Question

____    16.       In a perfectly competitive market, the typical firm cannot affect the price of the output that it sells, and so the firm maximizes its profits or minimizes any losses (assuming that P > AVC and the firm produces at all) by producing that level of output where:

                        a.         MC < P.                                                                      c.         MC = P.

                        b.         MC > P.                                                                      d.        P>MC = AVC.

____    17.       If the price faced by a competitive firm is less than its average total cost but greater than its average variable cost when it produces a particular level of output, the firm:

                        a.         is making a positive profit and should continue to produce.

                        b.         is incurring a loss in the short run, but it should continue to produce in order to minimize its loss.

                        c.         is breaking even, and so it should continue to produce a positive level of output.

                        d.         is incurring a loss and should shut down its plant immediately in order to minimize its loss.

____    18.       When a firm in perfect competition is maximizing its profits and produces that level of output where price, marginal revenue, marginal cost, average total cost, long-run marginal cost, and long-run average total cost are all equal, the firm:

                        a.         earns an economic profit, and this is greater than the return required to keep the firm in business.

                        b.         earns an economic profit that can be continued in the long run.

                        c.         is in a long-run equilibrium and is just breaking even.

                        d.         incurs a loss and will shut down in the long run.

Answer 1

(16) In a perfectly competitive market, the typical firm cannot affect the price of the output that it sells, and so the firm maximizes its profits or minimizes any losses (assuming that P > AVC and the firm produces at all) by producing that level of output where MC = P

Answer: Option (C)

(17)  If the price faced by a competitive firm is less than its average total cost but greater than its average variable cost when it produces a particular level of output, the firm is incurring a loss in the short run, but it should continue to produce in order to minimize its loss.

Answer: Option (B).

(18) When a firm in perfect competition is maximizing its profits and produces that level of output where price, marginal revenue, marginal cost, average total cost, long-run marginal cost, and long-run average total cost are all equal, the firm is in long-run equilibrium and is just breaking even.

Answer: Option (C)