Decreases in supply are always graphed as rightward shifts of the supply curve.

Group of answer choices

True

False

15. Assume that when a perfectly competitive firm is producing at the output where MR = MC, ATC > P. What should the firm do in the short run?

Group of answer choices

It should stay open if P > AVC.

It should definitely shut down.

It should definitely stay open.

It should shut down if P > AVC.

Solutions

Expert Solution

13.

The average total cost curve lies entirely above the horizontal price line.

Explanation :

Perfectly competitive firm maximises it's profit where MR equals MC and in perfect competition price is equals to MR. Profit =TR-TC. So ATC is below price when there is profit.

14.

False.

Explanation :

When supply increases, it shifts to the right. When supply decreases, it shifts to the left.

15.

It should stay open if P > AVC.

Explanation :

When ATC is greater than price, firm makes negative profit. Firm shutdowns when Price below AVC. So when price is above AVC, firm will stay open to minimise losses.

Rahul Sunny answered 1 year ago

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