12) If a firm operating in a perfectly competitive industry maximizes short-run
ID: 1129591 • Letter: 1
Question
12) If a firm operating in a perfectly competitive industry maximizes short-run profits by producing some quantity of output q* > 0, which of the following must be true at that level of output? A) p>MC B) MR > MC C) pAVC D) All of the above E) B and C only 13) Suppose there are N firms in a perfectly competitive industry. Each firm is producing output Q using production function Q = K0.40-1060 which of the following statements must be true about the long-run competitive equilibrium? B) profit -0 C) w >r D) All of the above E) A and B only 14) Suppose that for each firm in the perfectly competitive market for potatoes, long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. The market demand function for potatoes is Q = 10.000/p. If the long-run supply curve is horizontal. then in the long run equilibrium the total expenditure by all consumers on potatoes will be and there will be firms in the industry A) $50,000, 20 B) $10,000, 20 C) $10,000, 100 D) $50,000, 100 E) None of the aboveExplanation / Answer
(12) (C)
In short run, profit is maximized when p = MR = MC. When a positive output is produced, price must be higher than or equal to the AVC, so p >= AVC when q > 0.
(13) (E)
In competitive long run equilibrium, Price = MC = AC nd each firm earns zero economic profit.
(14) (C)
In long run equilibrium, Price = AC = 0.2.
When p = 0.2,
Q = 10,000 / 0.2 = 50,000
Total expenditure = p x Q = $0.2 x 50,000 = $10,000
Number of firms = Q / 500 = 50,000 / 500 = 100
(15) (B)
A rise (fall) in demand will shift market demand curve to right (left), increasing (decreasing) both price and output.
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